Mazagon Dock Shipbuilders IPO opens today: Price band, lot size, financials and more

State-owned defence firm Mazagon Dock Shipbuilders will launch its initial public offering (IPO) today. The share sale through which the firm plans to raise Rs 444 crore will have a price band of Rs 135-145 per share.

The IPO comprises 3,05,99,017 shares through an offer for sale (OFS). The issue will close on October 1. At the lower range of price band the IPO is expected to raise about Rs 413 crore. Shares of the company will be listed on BSE and NSE.

The offer and net offer will constitute 15.17 per cent and 15 per cent, respectively, of the post-offer paid-up equity share capital of the company, it said.

Shares are available in a lot size of a minimum 103 shares and in multiples thereof, up to a maximum 14 lots.

The government which has 100 per cent stake in the company will offload 15.17 per cent stake.

Lead managers of the IPO are Axis Capital, DAM Capital Advisors Ltd (Formerly IDFC Securities), Edelweiss Financial Services, JM Financial Consultants and Yes Securities. The registrar is Alankit Assignments.

Mazagon Dock reported a 7.9 percent YoY growth in revenue at Rs 4,977.65 crore for FY20, 3.2 percent rise in FY19 and 27 percent growth in FY18. The government firm has consistently reported profits in the last four financial years.

The company has grown at 9% CAGR over the last 4 years at the topline, while its stated EBITDA margins were reported at 8.5% in FY 20.  It has a strong order book to the tune of Rs 54,0470 crore. The company has a strong balance sheet, 15% ROE and greater than 100% dividend payout in FY 20.

The government firm had planned to come out with its IPO last September but the plan could not be implemented due to low demand.

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Brokerages are positive on the prospects of the IPO. Here's what they said.

Geojit Financial

At the upper price band of Rs 145, MDSL is available at a P/E of 6.1 times which is at significant discount to its peers. Considering strong technological & execution capabilities, healthy order book and attractive dividend yield, we assign a subscribe rating for this IPO, Geojit Financial said.

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Angel Broking

In terms of valuations, the pre-issue P/E works out to 6.1x FY20 earnings (at the upper end of the issue price band), which is lower vs. peers like Garden Reach Shipbuilders and Cochin Shipyard (trading at 12.2x and 6.6x of its FY20 earnings, respectively). Further, MDSL has a healthy ROE of 16% coupled with highest dividend yield (7.4%) and higher cash on balance sheet among its peers. Hence, considering the above positive factors, we recommend SUBSCRIBE to the issue with a long-term horizon.

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LKP Securities

At the higher price band of Rs 145, the stock is valued at 6.7x FY20 earnings of Rs 21.4, which looks quite attractive considering its healthy order book, long-term visibility of topline growth, competitive edge, profitability, return ratios and dividend payout policy. We recommend investors to SUBSCRIBE with a target of  Rs 250 over a time horizon of 6 months.

Mazagon Dock Shipbuilders Ltd (MDSL) is a leading defence public sector undertaking shipyard under the Ministry of Defence (MoD). Mazagon Dock is primarily engaged in constructing and repairing warships and submarines for MoD and other types of vessels i.e. cargo ships, multipurpose support vessels, barges and border outposts, tugs, dredgers, water tankers, etc. for commercial clients.