ABG Shipyard Limited

11 August 2011
Q1FY12 Result Update
As on Aug 11, 2011 Market Cap. ( `mn ) 52 Week High/Low (`) Book Value (FY11) Face Value 19,095 498 / 226 253 10

Jaypee Research Desk

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CMP: ` 375

TARGET: ` 408

NEUTRAL

ABG Shipyard Q1FY12 sales and Ebitda as per expectation but profits dips due to increase in interest cost and depreciation On a consolidated basis ABG Shipyard Limited (ABG) Q1FY12 sales have shown growth of 16.3% YoY and decline of 1.8% QoQ to `5,226 mn. EBIDTA declined by 6.9% YoY but was up by 27.78% QoQ. EBIDTA margin stood at 22.7%, which contracted from 28.3% in Q1FY11 but inched up from 17.1% in Q4FY11. Interest expenses declined by 13% YoY and up 113% QoQ. Depreciation also increased by 68% YoY and 28% QoQ. Net Profit marginally grew by 4.3% YoY, 1.2% QoQ to `400.6mn. We expect the revenue and profit to grow at a CAGR of 19% and 15% respectively for next two years. We give a Neutral rating to the company. Regular order book inflows, Current order book of `145,000mn

Codes BSE Code NSE Code Bloomberg Code Reuters Code 532682 ABGSHIP ABGS IN ABGS.BO

Promoters FII DII Others

Shareholding Pattern Jun2011 Mar2010 61.67% 60.72% 12.68% 17.15% 6.56% 8.25% 19.09% 13.88%

Dec2010 60.35% 16.66% 8.64% 14.35%

Key positives of ABG Shipyard are its ability to attract and retain orders. The company has recently received an order from Indian Navy for construction of two Cadet training ships worth `9,700mn. It also obtained industrial license for Design and Construction of defense ships. ABG expects good orders from offshore segment along with defense orders. Order book of the company is `1,45,000 mn, which provides strong position among Indian Shipyards. Strong revenue visibility till 2014

Share Price Performance

240 220 200 180 160 140 120 100 80 60

Share Price Performance

The current order book position imparts the company strong revenue visibility, and the aggressive approach of management in securing fresh orders has brought it to the position to become the largest private shipyard in India. Valuation: At the CMP of `375, ASL is trading at 8.1x and 7.3x its FY12E and FY13E earnings, and 1.3x and 1.1x its expected book value. ASL currently has an order book of `145,000mn, which gives the company revenue visibility till 2014 and more depending on the efficiency of the yard for timely delivery of vessels. On back of the high volume of unexecuted task, we believe ASL is well placed and the company expects robust orders from defense and offshore space. We value ASL at 1.2x its FY13E book value of `340 per share to arrive with a 12-month target price of `408, implying a potential upside of 9.0% from present levels. We maintain our NEUTRAL rating on the stock.

Sep-10

Dec-10

Feb-11

Jan-11

Jan-11

Aug-10

Jun-11

Jul-11

May-11

ABG

Nifty

Absolute Relative

Share Price Returns (%) 1M 6M -0.6 13.0 6.0 15.8

May-11

Nov-10

Nov-10

Mar-11

Mar-11

12M 47.9 52.7

Aug-11

Aug-10

Oct-10

Apr-11

Financials
Y/E 31st March Revenue (` mn) Revenue growth (%) FY10 18,124 28% 4,725 26.1% 2,181 12.0 42.8 8.8 11.9 19.6 FY11 21,369 18% 5,181 24.2% 2,150 10.1 42.2 9.8 11.3 15.0 FY12E 25,215 18% 5,800 23.0% 2,366 9.4 46.5 8.1 11.4 15.8 FY13E 30,259 20% 6,657 22.0% 2,610 8.6 51.3 7.3 12.5 15.1

Jyotsna Sawdekar jsawdekar@jaypeeindia.com

EBITDA EBITDA margin (%) Net Profit (Rs) Net Profit margin (%) EPS P/E ROCE ROE Source Company, Jaypee Research

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ABG Shipyard Limited

11 August 2011
Valuation
Valuation P/E Dividend Yield P/ BV EV / EBITDA EV / Sales Market Cap/ Sales FY10 8.8 1.1 1.7 8.8 2.6 1.1 FY11 9.8 1.1 1.5 6.9 1.8 0.9

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FY12E 8.1 1.1 1.3 7.0 1.7 0.8

FY13E 7.3 1.1 1.1 6.5 1.5 0.6

Q1FY12 Highlights
ABG Shipyard has delivered 4 vessels in Q1FY12. Bulker capacity is full and hence the company wont be able to take more orders in this segment.

Other Highlights
Ministry of Commerce & industry has awarded industrial Licenses for Design & Construction of Defense ships to the Company. The Company is qualified for building: Naval Warships and Naval Support Ships etc. Submarines and Underwater Vessels. Fast attack Crafts, Weapons and Equipment including their Mounts, turrets, launchers, etc. along with associated systems, sub-systems and all types of assemblies for Navy, Army and the Air Force. Command Control Communication Computers and intelligence (C41) systems, Sub-systems, etc. for the Navy, Army and the Air Force. Propulsion system, Subsystems etc. for Naval Ships. Also licenses are issued for the Surat as well Dahej shipyards of the Company. ABG is one of the few yards that are being approved for submarine production as well. This opens a major opportunity for Defense shipbuilding in India, which is the one of the long term objective.

Key Concerns:
Orders inflows going forward

Sensitivity table
Sensitivity to 10% change in Re-pricing On FY12E EPS On FY13E EPS Source Company, Jaypee Research Re-pricing at 10% discount 37.9 33.1 Pricing at Par 46.5 51.3 Re-pricing at 10% premium 55.0 71.3

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11 August 2011

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Quarterly performance
` mn Net Sales Other Income Total Income Consumption Material Stores Other Expenditure Staff Cost Inc / Dec in stock Total Expenditure EBIDTA (without other income) EBIDTA Interest PBDT Depreciation PBT before Exceptional Item Exceptional Items PBT TAX Reported Profit After Tax Extra Ordinary Items Adjusted Profit after Extraordinary Items Equity EPS (Adj. Profit) EPS (Cash EPS) OPM OPM ( w/o OI) NPM (RPAT) NPM ( Adj. PAT) Source Company, Jaypee Research Q1FY12 5,226 28 5,254 3,233 972 191 (328) 4,067 1,159 1,187 364 823 230 593 593 (192) 401 401 509 8 12 22.7 22.2 7.7 7.7 Q1FY11 4494.5 25.0 4519.5 1142.0 610.2 139.3 1358.1 3249.6 1244.9 1269.9 420.7 849.2 136.6 712.6 -137.5 575.1 (191.0) 384.1 0.0 384.1 509.2 7.5 10.2 28.3 27.7 8.5 8.5 YoY% 16.3 11.2 16.2 183.1 59.2 37.0 (124.2) 25.2 (6.9) (6.5) (13.4) (3.1) 68.2 (16.8) 3.1 0.7 4.3 4.3 Q4FY11 5,320 0 5,320 2,612 1,336 188 277 4,412 908 908 170 737 179 558 0 558 (162) 396 396 509 8 11 17.1 17.1 7.4 7.4 QoQ% (1.8) 30,788.9 (1.2) 23.8 (27.3) 1.7 (218.6) (7.8) 27.7 30.7 113.7 11.6 28.0 6.3 (100.0) 6.3 18.8 1.2 1.2

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ABG Shipyard Limited

11 August 2011
Income Statement
` mn Revenue (Rs mn) Revenue growth (%) EBITDA EBITDA margin (%) Depreciation EBIT Other income Interest PBT Tax Adj. PAT FY11 21,369 17.9% 5,181 24.25% 685 4,496 54 1458 2,883 (914) 2,150 FY12E 25,215 18.0% 5,800 23.00% 865 4,934 87 1867 3,155 (789) 2,366 FY13E 30,259 20.0% 6,657 22.00% 960 5,696 106 2178 3,625 (1,015) 2,610

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Cash Flow Statement

` million PBT before extraord Items Add: Depreciation Add:Others Operating profit before WC changes Change in WC Cash generated from operations Other Cash flow from operating activities Cash flow from investing activities (I/D) working long term borrowings Cash flow from financing I/D in cash and cash equivalents Cash at beginning of year FY11 509 12,398 12,907 25,424 38,374 FY12E 509 14,433 14,942 29,022 44,007 FY13E 509 16,804 17,313 29,037 46,394 Cash at end of the year FY11E 2,883 685 1,458 4,815 7,172 11,987 (1,124) 10,863 (53) (3,551) (4,444) 6,366 284 6,649 FY12E 3,155 865 1,867 5,887 (11,074) (5,188) (789) (5,976) 3,244 3,598 1,400 (1,332) 6,649 5,318 FY13E 3,625 960 2,178 6,763 (4,583) 2,180 (1,015) 1,165 (1,000) 15 (2,401) (2,236) 5,318 3,082

Balance Sheet
` mn Sources of Funds Share Capital Reserves Shareholders funds Debt Total Liabilities Application of Funds Gross Block Depreciation Net Fixed Assets Capital WIP Investments Current Assets Inventories Sundry Debtors Other Current Assets Cash and Bank Balance Loans and Advances sub-total Current Liabilities Provisions sub total Net Current Assets Misc Expenses Deferred Tax Asset Total Assets 24,895 1,636 6,649 18,184 51,364 34,119 652 34,770 16,594 (4,033) 38,374 21,278 904 5,318 23,937 51,437 24,862 238 25,100 26,337 (4,033) 44,007 25,865 1,099 3,082 29,098 59,144 30,222 238 30,460 28,684 (4,033) 46,394 10,627 2,064 23,808 2,006 12,127 2,930 9,198 10,500 2,006 13,127 3,890 9,237 10,500 2,006

Key Ratios
Year ended 31-Mar FY11 24.2 9.1 15.0 11.3 17.9% -11.1% 2.0 9.8 7.3 7.3 1.5 FY12E 23.0 9.4 15.8 11.4 18.0% 22.0% 1.9 8.1 5.9 7.4 1.3 FY13E 22.0 8.6 15.1 12.5 20.0% 10.3% 1.7 7.3 5.3 6.8 1.1

Profitability Ratios
EBITDA margin (%) Net Profit margin (%) ROE (%) ROCE (%) Net Sales Growth (%) Net Profits Growth (%) D/E Ratio Valuation Ratios P / EPS P / Cash EPS EV/ EBIDTA P / BVPS

Less : Current Liabilities & Provisions

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11 August 2011

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Recommendation Structure: A Buy recommendation implies an upside of 10% or more from the current levels. A Sell recommendation implies a downside of 10% or more from the current levels. A Neutral recommendation implies an upside/downside of less than 10% from the current levels.

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