Dalal Street

SBICAP Securities just a while ago have released a research report on the Ship Building industry in India. SBICAPs is bullish on the prospects of the same. You might recall that Citi had upgraded Bharti Shipyard and ABG Shipyard just last month.

SBICAPS research on these two companies is no different from Citigroups. SBI recommends a BUY on Bharti Shipyard and ABG Shipyard with target price of Rs 660 and Rs 570 respectively.

Bharti Shipyard Ltd:
The government has initiated an array of measures to promote the shipyard industry and make it internationally competitive. Bharati had a healthy order book of 38,500 mn as on July 8, 2007 which is one the highest amongst the private sector shipyards in India. The Company has undertaken a new Greenfield shipbuilding facility at Mangalore. The new yard will have a capacity to build ships with capacity of 60,000 DWT and facility to manufacture jack-up rigs. Offshore vessels (AHTS, PSVs and rigs) remain the mainstay of Bharati Shipyard limited – comprising about 70 % of the order book.

Going forward Bharati is likely to show a robust growth. The stock, at the current price of Rs 530 trades at a FY08 PER of 14x and at a FY09 PER of 10x. In terms of EV/EBIDTA it trades at 8.4x FY08E and 6.3 FY09E. At the target price of Rs 660, the stock would be trading at PER of 17x its FY08E, thus providing an upside potential of 24% from current levels.

ABG Shipyard Ltd:
ABG had a healthy order book of Rs 40740 mn as on June 25, 2007 which is the highest amongst the private sector shipyards in India. These orders are expected to be executed by, November 2011. Offshore vessels (AHTS, PSVs and rigs) remain the mainstay of ABG Shipyard limited – comprising about 70 % of the order book. Company’s Dahej facility is expected to be commissioned in FY09. The new facility will consist of two dry docks capable of accommodating eight bulk carriers up to a maximum weight of 120,000 DWT.

Going forward ABG is likely to show a robust growth. The stock, at the current price of Rs 450 trades at a FY08 PER of 14x and at a FY09 PER of 9. In terms of EV/EBIDTA it trades at 7x FY08E and 4.8 FY09E. At the target price of Rs 560, the stock would be trading at PER of 17x its FY08E, thus providing an upside potential of 24% from current levels.

In a research report released just a while ago, Citigroup has revised the target price for BHEL to Rs 1,923 from Rs 1,672.

India’s generation capacity additions are set to move from a 5GW/year over the last five years to a 14GW/year over the next five years. As the generation capacity addition opportunity grows in size, BHEL could make do with a 50–60% market share vis-a-vis the earlier 65 -70% market share to meet its growth target of 20% sales CAGR over the next five years.

BHEL is our top Indian electric equipment pick. Citi Increases target price to Rs1,923 (from Rs1,672 earlier) as we increase our target P/E multiple to 23x FY09E (20x FY09E earlier) on par with other Indian capital goods majors (L&T/ Suzlon). Our target multiple is well supported by EPS CAGR of 27% over FY07-10E with RoEs in the 25–30% range.

BHEL is expected to report a fully diluted EPS of Rs 66.33 and Rs 83.61 for FY2008 and FY2009 respectively.