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Hold ABG Shipyard; target of Rs 375: ICICIdirect.com

“ABG Shipyard reported Q1FY13 numbers largely in line with our estimates. Revenue for Q1FY13 at | 640.6 crore (Idirect estimate: Rs 650 crore) was marginally lower than Q4FY12 quarter. Subsidy accounted for Q1FY13 is Rs 0.30 Crore. EBITDA (excluding subsidy) stands at Rs166 crore in Q1FY13, down 1% QoQ basis. On EBITDA margin front, it remained flattish posting a margin of 26%, up 35 bps QoQ. EBITDA came in at Rs 166.3 crore (down 2% QoQ) vis-à-vis our estimate of Rs 164 crore. However, PAT for the quarter was down by 9% QoQ at Rs 41.3 crore on account of increased interest cost (up by 17% QoQ). Interest cost rose by 17% QoQ at Rs 86.3 crore for Q1FY13 as against Rs 73.5 crore Q4FY12.”
“ABG shipyard continues to be highly levered with Debt/Equity at 2.2x FY13E and 1.8x FY14E. Interest as a percentage of EBITDA continues to maintain upward trend putting pressure on the bottom-line (See Exhibit: 9).Increased interest cost caps any significant gain from the strong order book at present level of execution. ABG’s unexecuted order book stands at Rs 9500 crore. The unexecuted order book is 3.8x FY13E revenues and provides good revenue visibility over a period of 3 years. In the last few quarters, the company bagged orders from prestigious institutions like SCI and Indian Navy. These orders from top notch PSU clients provide confidence about the execution and operational capabilities of the company and augur well for potential order inflows from these clients in future.”
“Though ABG enjoys a strong revenue visibility owing to its order book at 3.8x FY13E revenues, but rising interest cost owing to high cost working capital debt is denting the bottomline. We have revised our earning estimate downwards and have downgraded the valuation multiple. Global average of P/BVx for shipbuilding stands at 1.75x FY14E, we have valued the stock at 1.1x FY14E book value (Q4FY12: 1.2x) to arrive at a price target of Rs 375 and maintain a HOLD rating on the stock,” says ICICIdirect.com research report.
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Source: ICICIdirect