Pipavav Shipyard to bid for defence, oil and gas projects

MoneyMorning.com/India_stocks

Pipavav Shipyard ended its first trading session at a discount of 1.72% to its issue price of Rs 58. The share closed at Rs 57 on the NSE. It touched an intraday high of Rs 61.10 and intraday low of Rs 53.85. The total traded quantity was 8,11,64,726 shares and turnover was at Rs 46685.95 lakh.

Talking on the listing, Pipavav Shipyard’s Chairman Nikhil Gandhi said the company was in the process of putting bids for defence and oil and gas projects.

The company, he said, had put tenders worth Rs 7,500 crore for defence projects. Gandhi added that he saw FY10 revenues at Rs 800–1,000 crore.

Ravi Kapoor, Managing Director and Head, Equity Capital Markets, Citigroup, said that the company may see additional USD 15 billion fund raising by FY10.

Here is a verbatim transcript of the exclusive interview with Nikhil Gandhi, Luv Chhabra, Director-Corporate Affairs, Punj Lloyd and Ravi Kapoor on CNBC-TV18. Also watch the accompanying video.

Q: We heard yesterday about the two large deals that you were in conversations with, with naval forces both in Oman and in India- what are the chances at this point that they fructify and what would that mean to your order book?
Gandhi: It is always our endeavour to put in the best possible bids which would satisfy the clients and also make sure that our EBITDA margin is not compromised. Having build world-class infrastructure, we will have slight upper hand over several other international companies of our stature and size. I believe that Pipavav has good chance to put in competitive bids.

Q: Which ones do you think have higher chances of coming through because the Oman orders totally the bids are about USD 4 million and the Indian naval order is about 1.3? These are the kind of orders that investors would like you to book now from the naval and the defence side, which do you think you have a better shot at?

Gandhi: We are the first company in the private sector approved by the Oman Ministry of Defence. They have looked at our facilities and this is a world class infrastructure, and hopefully, they may want to use these facilities and that is one of the reasons they have approved our company. So we are very positive about these developments. And it’s a nice situation to be in on the first day to be starting business with some of the top Indian entities like Navy and Coast Guard. Royal Navy in the Oman has also approved us as a warship builder, primarily, because of experience of our partner Punj Lloyd and the infrastructure that we have build here, would perhaps be a point which might tilt the decision in our favour.

Q: Are you expecting to see a bit of supply pressure though in the first few days before Pipavav finally settles down?
Kapoor: It is quite imminent. In every listing’s first two-three days there are huge volumes and I am sure this is going to be no different. Investors would like to sell and buy quite heavy volumes. I guess the volumes will settle and the stock will find its rightful place, and thereafter, obviously, it will have to perform as per the potential which is huge.

Q: You will be more at liberty now to talk about growth as you see it, not so much for FY10 what kind of target can you hold out for FY11 and FY12 now to your investors?
Gandhi: First and foremost we are right now in the receipt of extremely large tender from both national and international defence agencies. We are in the process of putting in the tenders together. We have already put in worth about Rs 7,500 crore plus to the Indian Naval authorities. We are in the process of putting in rest of the bids to the different potential client both in oil and gas sector, defence sector and international potential customers.

Since we have built first of its kind in the country, a most modern state of art engineering complex, fabrication complex and dry dock attached to it, people are not only excited about building their assets here. It is because of the kind of infrastructure we have set up for example loss of wastage of steel, etc. which will be very less compared to any other similar facilities in the country. We are quite upbeat about ramping up the revenues. The current year revenue is likely to be in the region of Rs 800–1000 crore. The ramping-up would be pretty rapid because we do have the capacity and the potential clients want fast forward the deliveries of their requirements and there is a huge pent up demand in the country. I think we would be in for a significant excitement going forward.

Q: What's in your eyes the possibility of Pipavav bagging the Oman or the Indian Naval order?

Chhabra: I would leave that to Mr. Gandhi to reply. I think there is much or equally large opportunity that we have spoken about and that’s really the offshore oil and gas opportunity. If you look at the spends, just by ONGC, that are planned on the offshore side over the next five–years it is likely to be in excess of USD 20 billion. The combination of Pipavav and Punj Lloyd will be a formidable combination to address this market. The facilities in Pipavav are world-class. They are one of a kind; certainly unmatched in India. The ability to construct and fabricate platforms, jackets and then the ability of Punj Lloyd to lay the offshore pipelines, erect the platforms is a huge opportunity here.

So the opportunities will be on the naval side as Nikhil Gandhi mentioned. There will be an equally large opportunity that Pipavav will address on the offshore oil and gas side and then going forward as the shipyard develops and gets more experience there will be another opportunity which is really on static equipment and on the nuclear side which is really to fabricate nuclear components for reactors and other pressure vessels.

Q: Last we spoke you said you were expecting to see a USD 12–15 billion by way of paper that will hit the primary market in whatever form for the rest of this year. Do you think that figure might actually get surpassed and how much of this is impacting what is happening in the currency markets because you are in a good place to talk about that?
Kapoor: I still maintain that USD 12–15 billion or maybe the way it is looking like the pipelines are building up on capital raising programmes on a daily basis, IPOs are queuing up with Sebi. Therefore, the number could be in excess of USD 15 billion by the time we finish this year. We have already raised about USD 16–16.5 billion in the first 4–5 months ever since you have seen these markets moving back and liquidity coming back into the country, so I still maintain that number.

I would imagine that it would primarily comprise of QIPs and IPOs, essentially, from the real estate sector, power sector infrastructure construction sector. The QIP also the pipeline is quite heavy and you have seen new structures are coming up to clear the QIP pipeline.

Finally, as I have been maintaining on your programme that the government disinvestment is inevitable you must have seen RECs going through the process and couple of other companies will come up for disinvestment in the next six months of this financial year. So there would be a fairly busy pipeline. The flows are coming in and needless to say it is going to help the currency upwards, the currency is likely to appreciate in the short-term because lot of liquidity is coming in.