4QFY2010 Result Update I Ship Building

May 31, 2010

ABG Shipyard
Performance Highlights
ABG Shipyard (ABG) reported lower-than-estimated 4QFY2010 results (adjusted for subsidy) on account of higher raw material cost. However, strong revenue growth of 40.6% yoy and 10.6% qoq during the quarter indicates pick up in the pace of execution. The company delivered 17 vessels in FY2010 as against 6 vessels in FY2009. ABG's total order book stands at Rs12,050cr, of which the unexecuted portion is nearly Rs8,500cr, executable by FY2014E. This translates to 5.2x FY2010 sales, thus providing strong revenue visibility for the company. As per management, ABG is expected to receive Rs600cr (total of Rs850cr) from Essar and Rs75cr in the form of subsidy in FY2010. The companys net debt position stands at Rs2,500cr (3.0x) as on date, which remains a concern. However, we believe the pace of execution will pick up over the next two years, as clients start taking delivery, which should improve cash flow. Hence, we maintain a Buy rating on the stock. Higher raw material cost impacts profitability:ABGs revenue grew by 40.6% yoy and 10.6% qoq to Rs473cr on account of higher execution in 4QFY2010. Raw material expenses grew by 64.0% yoy to Rs333cr during the quarter. Consequently, OPM (ex. subsidy) came in at 13.6%, much below our estimate. During 4QFY2010, ABG booked Rs47cr as subsidy as against Rs34cr in 4QFY2009 and Rs65cr in 3QFY2010. The subsidy booking during the quarter was high as the company slowed down work on two of its rigs and increased the pace of work on its bulk carrier vessel orders. The company claimed MAT credit entitlement of Rs48cr, resulting in lower tax rate of 11.7% in 4QFY2010 as against 22.5% in 4QFY2009. Further, ABG sold 9% stake in great offshore during 4QFY2010, which led to a net loss of Rs5cr. Consequently, the company reported PAT of Rs52.9cr, up 1.7% yoy. Adjusted for subsidy and one-time exception loss, PAT declined by 34.9% yoy; however, it grew by 230.1% qoq to Rs16.5cr. Outlook and Valuation: At the CMP, ABG is trading at 6.6x FY2012E earnings, 7.4x FY2012E EV/EBIDTA and 1.2x FY2012E P/BV. We value ABG at Rs327, which is 1.5x P/BV on FY2012E (ex-subsidy), in line with global peers. Given ABGs superior earnings CAGR of 42.4% over FY2010-2012E and an order book that provides a cover of 5.2x FY2010 sales, we believe ABG deserves to trade at par with global peers, notwithstanding subsidy concerns. Key Financials (Consolidated)
Y/E March (Rs cr) Net Sales % chg Reported Net Profit % chg Adj Net profit * FDEPS (Rs) EBITDA Margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x) FY2009 1,350 52.5 171.2 6.5 124.5 24.5 19.9 10.0 19.5 14.2 1.9 2.2 11.2 FY2010E 1,628 20.6 218.1 27.4 67.9 13.3 17.7 19.0 8.9 8.5 1.5 2.3 13.0 FY2011E 2,035 25.0 239.7 9.9 121.3 23.8 20.0 10.6 13.6 10.4 1.4 1.8 9.0 FY2012E 2,634 29.5 327.7 36.7 196.2 38.5 20.0 6.6 19.1 12.8 1.2 1.5 7.4

BUY
CMP Target Price
Investment Period Stock Info Sector Market Cap (Rscr) Beta 52 WK High / Low Avg. Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF/Banks/Indian FIs FII/NRIs/OCBs Indian Public Abs. (%) Sensex ABG Ship. 3m 3.1 4.6 1yr 15.9 12.9 57.1 12.4 21.9 8.6 3yr 16.5 (39.3) Ship Building 1,291 1.3 346/146 260,598 10 16,945 5,086 ABGS.BO ABGS@IN

Rs253 Rs327
12

Param Desai
Tel: 022 4040 3800 Ext: 310 E-mail: paramv.desai@angeltrade.com

MihirSalot
Tel: 022 4040 3800 Ext: 307 E-mail: mihirr.salot@angeltrade.com

Source: Company, Angel Research * Ex subsidy

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

ABG Shipyard I 4QFY2010 Result Update

Exhibit 1: 4QFY2010 Performance (Consolidated)

(Rscr) Revenue Total expenditure EBIDTA EBIDTA margin (%) Depreciation Interest Subsidy Other income EO/Min Int PBT Tax Tax rate (%) Adj PAT Ex. Subsidy& EO PAT margin (%) Number of shares (cr) Reported PAT Adj EPS (Rs) quarterly
Source: Company, Angel Research

4QFY09 337 270 66 19.6 7 30 34 3 0 67 15 22.5 25.4 7.5 5.1 52.0 5.0

3QFY10 428 349 79 18.5 17 38 65 1 34 90 42 46.9 5.0 1.2 5.1 82.3 1.0

4QFY10 473 409 64 13.6 12 36 47 3 (5) 66 8 11.7 16.5 3.5 5.1 52.9 3.2

%qoq 10.6 17.4 (19.1) (498bp) (29.0) (4.6) (27.7) 138.8 (27.2) (81.8) 230.1 232bp (35.8)

%yoy 40.6 51.2 (2.9) (608bp) 88.0 20.2 37.0 (7.5) (2.0) (48.8) (34.9) (405bp) 1.7

Strong order book

ABG's total order book stands at Rs12,050cr, of which the unexecuted order book is around Rs8,500cr and is executable by FY2014E. This translates to 5.2x FY2010E sales, thus providing a strong revenue visibility for the company. During the current economic crisis, ABG managed to avoid any cancellations or price negotiations of its order book.In 4QFY2010, ABGreceived new orders of three dry bulk vessels worth Rs385cr from Precious Shipping (Thailand), which will be delivered within three years with each vessel being delivered every year. This is positive as order inflow was subdued in CY2009. Given the improving scenario of the shipping industry, we expect order inflow to pick up post 2HFY2011E.

Outlook and Valuation

The Indian shipbuilding industry is wellpoised to register robust growth, aided bythe expected surge in sea-borne trade, availability of cheap labour in India and strong capex lined up in the offshore and defense sectors. We believe ABG's healthy unexecuted order book of Rs8,500cr (5.2x FY2010 sales) is likely to benefit fromtimely execution, with a ramp-up in capacities. Moreover, it is likely to benefit from the growing offshore division and pick up in execution, which will ease the leverage on the balance sheet. At the CMP, ABG is trading at 6.6x FY2012E earnings, 7.4x FY2012E EV/EBIDTA and 1.2x P/BV FY2012E. We value ABG at Rs 327, which is 1.5x P/BV on FY12E (ex. subsidy), in line with global peers. Given ABGs superior earnings CAGR of 42.4% over FY2010-2012E and an order book that provides a cover of 5.2x FY2010 sales, we believe ABG deserves to trade at par with global peers, notwithstanding subsidy concerns. Hence, we maintain our Buy rating on the stock with a Target Price of Rs327.

May 31, 2010

ABG Shipyard I 4QFY2010 Result Update

Exhibit 2: P/BV Two-year average P/BV (one-year fwd) was 1.6x

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0
Aug-07 Aug-08 May-06 Aug-09 Jun-07 Jun-08 Dec-06 Dec-07 Dec-08 Jun-09 Jul-06 Dec-09 Apr-07 Apr-08 Apr-09 Mar-06 Apr-10 Oct-06 Oct-07 Oct-08 Feb-07 Feb-08 Feb-09 Oct-09 Feb-10

Source: Bloomberg, Angel Research

May 31, 2010

ABG Shipyard I 4QFY2010 Result Update

Profit & Loss Statement (Consolidated)

Y/E March Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation&Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Subsidy Income Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less: Minority Interest Less: Tax Adjustment for earlier years MAT credit entitlement PAT after MI (reported) ADJ. PAT* (excl. Subsidy) % chg (% of Net Sales) Basic EPS (Rs) (excl subsidy) Fully Diluted EPS (Rs) % chg FY2007 624 624 624 33.2 528 424 46 16 42 96 67.9 15.4 6 90 68.2 14.5 9 5 3 82 168 32.7 168.2 61.1 36.3 107.1 (0.7) 10.0 116.3 54.9 74.2 8.8 12.6 12.6 FY2008 885 885 885 41.8 678 523 77 29 49 207 114.7 23.4 7 199 120.7 22.5 42 7 3 82 246 46.3 246.0 87.9 35.7 158.1 (0.4) 3.0 160.7 105.6 92.4 11.9 21.2 20.7 FY2009 1,350 1,350 1,350 52.5 1,081 843 104 30 105 269 30.0 19.9 15 254 27.5 18.8 74 7 3 63 250 1.7 250.0 83.7 33.5 166.3 (1.7) 6.5 171.2 124.5 18.0 9.2 25.4 24.5 FY2010E 1,628 1,628 1,628 20.6 1,340 1,016 48 276 288 7.4 17.7 39 250 (1.7) 15.3 161 15 5 184 287 14.9 29.3 316.5 98.4 31.1 218.1 218.1 67.9 (45.5) 4.2 13.3 13.3 FY2011E 2,035 2,035 2,035 25.0 1,628 1,190 163 66 209 407 41.1 20.0 48 359 43.6 17.6 193 19 5 180 365 26.9 364.5 124.8 34.2 239.7 239.7 121.3 78.7 6.0 23.8 23.8

(Rscr)
FY2012E 2,634 2,634 2,634 29.5 2,107 1,541 211 86 270 527 29.5 20.0 52 475 32.3 18.0 200 24 5 200 498 36.7 498.4 170.7 34.2 327.7 327.7 196.2 61.7 7.4 38.5 38.5

May 31, 2010

ABG Shipyard I 4QFY2010 Result Update

Balance Sheet (Consolidated)

Y/E March SOURCES OF FUNDS Equity Share Capital Share Warrants Reserves& Surplus Shareholders Funds Shareholders Funds excl. subsidy Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities & Provisions Net Current Assets Mis. Exp. not written off Total Assets 179 48 131 165 1,343 140 662 540 534 809 1,105 258 59 199 386 6 1,606 87 1,103 416 741 865 1,456 605 88 518 1,008 24 2,663 51 1,347 1,265 1,301 1,363 2,911 1,055 126 929 1,209 320 2,843 109 1,491 1,242 1,395 1,448 3,906 1,205 175 1,031 1,451 25 3,199 206 1,671 1,323 1,585 1,615 4,122 51 537 588 456 410 108 1,105 51 32 684 766 582 522 168 1,456 51 32 836 918 693 1,771 222 2,911 51 32 1,030 1,113 841 2,571 222 3,906 2,571 222 4,122 51 32 1,246 1,329 939 FY2007 FY2008 FY2009 FY2010E FY2011E

(Rscr)
FY2012E 51 32 1,550 1,632 1,111 2,771 222 4,625 1,305 227 1,078 1,596 25 3,717 137 1,871 1,709 1,791 1,926 4,625

Cash Flow Statement (Consolidated)

Y/E March Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec in Investments Equity Share Application in Subsidiary Company Other income Cash Flow from Investing Issue of Equity & warrants (net of expenses) Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2007 168 6 (584) 27 (12) (396) (148) (0) (148) 310 (7) (24) 279 (265) 405 140 FY2008 246 7 (123) 46 (12) 164 (299) 1 (6) (304) 32 105 (9) (41) 87 (53) 140 87 FY2009 250 15 (529) 34 (23) (254) (924) (24) (947) (0) 1,249 (12) (74) 1,163 (39) 89 51 FY2010E 287 39 (14) (98) 213 (652) (296) 29 (919) 800 (36) 764 59 51 109 FY2011E 365 48 (71) (125) 217 (392) 295 (97) (24) (24) 96 109 206

(Rscr)
FY2012E 498 52 (379) (171) 1 (245) (245) 200 (24) 176 (68) 206 137

May 31, 2010

ABG Shipyard I 4QFY2010 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Work cap cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.6 2.8 9.6 0.7 2.1 4.7 2.5 6.4 3.4 2.9 8.5 1.5 2.5 5.8 1.9 2.4 5.0 2.4 3.9 221 4 304 221 4.1 194 3 333 298 3.1 221 7 336 283 2.0 270 11 354 297 1.8 220 10 312 246 2.1 200 10 264 222 13.2 29.8 12.8 20.2 33.4 20.3 14.2 25.0 19.5 8.5 14.3 8.9 10.4 18.2 13.6 12.8 23.7 19.1 14.5 0.6 1.5 14.0 2.3 (0.0) 13.5 22.5 0.6 1.0 14.7 5.9 0.6 20.0 18.8 0.7 0.8 9.9 4.3 1.6 18.5 17.4 0.7 0.6 6.8 5.1 2.5 11.0 18.5 0.7 0.6 7.5 4.9 2.6 14.1 19.0 0.7 0.7 9.3 4.9 2.2 19.2 12.6 12.6 24.0 1.5 89.6 21.2 20.7 22.2 2.0 114.4 25.4 24.5 27.3 2.0 136.0 13.3 13.3 20.9 4.0 165.2 23.8 23.8 33.3 4.0 184.3 38.5 38.5 48.8 4.0 218.2 20.1 10.6 3.2 0.6 2.5 10.2 0.9 12.2 11.4 2.2 0.8 2.0 7.5 1.1 10.4 9.3 1.9 0.8 2.2 6.4 0.6 19.0 12.1 1.5 1.6 2.3 10.4 0.8 10.6 7.6 1.4 1.6 1.8 9.2 0.9 6.6 5.2 1.2 1.6 1.5 6.9 0.8 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

May 31, 2010

ABG Shipyard I 4QFY2010 Result Update

Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

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Disclosure of Interest Statement 1. 2. 3. 4. Analyst ownership of the stock Angel and its Group companies ownership of the stock Angel and its Group companies Directors ownership of the stock Broking relationship with company covered

ABG Shipyard No Yes No No

Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

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Angel Broking Ltd: BSE SebiRegnNo : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

May 31, 2010