Mazagon Dock Shipbuilders IPO opens today, gets thumbs up from brokerages

 The initial public offering (IPO) of state-owned defence firm Mazagon Dock Shipbuilders Ltd (MDSL) will open for bidding on Tuesday. The price band for the issue has been fixed at Rs 135-145 per share and the bid size is 103 equity shares and multiples of 103 shares thereafter.

The issue will close for subscription on October 1. The offer is expected to raise about Rs 444 crore at the upper end of the price band and at the lower range about Rs 413 crore.

The objectives of the IPO is to carry out the disinvestment of 30,599,017 equity shares constituting 15.17 per cent of company’s pre-offer paid up equity share capital and to achieve the benefits of listing on the stock exchanges, the company said YES Securities, Axis Capital, Edelweiss Financial, IDFC Securities and JM Financial are the managers to the offer.

MDSL is India's leading defence public sector undertaking shipyard under the Ministry of Defence (MoD). It is primarily engaged in constructing and repairing warships and submarines for MoD and other types of vessels for commercial clients.

Here's what leading brokerages suggest regarding the offer -

Geojit Research-- Subscribe

The company's current order backlog is Rs.540,74 crore, ten times the FY20 sales, which provides a strong visibility. New Defence procurement policy 2020, is expected to accelerate indigenization, which is positive for the domestic defence industry.

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

LKP Securities -- Subscribe

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 six months.

ICICI Securities -- Subscribe

MDSL, being the only shipbuilder to have built destroyers and conventional submarines, could have an edge in future orders. Considering the strong order book, superior infrastructure facilities, debt free status, one can expect a better growth outlook for the company in the long run. At the higher end of the price band of Rs 145, the stock is available at a P/E of around 6.1x (on post issue basis). We recommend 'SUBSCRIBE' on the issue with a view of listing gains.

Philip Capital -- Subscribe

Mazagon Dock's IPO valuations are at a 40 per cent discount to theoretical fair value that this business could command. Based on current visibility, we expect MDSL’s Revenue/EBITDA/PAT to grow at 22%/30%/9% CAGR over FY20-25 with ROE’s c.19 per cent. At IPO price, investors can earn 55 per cent returns just through dividend yields over FY21-25. In addition, we believe MDL is well positioned to win at least Rs 1tn of new orders over next 10 years out of Rs 2.1tn opportunity; this should help provide visibility on earnings beyond FY25.