AGB Shipyard : Will history repeat itself ?

Good IPO, but getting Allotment wouldn't be easy !
ABG Shipyard has eneterd the capital markets with an offer of 85 Lac shares at a price band of Rs. 155-185. This IPO reminds of the Bharti shipyard IPO which was offered at Rs. 66 and is currently trading at Rs. 338. SO the question arises , Will the History repeat itslef ? Can ABG repeat the Bharati story ?

Investment Guru analyse the IPO and answers the above question too.


What makes this IPO attractive ?
1. The shipyard industry is in limelight and has attracted investor attention. ABG will not be an exception to this.

2. The company is the largest private sector shipyard in India. It builds marine ships, including bulk carriers, deck barges, interceptor boats, anchor handling supply ships, driving support ships, tugs and offshore vessels.

3. It has built over 88 ships since its inception in 1990, and currently has an order book position for 27 ships under construction. The comapny's order book is worth Rs.1300 crores and 50% of this is from exports.

4. The Issue price at upper band of Rs.185 comes at a PE multiple of around 14 (considering annualised EPS of Rs. 13). However at wieghted average EPS of last three years, the issue comes at a PE of 17. The Bharati shipyard stock is currently trading at a PE of 25.

5. The company expeansion plans to set up a new shipyard at Dahej will start bringing fruits in another 3-4 years and hence the stocks looks good even from long term perspective.

6. The weighted average return on networth is to the tune of 33.8%

Concerns :
The company is running at 100% utilisation of its facilities. The time lag between the usage of the new facilities may show up on the returns of the company.
Since the company has a good share of export earning, competition from other countries like china may have impact on future earnings.

Investment Guru's Outlook on the IPO

Investment Guru recommends investors to apply for the IPO. The IPO will certainly not repeat the history of Bharati Shipyard. The reason behind this is that the Bharati IPO was priced quite conservatively and hence provided spectacular gains to Investors. This is not the case for ABG shipyard. The company has certainly left something for Investor but it is not copmarable to Bharati IPO. Given the small size of the IPO, one need to have lot of luck on his side to get allotment. The small size but huge apetite scenario will also lead to smart listing of the stock.
The IPO can also be used as a entry for long term investment in the stock. The shipyard sector is at the upward trend of its cycle and there are no near term concerns of its moving to downtrend.

Issue Opens: 18-Nov-2005
Issue Closes : 24-Nov-2005
Registrar :Intime Spectrum