I did not value it at 5PE. It is the existing market price. If you remove cash held, it will be 2PE. That’s why I was wondering whether to buy.
I already bought coal India thinking like this only and it fell further!! Hence not having a lot of confidence on this type of valuation method and whether there are some unknown problems to the business which market has factored in and I am not aware. Till now looks like there is no such thing that anybody here knows. So might buy soon.
Agree and to my mind this must be one of the rare case of undervaluation if we consider track record based on results since IPO. And no visible howlers from Management too. Only “blemish” - PSU. Disclosure - Invested and hence biased.
Yes. It is 9.1% sales growth from 1420 Cr in FY10 to 3392 Cr in FY20 and PAT has increased from 233 Cr in FY10 to 596 Cr in FY20 which is 9.85% but Nifty is 6%. How do you claim it is poor ?
Let us not compare apple to orange. we are discussing about CSL with reasonable growth rate and cash flow. ONGC, BHEL, SAIL,etc., do not fall in this category. It is not that all PSUs are wealth destructors and all MNCs are wealth creators. Even Gillette has grown at this rate only but only a speculative overvaluation has lead to higher returns which will get corrected in the next decade.
Why don’t we consider BPCL which has given steller performance ?
Also it is the valuation at which we buy determines our returns and not just growth rate.
Why is market giving such low valuation to psu at present?
This is the question I will try to answer. Remember it is the market giving low valuation not me. Sentiment can change anytime (market and mine ).
In psu the majority shareholder and the customer is the same. This will lead to conflict of interest. The government will take the benefit and minority shareholder will suffer. Let me explain by taking the example of BPCL which @sambandham82 wants to discuss.
Global petroleum prices have declined recently. BPCL and other oil marketing companies did not pass the benefit to customers due to reduced demand. Government increased duty on petrol and diesel and did not allow the company to increase retail price. There will be strain on margins and the stock corrected accordingly. It was the minority shareholders who suffered in the deal.
With regards to growth rate, what is high and low is subjective. What you consider high maybe low for me. Screener.in states “The company has delivered a poor growth of 10.50% over past five years”. I based my assumptions on this.
I am not against inveting investing in psu. They have given good returns in the past and can give good returns again. Why they are trading at low multiples at present and is what I was trying to explain.
Major reason is piecemeal disinvestment…frequent supply through cpse etf…etf constituents NTPC,BEL,COAL IND,NBCC etc suffered more compare to say HAL,RITES,GRSE etc…but FM/PMO thinks otherwise…infact FM congratulated officials for successfully raising 10000Cr through latest ETF…Kuchh nahi ho sakta…
I am surprised. No one has paid attention to this crucial fact.
Guys. It is situated in Cochin, Kerala. It is plagued by (1) worst of communist ideology and (2) highly militant leftist labour unions. They rule port and other industries located there. This is a man power intensive industry. In this case, you can’t relocate the plant to some other place like Tatas have done when they faced problem at Singur. What more is required? What discount do you expect for this company?
Communism has been there for the entire duration of this company’s history. Still the company has done ok. What is going to happen in the next 5 yrs which didn’t happen in the last 48 yrs of this company’s operations. Also, they are diversifying into other areas.
Discl:
Invested today. Forms 4% of my portfolio.
In wake up of today announcement on disinvestment of public sector enterprises what will be the decision on cochin shipyard? How stock will react on 18th may?
But isn’t this a “strategic sector”?
Looking at the cash, market cap and div yield it looks very attractive
P/E 5.01
P/B 0.82
Dividend Yield 5.77%
Definitely Cheap. But there are few overhangs here that needs to be considered.
Capex in Planned between FY19 - FY22. So expect sub dued profits / dividend in coming years.
Capex for FY19 - 462 Crores
Capex for FY20 - 620 Crores
Capex FY21 - 600 Crores
We all know how government project budgets can go up. Also 750 crores for another project.
Revenue / Net profit can drop because of government budget being allocated to other places because of Covid.
Still a very interesting play at these prices. Bullsh long term.
Disclosure: Invested
Company update
If we take long term into account, prospects do look good.
CSL has been generating most of the business from Govt. orders, going in future, orderbook is definitely going to swell and company is expanding considering that.
Just imagine, major big economies and so-called super powers of the world have large Navy
India, as a nation, can’t ignore this aspect of national security.
Moreover, I also expect that there can be Technology Transfers which will aid CSL in long term.
Cons - HAL also falls in same category and it has not performed up to the mark. But, CSL has decent past record and it focusing on repair business for steady cash-flows.
Thanks to this thread, I started looking into the Indian shipbuilding industry a week back. Below is my summary. Hope it helps others in this forum. Caveat: I have no experience/contacts in this industry. Below is a summary of the various ARs/Research Reports. Links to these is given at the end)
The shipbuilding industry consists of both new ship construction and ship repairs. Within each segment, companies are involved in both defence and commercial.
Commercial shipbuilding consists of cargo ships, tankers, fishing boats, passenger ships etc. Commercial shipbuilding is a cyclical industry and is currently witnessing a slowdown. Maritime trade witnessed a drop in FY18. As a result, the global commercial fleet has grown by only 3% in FY2019. China, South Korea and Japan have been involved in a fierce competition and own 95% of the order book. Europe has only 1.6% share of the remaining. (source)
Defence shipbuilding too has witnessed a slowdown due to cutback in military spending. It is expected to pick up due to replacement of older ships. More importantly, defence is not cyclical and is a counterbalance to the cyclicality of Commercial Shipping.
In India, the Indian Navy has 140 ships and the Indian Coast Guard has 120 vessels. Both are expected to grow to 200 each. The government will placing orders for 165 ships by 2022. The estimated capital budget for up to 2027 amounts to ₹4.5 Lakh Crores - submarines (₹2.2 Lakh crore approx.), destroyers / frigates (₹90,000 crore approx.), aircraft carriers (₹45,000 crore approx.), corvettes, landing platform etc.
Defence projects have always been awarded on a nomination basis to the Defence PSUs (DPSUs) with a fixed margin - MoD has set it at 7.5% (source). However, the Government is now moving to a RFP based competitive bidding process, leading to better margins for DPSUs and opportunities for private players. Additionally, the government has provided for a Right of First Refusal (RoFR), which will provide priority to bidders building the vessels in India.
Ship repair and maintenance services market is estimated to reach $40 billion by 2028. Though India’s share in global ship repair is less than 1%, the country’s location is favourable with 7-9% of the global trade passing within 300 NM of the coastline.
The new environmental regulations, such as Ballast Water Treatment Convention (BWTC), the Energy Efficiency Design Index (EEDI), Emission Control Areas (ECAs) and the 2020 Sulphur Cap, are expected to impact the ship repair market as well.
India has a market potential of ₹2,600 crores from repair of domestic fleet out of which only 15% share is currently captured. Further India can grow its ship repair industry to ₹9,000 crores in the next 10 years through infrastructure and process improvement
As per the Maritime Agenda 2010-2020 issued by Ministry of Shipping, the following targets are set for ship repair industry:
One of the major initiatives under the Sagarmala project was to lease out the ship repair facilities available at the major ports to specialists to generate more revenue and create a positive ship repair industrial climate.
A comparison of the capabilities of the various Indian shipbuilding companies is shown below (source)
| Defence | Commercial | Others | |
|---|---|---|---|
| Mazagoan Dock | Destroyer Submarines Frigate Corvette |
Anchor Handling Water Tanker Dredger |
Floating Cranes Pontoons |
| Cochin Shipyard | Fast Patrol Vessels Corvette (ASW) |
Platform Supply Vessels Anchor Handling |
Ship Repairs |
| Garden Reach | Frigate Corvette (ASW, Missile) Fast Patrol Vessels Landing Craft Utility Landing Ship Tank Survey Vessels |
Portable bridges Deck machinery Engine test and overhaul |
|
| Goa Shipyard | Frigates Landing Craft Utility Patrol Vessels Survey Vessels Interceptor Boats Mine Sweepers |
Ship Repairs | |
| Hindustan Shipyard | Submarines Patrol Vessels |
Tugs | Pontoons Ship Repairs Submarine Retrofit |
| L&T and RNEL | Landing Platform Dock Patrol Vessels Interceptor Boats |
Ship Repairs | |
| ABG | Interceptor Boats | Tug Vessels Cement Carriers Diving Support Vessel |
A quick comparison of these companies
| MDSL | CSL | GRSE | GSL | HSL | RNEL | L&T | ABG | |
|---|---|---|---|---|---|---|---|---|
| Financials | 2019 | 2019 | 2020 | 2019 | 2019 | 2019 | ||
| Revenue from Op | 4649 | 2962 | 1433 | 905 | 605 | 180 | Amalgamated into L&T | Delisted |
| PAT | 519 | 481 | 174 | 131.52 | 36.24 | -10927 | ||
| NPM | 11.17% | 16.12% | 12.14% | 14.50% | ||||
| EPS | 23.18 | 35.47 | 14.27 | 10.58 | 120 | |||
| Dividend | 45% | 36% | 72% | 56% | 0% | |||
| Shareholding | Govt 100% | Govt 75.21% | Govt 74.5% | Govt 98.3% | Govt 100% | |||
| Order book (Cr) | NA | 15253 | 26540 | 15319 | 2689 |
In the above list, CSL and GRSE are the only candidates for investment. The rest of the PSU are not yet divested and of the private players, RNEL is deep in debt. Below is a comparison of these two companies across various parameters
| CSL | GRSE | |
|---|---|---|
| Business Profile | Larger of the two with more revenue and shipyard capacity. Defence contributes 80% of the revenues and makes the business less cyclical. The company is working on the prestigious Indigeneous Aircraft Carrier (IAC) and ASW Corvettes for the Navy. |
GRSE is older of the two and larger in terms of delivery to Navy. It has delivered close to 105 vessels to the Navy. It is currently working on the large P17A frigate project. |
| Diversification | CSL has good diversification with 28% of the revenue coming for ship repairs (defence 56% and commercial 44%). This segments has been growing at CAGR of 32% over 3 years. This business is recurring and CSL has invested in ISRF (Internation Ship Repair Facility) to further grow this segment |
GRSE has Engineering and Engine Plant divisions, but these provide less than 5% of revenues. |
| Order Book | Order Book is Rs 15253 Cr. A major portion (>85%) of this is contributed by the IAC and ASWC projects. With IAC-I and IAC-II completed, Rs 6800 Cr is scheduled to be booked in 20~22 (delivery date) |
GRSE has a larger order book of Rs 26540 Cr. 66% of this is contributed by the P17A frigate project. Bulk of the project payments is going to be over the next 3 years. The project is ahead of schedule and due to the COVID disruption, revenues are expected to jump from FY22 onwards |
| Ratios | ROA - 9.07% ROE - 14.61% ROCE - 22.44% |
ROA - 2.58% ROE - 10.67% ROCE - 17.87% |
| Relative Valuation | P/B - 1.06 P/E - 6.5 EV/EBITDA - 1.51 |
P/B - 1.98 P/E - 15.34 EV/EBITDA - 1.04 |
Both look like good investments. I am inclining towards GRSE. However, not yet decided on the ideal price and the entry point. Please provide your thoughts…
(Disc: I have just started looking into this. No investments and the above are not suggestions)
Ref:
Good results in Q4 and overall FY20.
Dividend payout retained @ 30% as expected and Rs15/share is announced. Anyone know the record date which i am unable to find out.
cochin shipyard receivables have decreased from 392 crores to 288 crores.
this is a pleasant surprise, generally a big problem with psu is delayed payments by the government.
disclaimer : I am invested in cochin shipyard, views may be biased
a negative i see in grse is that all its profits come from other income(is it some classification thing?)
the actual ebit tends to be very low
this year ebit is only 10 crore but other income is 225 crore ( source moneycontrol app)
what am I missing
disclaimer : I am invested in cochin shipyard, my views may be biased
Yes. The operating income and OPM has been bad for the last 3 years.
By comparison, Cochin Shipyard has been consistent
A comparison of overall revenues of CSL and GRSE is as follows
The 2015 Annual Report has information on the dip in revenues/profits between 2016~2020
P17A is the largest project which contributes 66% of the order book. The investor presentation has information on the revenue contribution over the ~6 year project duration
The start dates for the 3 P17A vessels are as follows
| Start Date | Delivery | |
|---|---|---|
| Vessel 1 | Aug 2017 | Aug 2023 |
| Vessel 2 | Jan 2019 | Aug 2024 |
| Vessel 3 | Aug 2020 | Aug 2025 |
So, bulk of revenues over the next 3 years would be contributed by this. The topline and bottomline would (hopefully) revert back to 2012~2014 levels. I am guessing that the street is expecting this and also valuing GRSE at a higher earnings multiple…
Summary of the Q4 & FY20 Earnings call
Investor Presentation
Annual: ₹3424 crores
Q4: ₹816 crores
