Garden Reach Closes 12.5% Below IPO Price On Market Debut

Garden Reach Shipbuilders and Engineers Ltd. closed at a discount of 12.5 percent at Rs 103.30 apiece, compared to its issue price of Rs 118, on the National Stock Exchange.

The shipbuilding company's initial public offer subscribed 1.02 times on the final day. It had extended the closing date of the issue due to a lukewarm response as well as revised the price band from Rs 115-118 to Rs 114-118 apiece.

Garden Reach is under the administrative control of the Ministry of Defence and caters to the requirements of Indian Navy and Indian Coast Guard. The company has three shipbuilding facilities in Kolkata, from which it generates over 90 percent of its revenue.

Business

Garden Reach had an order book of over Rs 20,000 crore as of July 31, providing a revenue visibility of more than 15 years. There's a threat to its profitability—given that most of its contracts are fixed price—due to cost-overruns, delays in delivery or failure to meet contract specifications.

The company has also been declared the lowest bidder for:

• Four survey vessels
• Eight anti-submarine warfare shallow watercraft
• One ocean-going passenger vessel
• One cargo ferry vessel.
• These orders aren't included in the company's order book.

“The company plans to foray into ship repairs and export and is in advanced stages of discussion to finalise new projects,” its Chairman and Managing Director Vipin Kumar Saxena told BloombergQuint in an interaction. “We have opened a department, a division itself, for ship repairs and refits for navy and coast guard and we are going to pitch in strongly on that because it provides good margin and faster revenue generation.”

Financial Highlights

As on March 31, the company's net worth was a little over Rs 1,000 crore, translating to a book value of Rs 89 a share. Its cash balance stood at Rs 1,022 crore.

Garden Reach's revenue and net profit declined at an annualised rate of 2.5 percent and 8 percent, respectively, through financial years 2013 and 2018. The revenue declined mainly due to a slowdown in order execution.

Valuations

Garden Reach's earnings per share for the year ended March 2018 was Rs 7.6. Its price-to-earnings ratio, according to BloombergQuint's calculations, is 15.6 at the upper end of the price band.