After a record subscription, Mazagon looks set to break defence IPO jinx

NEW DELHI: At 157.41 times subscription, Mazagon Dock Shipbuilders attracted the highest ever interest amongst all PSUs that have hit the primary market. It beat IRCTC, whose initial public offer (IPO) last year, drew 109.75 times subscription.

With a strong grey market premium, the 'Miniratna' company now looks set to break the jinx of poor debuts by defence PSUs on Dalal Street.

Data showed HAL, the largest defence PSU in terms of value of production, had listed at a 5 per cent discount to its issue price on March 28, 2018. The scrip got listed at Rs 1,152, down 5.19 per cent on NSE. It listed at a discount of 3.08 per cent on BSE.

Missile maker Bharat Dynamics, which manufactures anti-tank guided missiles (ATGMs) and surface-to-air missiles (SAMs) and is a co-development partner with the DRDO for the next generation of ATGMs and SAMs, had listed 13.55 per cent down at Rs 370 over the issue price of Rs 428 on NSE. The stock had fallen 15.88 per cent on BSE when it was listed on March 23, 2018.

Mishra Dhatu Nigam, which supplies various super alloys and special steels to defence and other strategic sectors for nuclear, aeronautical and space applications, also had a muted debut in 2018. It listed at Rs 87, down 3.33 per cent over the issue price of Rs 90. This company also comes under the Ministry of Defence.

Cochin Shipyard had debuted flat at Rs 435 over the issue price of Rs 432 in August 2017. This state-run firm, however, does not come under defence, but the shipping ministry. At the time of its IPO, the shipyard was in the race for three major tenders for the Indian Navy. The company is now constructing the largest warship for the navy i.e. the Indigenous Aircraft Carrier (IAC), according to the company's website.

Garden Reach Shipbuilders & Engineers (GRSE), a Kolkata-based 'Miniratna' company that makes warships for the Indian Navy and the Coast Guard, fell 13.14 per cent at listing to Rs 102.50 in October 2018 over its issue price of Rs 118. On BSE, the scrip had debuted at Rs 104, down 11.86 per cent.

"Mazagon has a strong order book, which gives it strong earnings visibility. There is a difference between Garden Reach and Mazagon as the latter has a near monopoly in the business it deals in. This is in comparison with shipbuilder Garden Reach which has competition from private players. When it comes to listing, you can compare it with Power Grid. The stock is trading at Rs 110-120 premium in the grey market," said Narottam Dharawat of Dharawat Securities.

Mazagon Dock's order book stood at Rs 54,700 crore as of March 31, which included work for building eight warships and four submarines. It is the only domestic yard that has the capability to build complex platforms such as destroyers, frigates, corvettes and conventional submarines, Phillip Capital said in a note.

The brokerage said: "The company's current order book is 11 times its FY20 revenues, which 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 15B (Destroyers) and Project 17A (Frigates). In addition, its associate company, Goa Shipyard (47.2 per cent stake), also enjoys a healthy book to bill of 15 times trailing 12-month sales as it executes order for two advanced frigates."

BEML, meanwhile, had a strong 11 per cent listing pop, but that was in 2007.