India’s Largest State-Run Shipbuilder Files For IPO

Cochin Shipyard Ltd. has filed for an initial public offering that will make it India's first state-run shipbuilder to go public after the government approved a stake sale of up to 25 percent.

The company, which built India's first indigenous aircraft carrier, the INS Vikrant, is looking to raise funds to set up new construction and repair facilities.

Cochin Shipyard, which largely relies on defence orders, saw its profits grow even as its private peers felt the pinch of a global slump triggered by falling oil prices and uncertainty about the demand for commodities like coal and iron ore from China.

The Offer

The issue will comprise of a total 3.3 crore shares, including a fresh issue of 2.26 crore shares and an offer for sale of 1.13 crore shares by the government, according to its draft red herring prospectus filed with market regulator Securities Exchange Board of India.

The fresh issue constitutes 16.67 percent of the post-issue capital, while the offer for sale by the government constitutes 8.33 percent.

SBI Capital Markets, Edelweiss Financial Services, JM Financial are managing the issue.

India's largest public sector shipyard builds and repairs tankers, product carriers, bulk carriers, passenger and defence vessels. Nearly three-fourths of the company's clients are engaged in the defence sector, while less than one-third are from the commercial sector.

Cochin Shipyard has been profitable for the last five financial years. The company posted a profit after tax of Rs 285.8 crore in financial year 2015-16, at a compounded annual growth rate of 16.47 percent. For the first six months of FY17, it reported a profit of Rs 184.5 crore.

Large South Korean shipbuilders like Hyundai Heavy Industries Co. and Daewoo Shipbuilding and Marine Engineering Co. always bid aggressively for overseas oil rigs and energy platforms to fill order books to avoid direct competition with Chinese shipbuilders. The fall in oil prices led to cancelled orders for drill ships and offshore facilities, leading to a recession in the shipbuilding industry.

This hurt shipbuilders in India too, especially the private companies, due to excess supply and weak global trade, the draft prospectus said citing a CRISIL report.

Public sector companies were not hit that hard since their order book comprised up to 25 percent of exports compared to 53 percent for private peers in financial year 2014-15.

Private shipbuilder ABG Shipyards Ltd.'s operations have been shut for almost two years, weighed down by debt. Its auditors recently expressed doubts over the company's survival.

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