Cochin Shipyard (CSL), a public sector enterprise, is one of the most stable companies in the Indian shipbuilding and ship repair sector. Over the years, the company has emerged as a premier player in the Indian shipbuilding segment with expertise in design, engineering and project implementation. CSL is also a market leader in the Indian ship repair segment with a market share of ~39% and has undertaken repairs of most complex ships of the country.
As on FY17, shipbuilding constitutes 74% of the topline while ship repair comprises the remaining 26%. We believe CSL’s strong order book, core competency in both shipbuilding & ship repair, debt-free status, best-in-class working capital cycle, reliability in execution and being a natural beneficiary of large & critical government projects place it in a sweet spot.
CSL is consciously improving its business mix by increasing the share of ship-repairs orders (2x profitable than shipbuilding business) in its order book.
Better business mix coupled with strong bidding pipeline of over Rs 11,900 crore augur well for the company. Currently, CSL has a healthy order book of Rs 2,856 crore plus L1 status of `5,400 crore. It is also likely to receive order for phase III of IAC, which is likely to be ~`10,900 crore.
We believe these orders give strong revenue visibility to CSL till FY23. Even during turbulent times in the global shipbuilding history, it has delivered topline, bottomline growth of 11.1%, 18.7% CAGR, respectively, in FY07-17.
CSL has a strong balance sheet with debt of Rs 123 crore and cash of Rs 1,600 crore. With capex of `2,800 crore over the next three years (FY18-21E) and superior return profile (average RoEs, RoCEs of 15.5%, 16.5%, respectively, in FY12-17), we believe CSL is a quality play.
CSL enjoys strong competitive advantage due to its large dry dock capacity. This leads to large defence vessels like aircraft carriers coming only to CSL for its repairs/refits. CSL is also building a new larger size shipbuilding and ship repair facility at a cost of `2,768 crore. This new capacity is likely to enable the company to build larger ships and repair more vessels.