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Abg ship
1. February 20, 2012
ICICI Securities Ltd | Retail Equity Research
Result Update
WHAT’S CHANGED…
PRICE TARGET…………………………………………….Changed from | 373 to | 427
EPS (FY12E)……………………………………………...Changed from | 43.6 to | 35.2
EPS (FY13E)……………………………………………...Changed from | 51.6 to | 49.1
RATING……………………………………………………………………...Unchanged
Core EBITDA margin, order book quality
improving…
ABG Shipyard (ABG) reported a better-than-expected performance in
Q3FY12 on the topline front while net profit was marginally lower than
our estimates. ABG reported revenues of | 619.3 crore vs. our
expectation of | 609 crore and net profit of | 46.5 crore (I-direct estimate:
| 51.6 crore) for Q3FY12. EBITDA margin (including subsidy) improved by
75 bps QoQ and was higher than our estimate of 23.5% at 24.6%. The
heartening factor in ABG’s performance is the improvement in the core
EBITDA margin (excluding subsidy), which has improved by 100 bps on a
QoQ basis to 23.5%. However, higher depreciation (up by 5% QoQ) and
interest cost (up by 18% QoQ) continue to dampen the net profit. Over
Q1FY12 to Q3FY12, ABG’s core EBITDA margin has risen by 430 bps
signifying an improvement in the core operational performance. With
execution also picking up gradually, profitability is expected to see
accelerated growth in FY13.
Order book quality improving
ABG’s total order book stands at ~ | 15500 crore, of which the
unexecuted order book is at ~ | 10500 crore. Though more than 20% of
the order book comprises orders placed by ABG’s group companies,
recently, the heartening factor has been ABG’s ability to bag prestigious
orders. During Q1FY12, the company had secured an order of | 970
crore for construction of two cadet training ships for the Indian Navy. In
January 2012, ABG bagged an order worth | 500 crore from Shipping
Corporation of India for construction of six anchor handling tugs cum
supply vessels (AHTS). These orders from top notch Indian PSU clients
bode well for potential order inflows from these marquee clients and
provides strong revenue visibility, going ahead.
Valuation
At the CMP of | 434, the stock is trading at 8.8x FY13E EPS of | 49.1 and
1.32x FY13E book value of | 328. Considering the improvement in core
EBITDA margin and order book quality, we have valued the stock at 1.3x
FY13E book value (Q1FY12: 1.1x) to arrive at a price target of | 427 and
recommend a HOLD rating. Existing investors can also continue to hold
the stock.
Exhibit 1: Financial Performance
(| cr) Q3FY12 Q3FY12E Q3FY11 Q2FY12 YoY Gr. (%) QoQ Gr.(%)
Net Sales 619.3 609.3 540.2 581.6 14.6 6.5
EBITDA 152.1 143.2 139.2 138.5 9.3 9.8
EBITDA Margin (%) 24.6 23.5 25.8 23.8 (121 bps) 75 bps
Depreciation 25.6 25.0 17.4 24.4 47.4 5.0
Interest 51.4 43.0 40.2 43.4 27.6 18.4
Reported PAT 46.5 51.6 53.5 48.4 -13.1 -3.9
EPS (|) 9.1 10.1 10.5 9.5 -13.1 -3.9
Source: Company, ICICIdirect.com Research
ABG Shipyard (ABGSHI)
| 434
Rating matrix
Rating : Hold
Target : | 427
Target Period : 12 months
Potential Upside : -2%
Key Financials
(| cr) FY10 FY11 FY12E FY13E
Net Sales 1812.4 2136.9 2352.0 2698.2
EBITDA 472.5 518.1 560.1 661.8
Net Profit 218.1 194.0 179.2 250.2
EPS (|) 42.8 38.1 35.2 49.1
Valuation summary
FY10 FY11 FY12E FY13E
PE (x) 10.1 11.4 12.3 8.8
Target PE (x) 10.0 11.2 12.1 8.7
EV to EBITDA (x) 10.7 7.9 6.7 3.1
Price to book (x) 2.0 1.7 1.5 1.3
RoNW (%) 19.6 15.3 12.7 15.3
RoCE (%) 10.9 12.2 13.5 16.6
Stock data
Market Cap. (| cr) 2209
Debt( FY11) (| cr) 2391
Cash (FY11) (| cr) 664
EV (| cr) 3936
52 week H/L (| cr) 463 / 322
Equity capital (| cr) 50.9
Face value (|) 10
DII Holding (%) 6.4
FII Holding (%) 11.3
Price movement
150
250
350
450
550
Feb-12Nov-11Aug-11May-11Mar-11
4,000
4,500
5,000
5,500
6,000
6,500
ABG Shipyard (R.H.S) Nifty (L.H.S)
Analyst’s name
Bharat Chhoda
bharat.chhoda@icicisecurities.com
5. ICICI Securities Ltd | Retail Equity Research Page 5
ABG’s total order book stands at ~ | 15500 crore, of which the
unexecuted order book is at ~ | 10500 crore. Though more than 20% of
the order book comprises orders placed by ABG’s group companies,
recently, the heartening factor has been ABG’s ability to bag prestigious
orders. During Q1FY12, the company had secured an order of | 970 crore
for construction of two cadet training ships for the Indian Navy. In
January 2012, ABG bagged an order worth | 500 crore from Shipping
Corporation of India for construction of six anchor handling tugs cum
supply vessels (AHTS). These orders from top notch Indian PSU clients
bode well for potential order inflows from these marquee clients and
provides strong revenue visibility, going ahead.
Valuation
At the CMP of | 434, the stock is trading at 8.8x FY13E EPS of | 49.1 and
1.32x FY13E book value of | 328. Considering the improvement in core
EBITDA margin and order book quality, we have reduced the discount to
the CY12E global average price to book value multiple from 32% to 28%
while valuing ABG. We have valued the stock at 1.3x FY13E book value
(Q2FY12: 1.1x) to arrive at a price target of | 427 and recommend a HOLD
rating. Existing investors can also continue to hold the stock.
Exhibit 11: Valuation parameter
Valuation based on Global average Target multiple Target price (|)
Price to book value (x) 1.81 1.30 427
Average target price (|) 427
Current market price (|) 434
Upside (%) (1.6)
Source: ICICIdirect.com Research
Exhibit 12: Valuation
Sales Sales EPS EPS PE EV/EBITDA RoNW RoCE
(| cr) Growth (%) (|) Growth (%) (x) (x) (%) (%)
FY11 2136.9 17.9 38.1 -11.1 11.4 7.9 15.3 12.2
FY12E 2352.0 10.1 35.2 -7.6 12.3 6.7 12.7 13.5
FY13E 2698.2 14.7 49.1 39.7 8.8 3.1 15.3 16.6
Source: Company, ICICIdirect.com Research
Exhibit 13: Revised estimates
(| cr) FY12E FY13E FY12E FY13E
Sales 2420.4 2698.2 2352.0 2698.2
EBITDA 559.7 619.8 560.1 661.8
Net Profit 221.8 262.5 179.2 250.2
EPS 43.6 51.6 35.2 49.1
Old New
Source: Company, ICICIdirect.com Research
6. ICICI Securities Ltd | Retail Equity Research Page 6
Financial summary
Profit and loss statement
(| Crore)
(Year-end March) FY10 FY11 FY12E FY13E
Total operating Income 1,812.4 2,136.9 2,352.0 2,698.2
Growth (%) 28.3 17.9 10.1 14.7
Raw Material Expenses 1,162.1 884.7 1,140.3 1,248.2
Employee Expenses 48.1 72.9 82.3 94.4
Mfg & Other expenses 275.6 386.9 369.3 458.7
Incr/Decr in WIP -145.8 274.4 200.0 235.0
Other expenses 0.0 1.0 2.0 3.0
Total Operating Expenditure 1,340.0 1,618.8 1,791.9 2,036.3
EBITDA 472.5 518.1 560.1 661.8
Growth (%) 26.1 24.2 23.8 24.5
Depreciation 38.7 68.5 103.2 122.9
Interest 161.4 145.8 185.9 168.0
Other Income 14.9 5.4 8.0 10.0
PBT 287.3 309.3 279.0 380.9
Others 29.3 -23.9 -5.0 -5.0
Total Tax 98.4 91.4 94.9 125.7
PAT 218.1 194.0 179.2 250.2
Growth (%) 27.4 -11.1 -7.6 39.7
EPS (|) 42.8 38.1 35.2 49.1
Source: Company, ICICIdirect.com Research
Cash flow statement
(| Crore)
(Year-end March) FY10 FY11 FY12E FY13E
Profit after Tax 218.1 194.0 179.2 250.2
Add: Depreciation 38.7 68.5 103.2 122.9
(Inc)/dec in Current Assets 189.2 -1,712.6 -103.7 -82.0
Inc/(dec) in CL and Provisions -229.9 2,429.8 -154.1 -5.8
Others 225.8 4.3 5.0 5.0
CF from operating activities 441.9 984.0 29.6 290.3
(Inc)/dec in Investments -546.6 408.7 0.0 0.0
(Inc)/dec in Fixed Assets -519.0 -405.5 0.0 0.0
Others 0.0 0.0 0.0 0.0
CF from investing activities -1,065.5 3.2 0.0 0.0
Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
Inc/(dec) in loan funds 594.3 -355.1 -257.1 -369.8
Dividend paid & dividend tax 11.9 23.8 23.7 23.8
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others 0.0 0.0 0.0 0.0
CF from financing activities 606.2 -331.2 -233.4 -345.9
Net Cash flow -17.5 655.9 -203.8 -55.6
Opening Cash 50.6 28.4 664.9 413.7
Closing Cash 28.4 664.9 413.7 310.4
Source: Company, ICICIdirect.com Research
Balance sheet
(| Crore)
(Year-end March) FY10 FY11 FY12E FY13E
Liabilities
Equity Capital 50.9 50.9 50.9 50.9
Reserve and Surplus 1,060.3 1,239.8 1,395.2 1,621.6
Total Shareholders funds 1,111.3 1,290.7 1,446.1 1,672.5
Total Debt 2,897.4 2,542.4 2,285.3 1,915.5
Deferred Tax Liability 315.8 403.3 403.3 403.3
Minority Interest / Others 0.0 4.3 9.3 14.3
Total Liabilities 4,324.5 4,240.7 4,144.1 4,005.7
Assets
Gross Block 737.7 1,365.4 1,715.4 2,065.4
Less: Acc Depreciation 138.0 342.2 445.4 568.3
Net Block 599.8 1,023.3 1,270.1 1,497.2
Capital WIP 1,375.4 1,357.5 1,007.5 657.5
Total Fixed Assets 1,975.22 2,380.75 2,277.54 2,154.66
Investments 609.3 200.6 200.6 200.6
Inventory 1,066.1 2,489.5 2,255.3 2,217.7
Debtors 72.0 163.6 193.3 221.8
Loans and Advances 1,620.7 1,818.4 2,126.5 2,217.7
Other Current Assets 0.0 0.0 0.0 0.0
Cash 28.4 664.9 413.7 310.4
Total Current Assets 2,787.23 5,136.42 4,988.82 4,967.55
Creditors 970.0 1,137.0 1,224.3 1,404.5
other curr liab & Provisions 77.2 2,340.0 2,098.5 1,912.6
Total Current Liabilities 1,047.23 3,477.01 3,322.87 3,317.11
Net Current Assets 1,740.00 1,659.41 1,665.95 1,650.44
Others Assets 0.0 0.0 0.0 0.0
Application of Funds 4,324.5 4,240.7 4,144.1 4,005.7
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY10 FY11 FY12E FY13E
Per share data (|)
EPS 42.8 38.1 35.2 49.1
Cash EPS 50.4 52.1 56.4 74.3
BV 218.2 253.5 284.0 328.5
DPS 4.0 4.0 4.0 4.0
Cash Per Share 5.6 130.6 81.2 61.0
Operating Ratios (%)
EBITDA Margin 26.1 24.2 23.8 24.5
PBT / Total Operating income 17.5 13.5 11.9 14.1
PAT Margin 12.0 9.1 7.6 9.3
Inventory days 214.7 425.2 350.0 300.0
Debtor days 14.5 27.9 30.0 30.0
Creditor days 195.3 194.2 190.0 190.0
Return Ratios (%)
RoE 19.6 15.3 12.7 15.3
RoCE 10.9 12.2 13.5 16.6
RoIC 6.5 6.5 5.7 8.1
Valuation Ratios (x)
P/E 10.1 11.4 12.3 8.8
EV / EBITDA 10.7 7.9 7.3 5.8
EV / Net Sales 2.8 1.9 1.7 1.4
Market Cap / Sales 1.2 1.0 0.9 0.8
Price to Book Value 2.0 1.7 1.5 1.3
Solvency Ratios
Debt/EBITDA 6.1 4.9 4.1 2.9
Debt / Equity 2.6 2.0 1.6 1.1
Current Ratio 2.9 2.5 2.0 2.0
Quick Ratio 1.8 2.3 2.2 2.0
Source: Company, ICICIdirect.com Research
8. ICICI Securities Ltd | Retail Equity Research Page 8
Exhibit 14: Recommendation History
0
50
100
150
200
250
300
350
400
450
500
Feb-12Jan-12Nov-11Oct-11Aug-11Jul-11May-11Apr-11Mar-11
Price Target Price
Exhibit 15: Recent Releases
Date Event CMP Target Price Rating
8-Apr-11 Q4FY11 Result preview 393 293 SELL
3-Jun-11 Q4FY11 Result update 374 344 HOLD
8-Jul-11 Q1FY12 Result preview 370 344 HOLD
23-Aug-11 Q1FY12 Result update 341 338 HOLD
22-Nov-11 Q2FY12 Result update 388 373 HOLD
6-Jan-12 Q3FY12 Result preview 392 373 HOLD
Global Valuation (Shipping)
CY10E CY11E CY12E CY10E CY11E CY12E CY10E CY11E CY12E CY10E CY11E CY12E
Shipbuilding
Daewoo Shipbuilding* South Korea 2.0 1.2 1.0 10.0 11.7 9.7 8.3 9.4 8.7 21.5 10.6 11.7
Hyundai Heavy Industries* South Korea 3.1 1.2 1.0 11.8 8.5 8.0 11.7 6.9 6.4 30.3 14.5 13.8
Keppel Corp. Ltd* Singapore 2.8 2.2 2.0 15.3 12.5 12.2 13.3 11.2 9.7 19.6 19.7 18.4
Samsung Heavy Industries* South Korea 2.9 1.7 1.5 11.4 12.5 10.3 8.9 7.8 6.7 28.5 14.0 15.2
Sembcorp Marine* Singapore 5.3 3.9 3.5 16.7 15.5 16.0 10.6 10.9 10.4 34.4 27.0 24.1
ABG Shipyard# India 1.7 1.5 1.3 11.4 12.3 8.8 7.9 6.7 3.1 15.3 12.7 15.3
Pipavav Defence & Offshore Engineering Co# India 3.1 3.0 2.7 - 73.6 28.1 43.6 20.9 13.8 2.5 4.1 9.6
Bharati Shipyard# India 0.3 0.2 0.2 2.6 4.7 17.7 7.9 6.9 9.8 9.3 6.9 0.5
*consensus
# With regards to Indian companies, three year data represents FY11, FY12 and FY13 (financial year ending in March)
EV/EBITDA (x) ROE (%)
Company Country
P/BV (x) P/E (x)
9. ICICI Securities Ltd | Retail Equity Research Page 9
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st
Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
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