Angel Broking report on ABG Shipyard:

Investment Argument

Increased capacity to drive growth:

ABG Shipyard has done expansion at its existing Magdala yard, which now enables the company to simultaneously construct around 27 vessels on modular basis. Apart from this, the company is also doing a Greenfield expansion at Dahej, Gujarat. This shipyard, once completely functional will be able to built vessels up to 120,000 dwt and will be able to construct about 20 vessels per annum. The yard is expected to be completely operational by December-2008.

Orderbook on a high growth trajectory:

Riding on the robust demand for vessels, the company has witnessed a 20.5% CAGR of orderbook size over the period Q3FY2006 to Q1FY2008E (till 13 April, 2007). The existing orderbook of Rs 4,074cr is 5.67 times the revenues of FY2007E, which gives good visibility of revenues for the next 3-4 years. The last vessel to be delivered in the current orderbook is in FY2011.

FY2009 Revenue estimates revised upwards:

ABG Shipyard bagged repeat order from Lamnalco group for a value of Rs 60cr and Cyprus based Essar Shipping and Logistics Ltd. for a value of Rs 618cr. On back of these orders, we have revised our Revenue estimates for FY2009E from Rs 1399.4cr to Rs 1506.5cr and Net Profit estimates for FY2009E from Rs 231.3cr to Rs 248.9cr.

Valuation

At CMP, the stock trades at 10.0x FY2008E and 7.6x FY2009E on fully diluted Earnings of Rs 37.4 and Rs 48.9, respectively. Given the attractive valuation and robust growth, we continue to remain positive on the company's growth prospects and hence continue to maintain a Buy on the stock. We have upgraded our 12-month Target Price to Rs 500, giving a 34% upside.