Pipavav IPO Avoid Recommendation

WAY2WEALTH Securities Pvt. Ltd., 15/A Chande r Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@way2wealth. com websi te: www.way2wealth. com Way2wealth Research is also available on Bloomberg WTWL <GO> Scrip Estimates Market Cap (Rs Crores) 3657-3990 Mcap/Orderbook 0.89x EPS (FY10E) NA P/E (FY10E) NA Share Holding Pattern (%) Pre Offer Post Offer Promoters & Promoter Group 45.4 39.6 Public Nil 12.83 Issue Structure Equity Shares Total Shares 85,450,225 QIB Portion 50,910,135 MF’s 2,545,507 Balance for all QIB (inc of MF) 48,364,628 Non Institutional Portion 8,485,022 Retail Portion 25,455,068 Equity Shares O/S prior to issue 580,348,163 Equity Shares O/S after the issue 665,798,388 Investors should read the risk factors and more detailed information in the Prospectus and the application form before investing in the issue. Website: www.way2wealth .com Analyst: Sejal Jhunjhunwala Email: [email protected] Contact: 022 – 40192918 Issue Details Offer Price Band Rs. 55-60 Face Value 10 Shares Offered 85,450,225 Employee Reserved Portion Upto 600,000 Net Issue to the Public 84,850,225 Type Fresh Issue Promoters Nikhil Gandhi Co-Promoter Atul Punj Listing (Stock Exchange) NSE, BSE Offer Open Date 16 th Sept, 2009 Offer Close Date 18 th Sept, 2009 Website: www.pipavavshipyard.com Pipavav Shipyard is a diversified company located on the west coast of India, currently completing the construction of the shipyard, which would be capable of ship construction and repairs for a range of vessels. The list of vessels would be inclusive of naval vessels, coast guard vessels (for defence) as well as fabrication and construction of rigs and jackets (offshore platforms) and vessels (for the oil and gas industry). Commercial Operations at the yard has commenced from April 20009 with the construction of 4 vessels. The construction of the shipbuilding yard is to be completed from October 2009, whilst the offshore yard would start operations from March 2010. On completion of the shipbuilding yard, it would be the largest yard in India which would have a capacity of manufacturing vessels upto 400,000 DWT (dead weight tonnage) together with facilities for fabrication of products for the offshore sector. Promoters of the company include SKIL and Punj Lloyd. SKIL would provide infrastructure expertise while Punj Lloyd’s expertise would be used in offshore construction. Objects of the Issue** The proceeds from the issue would be utilized in the construction of facilities for shipbuilding, ship repair and offshore business. Investment Rationale The Indian Shipbuilding industry accounts for just 1% of the global order book, which reflects a very small portion of the global shipbuilding market. Upside potential is huge considering the advantages it enjoys over the global shipyards – Relatively low cost of labour National Maritime Development Programme, which has allocated an investment of Rs 810 bn to the port sector Replacement demand on account of scrapping of vessels Strategic location of India Establishing Presence in the high potential area: Indian Offshore market – Substantial capex has been planned for the oil exploration area which will in turn increase the demand for offshore platforms, especially when the offshore blocks under the NELP reach development stage. Defence sector presence expected in the near future with the construction of naval vessels- The budgeted defence expenditure on the Indian navy in the budget for FY10 is Rs 206 bn out of the aggregate of Rs 1,417 bn. Strategic geographic location results in cost effectiveness: The shipyard is located on the west coast of India on the sea route connecting the Persian Gulf to Asia and is approx 150 nautical miles from Mumbai, a busy international maritime route that is suitable located for ship repair business. Additionally it is located close to the offshore oil fields on the western coast which will be an advantage in tapping the offshore fabrication market. Current Order Book Size : ~Rs4560 crore which consists of 22 panamax bulk carriers of 74,500 DWT and 12 OSV vessels from ONGC . (details given below***). Advances to the tune of $205 mn are sitting at banks. Investment Concerns Promoters do not have any prior experience in shipbuilding/shiprepairing /offshore construction business Revenues to be booked only from FY11. In the advent of the downturn in the industry the company faces a threat of cancellation of its orders. Contracts booked before August 14 th 2007 are applicable for subsidy, thereafter no such clarification disclosed as yet. Fixed price contracts expose it to the volatility in commodity prices (Steel). Criminal proceedings against the promoter group company (Faces litigation as per DHRP). Commercial operations started only from April 2009 and as of now the company is not generating sufficient cash flow to meet its in debt-ness. No operating history and no reputation in this business, therefore competitive risk is high leading to price competition SEBI is conducting preliminary investigation into price movement of equity shares and equity transactions in which some of the directors hold interest. Pipavav Shipyard 14 th September 2009 IPO Note Advise: Avoid

Pipavav IPO Avoid Recommendation

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