Brokerage house ICICIdirect.com is bullish on Pipavav Defence and Offshore Engineering and has recommended buy rating on the stock with a target price of Rs 80 in its research report dated March 13, 2015.
"Pipavav Defence and Offshore Engineering (PDOECL), spanning over 861 acres of land with two dry docking facilities of 662 m x 65 m (Dry Dock-1) and 750 m x 60 m (Dry Dock-2 under construction), is one of the largest defence shipbuilding facilities in India. The shipyard is capable of accommodating 400,000 dwt capacity ships along with construction and repair of a wide range of vessels starting from coastal and naval vessels together with repair and fabrication of offshore platforms and rigs. It also has a dedicated offshore yard with 175 m x 16.89 m quay consisting of both launching and loading platform together with installation of bollard and mooring rings. Recently, along with Larsen & Toubro, PDOECL was shortlisted for a potential Rs 60000 crore order to build six submarines for Indian Navy."
"Reliance Infrastructure together with its wholly-owned subsidiary Reliance Defence Systems Pvt Ltd has decided to acquire 13,00,00,000 equity shares from the promoters of PDOECL at Rs 63/share aggregating to ~18% shareholding in the company with an investment to the tune of | 819 crore. Reliance Defence Systems, a subsidiary of Reliance Infrastructure, has launched a mandatory open offer to acquire a 26% stake from the public shareholders of the company at | 66/share aggregating to | 1263 crore. In case Reliance Infrastructure is unable to acquire a total shareholding of 25.1%, it will acquire additional shares to the extent of the shortfall from the promoters at | 63/share. Post the transaction, existing promoters of PDOECL will continue to hold a minority stake in the company, together with two non executive Board seats. The acquisition would result in a change in management and control of the company. Post completion of the transaction, Anil D Ambani, will become the chairman of PDOECL."
"PDOECL, with one of the largest shipyards in the country, is well placed to take advantage of any policy change towards foreign direct investment (FDI) in the defence segment as the company already has a significant presence in the defence sector. The Government of India has approved 49% FDI in defence and is expediting indigenisation of defence procurement. PDOECL stands at a vantage point for the same owing to its superior infrastructure. Defence projects are usually long gestation. With Reliance Infra at the helm, we believe PDOECL is better placed than before to capture the humongous opportunity presented by the indigenisation of Indian defence procurement. We value PDOECL at 2.7x FY17 P/BV to arrive at a target price of Rs 80 with a BUY recommendation on the stock. We recommend that investors with a long term view not tender their shares in the open offer", say Icici Direct.com research report. Exhibit 3: P/BV trend.
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