Fundamentals Analysis: ABG Shipyard

About the Company
ABG Shipyard is the flagship company of the ABG Group. It is India's largest private sector shipbuilding company. ABG Shipyard builds a variety of ships including bulk carriers, interceptor boats, anchor handling tugs, etc. As on May 2009, its order book was of Rs. 12470 cr. This is almost double the order book of its nearest competitor in the private sector, ie Bharati Shipyard. (We're not considering Pipavav, as it is yet to show results, and most of its orders are under arbitration.)

Sector Outlook
The shipbuilding sector is one of the worst hit sectors of the economy, due to the Great Recession. New orders have stopped coming in for most companies, as fleet owners opt for second hand vessels instead of new ones. Ship repair continues to be a recession free industry.

ABG Shipyards' current position
Currently, ABG Shipyard has a strong order book of Rs. 12,470 cr (as on May09). Much of the order book is unexecuted since ABG Shipyard is under capacity expansion, which would be concluded soon, if it hasn't already been. Consequently, the coming results should be very good. Also, ABG Shipyard is keen to buy Western India Shipyard, Goa. Western India Shipyard is mostly a Ship Repairs company and would add significantly to ABG's portfolio of services, apart from giving it a geographic location outside Gujarat, where both of its current yards are located. Also, the full operationalization of the Dahej Shipyard would mean tremendous capacity addition in terms of rig building. That was also a reason why ABG Shipyard was keen to buy a controlling stake in Great Offshore. ABG Shipyard has had to accept 15% of Great Offshore shares; which were tendered in the open offer. It will have to pay a hefty price of Rs. 520 per share, against the CMP of around Rs. 475. It already made short term gains on Great Offshore, when it sold its 8% stake at the start of the offer. It is believed that they will sooner or later sell this holding, in order not to stretch their interest costs.

Also, ABG Shipyard is promoted by Rishi Agarwal, nephew of Shashi Ruia. So, it is natural to assume that it will be getting orders from Essar Shipping.

Financials
ABG Shipyard has a lot of debt on its books, and interest costs would rise. It is, however, entitled to government subsidies worth around Rs. 1,700 cr. Its turnover is seen to rise, and will post increasing numbers this and the following quarters, as it executes pending orders. Dividend yield is low, and so are future expectations. The P/E ratio is 6.47.

(in Cr.)	Sep-09	Jun-09	FY08-09
Revenue	401.58	393.11	1,412.20
Net Profit	45.86	47.92	171.10
EPS	9.01	9.41	33.60
EPS-TTM	37.67	33.78	33.60
Cash EPS	9.92	10.30	36.45

Historic prices
ABG Shipyard reached a high of Rs. 1045 in 2007, and a low of Rs. 62 in March '09. It currently trades at Rs. 200+ (closing 217.5 on BSE, 8/Jan/10)

Year	Open Price	High Price	Low Price	Close Price	No. of Shares	No. of Trades	Total Turnover(Rs.)	* Spread (Rs.)
								H - L	C - O
2005	280.00	304.70	261.55	287.75	22455759	231630	6,343,297,450.00	43.15	7.75
2006	289.40	425.00	199.10	260.50	26094047	341819	8,418,558,769.00	225.90	-28.90
2007	262.80	1,045.00	260.00	992.30	18122640	289945	8,520,235,263.00	785.00	729.50
2008	1,029.95	1,029.95	80.05	133.40	8845336	168128	3,186,442,712.00	949.90	-896.55
2009	134.10	276.80	62.00	211.75	69718855	879860	10,413,725,832.00	214.80	77.65
2010	213.30	222.00	209.00	217.50	586072	10747	126,910,883.00	13.00	4.20

Investment opinion
ABG Shipyard is a long term investment candidate. As is with such companies, one has to give time to investments. Private shipbuilding will be in focus in the coming years. With a strong order book, and a new facility at Dahej, ABG Shipyard looks solid. However, debts are high. Government focus on this sector has been subdued, over the past few years, since 2002 when it announced subsidies for private shipbuilders. Also, what it does with the Great Offshore stake needs to be seen.