Indian Naval Shipmaker Mazagon Dock’s ₹444 crore IPO opens today— Here’s what works for it and what doesn’t

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The state-owned defence firm Mazagon Dock Shipbuilders is set to float its ₹444 crore initial public offering in the market on September 29. The company has fixed the price band for the IPO at ₹135-145 per share.

The IPO will remain open for subscription until October 1, and the shares are likely to list on both the stock exchanges— BSE and NSE on October 12.

What does Mazagon Dock do?

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Mazagon Dock Shipbuilders is a wholly-owned Indian Government company, conferred with the ‘Miniratna-I’ status in 2006, by the Department of Public Enterprises. The company is engaged in the construction and repair of warships and submarines for the Indian Ministry of Defence for use by the Indian Navy and other vessels for commercial clients.

INS Delhi built by Mazagon Dock Limited in MumbaiMDSL

The company has also manufactured cargo ships, passenger ships, supply vessels, multipurpose support vessels, water tankers, dredgers, fishing trawlers, barges, and border outposts for various Indian and foreign customers.

Here’s what makes the IPO hot!

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Its monopoly in the sector, says JM Financials

According to JM Financials, its monopoly of being the only public sector defence shipyard constructing conventional submarines makes it an attractive bid for investors. Mazagon Dock is the only domestic yard that can build complex platforms such as Destroyers, Frigates, Corvettes, and conventional submarines.

Strong order book and great revenue visibility, says Angel Broking

According to Angel Broking, Mazagon Dock has a strong order book of around ₹ 54,074 crore currently, which provides revenue visibility for the long-term. The order book comprises:
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  • Four P-15 B destroyers
  • Four P-17A stealth frigates
  • Repair and refit of a ship
  • Four Scorpene-class submarines
  • One medium refit and life certification of a submarine.
“MDL’s current order book is 11 times its FY20 revenues; this offers a runway for revenue growth for the next five years as it achieves the ‘bell curve’ impact on two of its largest shipbuilding projects viz. project,” the JM Financials report said.


India’s focus on indigenisation to boost Indian defence sector

Mazagon Dock’s focus on indigenisation under ‘Make in India’, ‘Atmanirbhar Bharat,’ will be positive for growth. Recently Indian banned 101 defence items, which indicates the government’s focus on indigenisation to promote and create opportunities in the Indian defence sector. According to Angel Broking, such moves by the Indian government would be beneficial for companies like MDSL.

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Narayan Prasad, CMD, Mazagon Dock Shipbuilders LtdMazagon Dock Shipbuilders Ltd

Here are some of the key challenges that the company faces:

Dependence on the Ministry of Defense

According to the HDFC report, Mazagon Dock is predominantly dependent on the Indian government for defence orders and has mostly been awarded such orders on a nomination basis by the MoD for use by the Indian Navy. However, the reports say that there is no assurance that future defence orders will be awarded to it by the MoD and which will impact its future revenue.

It furthers says that “any decline, delay or reprioritisation of funding under the Indian defence budget or that of customers including the MoD for use by the Indian Navy could adversely affect MDSL’s ability to grow or maintain its sales, earnings, and cash flow.”
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Dependence on equipment import

The HDFC report highlighted Mazagon Dock’s high dependency on foreign sources for equipment, weapons, sensors, and propulsion systems. And, any kind of delay in imports may impact their business. Mazagon Dock is also subjected to risks arising from currency exchange rate fluctuations, which could adversely affect the business, financial condition, and results of operations.

SEE ALSO: Three more IPOs to hit the Indian market next week — Mazagon Dock Shipbuilders, UTI AMC and Likhitha Infrastructure

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