Saturday, February 25, 2012

ABG Shipyard Bought by Macquarie Bank, Despite Rally and Poor Q3



Rishi Agarwal,
Chairman, ABG Shipyard Ltd.

By Special Correspondent:

ABG Shipyard Ltd (BSE: 532682, NSE: ABGSHIP) on Friday had  a significant  buy of 2.93 lakh shares by the FII, Macquarie Bank Ltd, amounting to 0.58% of the total shares in the company. 
  
Purchase by Macquarie Bank, worth Rs. 12.41 crore, occurred in NSE. Notably, there were no identifiable institutional sellers or promoters, as counterparties to the buy, which means that it was picked up by Macquarie from the wider market.

Promoters of ABG Shipyard holds a 61.83% stake, as per Q3, which is quite healthy and relatively high by Indian standards. Compared with Q3 of last fiscal, their stake stands raised by a significant 1.48% now, with promoter buys coming in during three out of last four quarters.

ABG Shipyard Ltd is India’s largest listed private sector shipyard by FY’11 sales. It specializes in ship building and repair works and has a clientele from many sectors in India including defense, and from many parts of the world. Its clients include oil support companies, fleet service providers, defense units like Indian Coast Guard, and industries in cement, steel etc.

Macquarie Bank is a rather choosy investor in India, preferring select stocks in sectors like realty, finance, banking, and infrastructure. Some of Macquarie’s largest holdings in the country’s listed space are Indiabulls Real Estate, Magma Fincorp, Karnataka Bank, IVRCL, and Ansal Properties & Infrastructure.

Macquarie Bank Ltd, is part of the Australian financial services major Macquarie Group, which  is a leading provider of banking, financial, advisory, investment and funds management services. Macquarie Group Ltd is publicly listed (ASX:MQG), and is Australia’s largest investment bank as well as largest M&A advisor. In Indian capital market, Macquarie Bank Ltd is one of the 14 FII accounts and sub-accounts of the Macquarie Group.

On the fundamental side, even though ABG Shipyard had grown its consolidated revenues impressively during the last four fiscals, on the profits front the performance was not up to the mark. While revenue grew by over 200% in this period, bottomline grew by only around 70%. 

Especially hit was last fiscal, when consolidated net profit dipped by nearly 10%. Coming to the fiscal year-to-date or nine-monthly performance, standalone bottomline has definitely improved, rebounding convincingly from the corresponding period of last year.

However, the good performance was aided more by Q1 & Q2 numbers. In the recently announced Q3 results, though total revenue has increased by 14.63%, net profit has dipped year-on-year by 13.06%. 

Signaling that there is margin pressure in the core activity, operating profit margin too was affected, with OPM losing 2.13% to mark 20.42% now. Significantly, bottomline has also dipped on a quarter-on-quarter basis.

Macquarie seems to have taken its buy cue from the good recovery seen in Q1 & Q2, which is propping up the nine-monthly numbers still, as well as recent order wins by ABG. 

Around two weeks before publishing the bad set of Q3 numbers, ABG Shipyard had published a recent order win from Shipping Corporation of India (SCI) for building six new vessels. The order is significant as not only is it worth Rs. 500 crore, but it is deliverable within the next 15-25 months. 

Rs. 500 crore revenue visibility, spread over the next two fiscals, is of positive impact to ABG, as it comes to about one-fourth of the current revenue run rate.

The overall order book is also strong at around Rs. 16,600 crore.

ABG Shipyard’s stock has had a reasonable market performance in the fiscal year-to-date on back of the good recovery in Q1 & Q2, and on anticipation of a good set of numbers in Q3. 

Unlike the general market, ABG had soared from a 52-Week Low of Rs. 322.10 in BSE on 18th August to a 52-Week High of Rs. 463.20 on 16th February - a gain of nearly 44%.

Though Q3 has now disappointed badly, the scrip has not fallen much, still buoyed by the order wins.

Though FIIs hold 11.28% in ABG Shipyard, large presence by marquee names from the foreign institutional investor space are still missing. It will be interesting to watch whether other FIIs will take a cue from Macquarie Bank’s entry.

Major investors in ABG Shipyard include Religare Finvest, ICICI Prudential Life Insurance Company, India Fund Inc, Religare Securities, and Reliance Capital Trustee Company. It will be also interesting to watch whether any of these holders will sell now due to the good run-up in share price as well as the poor Q3.

On Friday, ABG Shipyard closed trade at Rs. 420, up by 1.52%. Macquarie Bank’s buy was executed higher, at Rs. 423.64 a share.

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