Cochin Shipyard, the largest public sector shipyard company, which will make a debut on exchanges on Friday, August 11 commands a grey premium of around 20 percent from its issue price, suggest experts.
The public issue was oversubscribed 76.19 times, with receiving bids for 258.9 crore equity shares against IPO size of 3.39 crore shares. The issue price is fixed at the higher end of price band of Rs 424-432 per share.
Cochin Shipyard caters to clients engaged in defence sector in India and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training.
The shipbuilding industry has been witnessing challenging times over the past few years. Despite this, Cochin Shipyard weathered the storm to deliver a strong performance in the past two years with its revenue growing by 14 percent CAGR along with significant improvement in profitability, suggest experts.
The shipyard company has proposed to utilise fresh issue proceeds for setting up of a new dry dock within the existing premises (around Rs 443 crore); setting up of an international ship repair facility at Cochin Port Trust area (around Rs 229.5 crore), and general corporate purposes.
“The company has a healthy order backlog, strong execution capabilities, strong cash flows, and robust balance sheet,” Hitesh Agrawal, EVP & Head – Retail Research, Religare Securities told Moneycontrol.
“Thus, despite the recent weakness in the market, considering the demand witnessed for the IPO, we believe that the stock could open with a premium of 20-25 percent,” he said.
Cochin Shipyard raised more than Rs 1,450 crore through its share sale offer that comprised of a fresh issue of 2.2656 crore shares and an offer for sale of 1.1328 crore shares by The President of India.
Large grey market premium depends more on company’s fundamentals which were evident from the oversubscription number we saw when the IPO was opened.
IPO usually provides an opportunity to investors to pick shares at the relatively lower price considering their future growth expectation. Most analysts believe that there is still a long rally left in shipping stocks.
“The shift seen in recent fundamentals of industry, we expect Cochin to join the rally so any investor should look at this IPO for a longer time horizon since we expect it to be posting decent returns in coming months,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
“We expect it to be on premium with a listing gains of over 20 percent. The kind of subscription is seen and the growth prospects we look at with available sources on the public domain it looks attractive,” he said.
Nadeem further added that given the recent run up as well in the sector we believe it to be as well post some gains.