Mazagon Dock Shipbuilders IPO analysis

Mazagon Dock Shipbuilders IPO analysis

Last updated: 29 Sep, 2020 | 01:17 pm

Mazagon Dock Shipbuilders IPO analysis

The IPO of defence PSU Mazagon Dock Shipbuilders Ltd (MDL) to raise up to ₹444 crore opened for subscription today.

About Mazagon Dock Shipbuilders

  • Mazagon Dock is a public sector defence shipyard company which constructs conventional submarines with a maximum shipbuilding and submarine capacity of 40,000 DWT. It received the 'Miniratna' status in 2006, is the only shipyard to have built destroyers and conventional submarines for the Indian Navy. The government plans to sell over 15% stake as a part of its divestment programme.

Company’s business

  • As of now, Mazagon Dock has built 795 vessels, including 25 warships, 4 missile boats, 3 submarines, 6 Leander class frigates, 3 Godavari class frigates, 3 Shivalik class frigates, 3 corvettes, and 6 destroyers.
  • “MDL’s strong order book from its shipbuilding and submarine & heavy engineering segment stood at ₹54,074 crore as of July, 2020. This provides long-term revenue visibility.”
  • MDL expects to have a decent order pipeline in the next one to three years with several projects lined up from Indian Navy and Indian Coast Guard worth  ₹20,000 - ₹30,000 crore


  • “Mazagaon Dock’s Revenues (29% CAGR) and EBITDA (9% CAGR)  grew at a healthy rate annually between FY17-20. In FY20, the firm has reported a 10.3% YoY decline in profit to ₹477 cr.”
  • EBITDA margins have improved from 2.9% in FY17 to 4.8% in FY20. However, net profit has declined at a CAGR of 7% from FY17-20.
  • The company gets 100% of its orders from the Ministry of Defence (MoD), out of which  93% constitutes Shipbuilding. Currently, Ship Repairs constitute about 3.5% of the total revenue. This is expected to reach 15-20% of total revenue in the next 5 years.
  • Mazagon Dock has healthy RoE of around 16% in FY20, and a high dividend yield (7.4%). It has been paying a dividend in the last 15 years. 
  • Mazagaon Dock has a healthy cash balance of about ₹5,798 crore (28% of Total Assets). Further, it is a debt-free company. However, the Cash Flow from Operations have been declining in the last two years.

About the issue 

  • Issue open:  29 Sep - 1 Oct 2020 
  • Price band ₹135-₹145
  • Issue Size : ₹443.7 crore 
  • Offer for sale: 3.06 crore share sold by the Government  
  • Reservation for QIB - 50% , Retail -35%, Non institutional Investors -15%. Employees: 3 lakh shares
  • Bid lot: 103 shares, and in multiples thereafter

INDmoney Analysis

At the higher end of the price band of Rs 145, Mazagon Dock is priced at a PE of 6.11 times, based on FY20 EPS of ₹23.70. This is lower compared to listed industry peers Cochin Shipyard (PE of 7.81) and Garden Reach Shipbuilders (PE of 15.19). Given factors such as a healthy order pipeline, decent return ratios, debt-free status, dividend history and attractive valuations, we remain positive on the prospects of this issue.