Garden Reach Shipbuilders’ IPO for Rs 345 crore opens today: 5 key things to know

By: | Published: September 24, 2018 11:24 AM

State-run shipbuilding company Garden Reach Shipbuilders has come out with it’s public offer, wherein the government looks to raise up to Rs 345 crore. We take a closer look.

Garden Reach Shipbuilders’ IPO has its price band set between Rs 115-118.

State-run shipbuilding company Garden Reach Shipbuilders has come out with it’s public offer, wherein the government looks to raise up to Rs 345 crore. Notably, this is the third IPO from government in current financial year 2018-19 after IRCON International and RITES.

In its latest public offer, Garden Reach Shipbuilders has 2.9 crore equity shares on offer. Even as investors may be mulling whether to subscribe to Garden Reach Shipbuilders IPO, we take a look at key details, and what brokerages have to say about the issue.

IPO details

Garden Reach Shipbuilders’ IPO has its price band set between Rs 115-118. The issue, which opens for subscription today, i.e, 24th September, will remain open till 26th September. The offer includes a reservation of up to 5,72,760 equity shares for subscription by eligible employees. The offer will constitute 25.50% of the post offer paid-up equity share capital. GRSE is offering a Rs 5 discount to retail investors and employees on final offer price. For Garden Reach Shipbuilders IPO, bids can be made in lots 120 shares, and in multiples of 120 shares thereafter.

Objects of the issue

As it’s a complete offer for sale, Garden Reach Shipbuilders will not receive any proceeds from the offer. According to the company’s prospectus the objects of this offer are to carry out the disinvestment of 2,92,10,760 equity shares by the selling shareholder; and to achieve the benefits of listing the equity shares on the stock exchanges.

Strengths

According to a report by HEM Securities, the strengths of Garden Reach Shipbuilders include a strong order book; strong and established relationships with Indian Navy and Indian Coast Guard and modern manufacturing platform and integrated shipbuilding facilities to deliver quality products. Notably, Garden Reach Shipbuilders’ aggregate order book as of July 2018 was Rs 20,313.61 crore, comprising gross order value in the shipbuilding segment, engineering segment and the engine segment of Rs 20,029.42 crore, Rs 85.17 crore and Rs 199.02 crore, respectively.

Key risks

As Garden Reach is under the administrative control of the MoD, it primarily adheres to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. According to HEM Securities, a decline or reprioritisation of funding in the Indian defense budget or any reduction or unavailability of funds to its customers, Indian Navy and Indian Coast Guard or delays in the budget process could have an adverse impact on the funding of these contracts and award of new contracts for Garden Reach Shipbuilders.

Valuations

Many brokerages have advised investors to avoid Garden Reach Shipbuilders IPO, citing weak prospects and financial performance. “The company is bringing the issue at p/e multiple of approx. 14 on FY18 eps at price band of Rs 115-118/share. Although, company is one of India’s leading public sector shipyards catering to the defence sector but due to weak financial performance (Loss at operating level in FY17 & FY18),co is not looking attractive to deploy the funds in at present level. Hence, we recommend “Avoid” on issue,” HEM Securities said in a note.

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