Garden Reach Shipbuilders IPO Opens Today: Should you Invest?

Garden Reach Shipbuilders IPO plans to raise Rs.344.69 crore through the sale of 2,92,10,760 equity shares by Government of India.

Garden Reach Shipbuilders & Engineers Ltd. (GRSE), a shipbuilder, is under the administrative control of the Ministry of Defence. The company caters to the requirements of Indian Navy and Indian Coast Guard.

The government is diluting 25 per cent stake through this IPO as a part of disinvestment. In FY 19, Garden Reach Shipbuilders IPO is the third IPO, from the government after IRCON International and RITES. IDBI Capital Markets & Securities and Yes Securities India are book running lead managers to this IPO.

• GRSE has developed niche capabilities for in-house design & shipbuilding from over the years. The company has made significant contribution to the indigenous warship construction programme of India. The company’s shipbuilding product lines span from technologically sophisticated frigates and corvettes to fast patrol vessels.
• The company’s facilities are located in Kolkata that have been modernized over the years, which has helped to simplify the processes and enhance capacities.
• Has a firm order book of Rs 203.13 billion
• GRSE is the lowest bidder for four survey vessels (large) and eight anti-submarine warfare shallow water craft (ASW SWC) from MoD and one ocean-going passenger and cargo ferry vessel.
• GRSE’s balance sheet is strong with no debt and cash of Rs 10.22 billion.

Purpose of the Issue

The objects of the IPO are:

1. Disinvestment Purpose
2. Offer related expenses
3. General expenses of the corporates

Retail investors and employees will get shares at a discount of Rs 5 per share on final offer price. Company will not receive any proceeds from this offer.

Garden Reach Shipbuilders IPO Detail

• Issue Open: September 24, 2018 – September 26, 2018
• Issue Type: Book Built Issue IPO
• Issue Size: 29,210,760 Equity Shares of Rs 10
• Issue Price: Rs 115-Rs118 Per Equity Share
• Minimum Order Quantity: 120 Shares
• Listing At: NSE, BSE
• Credit of Shares to the Demat Account: October 3, 2018
• Date of listing of IPO Shares: October 5, 2018

Valuation – Should you Invest?

GRSE’s revenues are highly dependent on the orders from Indian Navy and ICG. Therefore, any reduction in order flow from these two entities would significantly impact the company. However, the company has strong order book position of Rs 203.14 billion, which provides revenue visibility for the next multiple years.

Moreover, the management is expecting massive orders worth Rs 4.5 trillion from the Indian Navy through a nomination basis and competitive bidding over next one decade.

At the upper price band, the company’s stock trades at 16.5x its FY18 EPS of Rs 7.1. The investors may subscribe to the IPO only for long-term gains.