Pipavav Defence and Offshore Eng Ltd (PDO): Seems Temporary Bottom has been Formed

Company Overview:
1. Pipavav is India‟s first world class Defence, Ship Building & Offshore Infrastructure Company.

2. Pipavav is India‟s first private company to get License and Contracts to build warships for the Indian Navy.

3. Pipavav is the first company in the country to have been approved as a partner of choice by Mazagon Docks to build frontline warships, to help them liquidate their multi billion dollar contracts.

4. Pipavav owns the country‟s first and only Modular Shipbuilding Facility with the largest Dry Dock, armored with the country‟s first fully scalable and expansion accommodating capacity.

5. Pipavav owns the country‟s only facility capable of accommodating the largest Aircraft Carriers and other strategic vessels for docking, maintenance and repair.

6. Pipavav has an undisputed upper hand in terms of Infrastructure, Team on the ground and critical Technology & Strategic tie-ups.

Caution:

(i) Margins might continue to remain under pressure due to increased raw material cost.

(ii) Commercial order book execution remains under a cloud. 
(iii) Poor shipbuilding market has resulted into deteriorating revenues and profitability over the last few quarters for PDO. Order book on paper worth around Rs.12, 000 Cr looks strong, but a large part of the order book may be vulnerable to cancellation. 
(iv) Currently the shipbuilding market is precariously placed with: a) Demand levels falling below the construction capacity, 
b) Contract cancellations and 
c) Lack of financing options for buyers. 

Profitability of PDO might therefore, be under pressure due to poor shipbuilding market, high interest cost and increasing contingent liabilities. 

However, it can be compared with big yards in Japan and Korea as it has huge infrastructure and opportunities in defense. According to Live Mint, September, 23, 2014, the government of India, is likely to extend shipping subsidy period. The said Extension is likely to benefit shipyards that are still building ships under contracts signed when the scheme was on, and even for some which have already delivered ships but awaiting subsidy 

Kotak Securities in its June 25, 2014 research report has said that the company is planning to raise around $150 million through a listing on the London Stock Exchange or a strategic stake sale. The brokerage house, holds the view that the company is expected to utilize the proceeds, to convert its second wet dock into a dry dock, by end of CY17. This is likely to double the capacity for PDO from current Rs.60 bn to Rs. 100 bn in terms of revenues. 

According to the Business Standard, September, 15, 2014:

To promote shipping industry, the government plans to come out with a ship building scheme to encourage India ship yards to bag foreign ship building orders. A Cabinet note with this regards has been prepared, minister for Road Transport and Highways Nitin Gadkari said in his conference on 100 days of his ministry. 

At the CMP of Rs.38.75, it is a sure shot BUY for the long term (18 months perspective) with a price target of Rs.90.