Mazagon Dock Shipbuilders Listing: Equity Shares will list on Bourses today; Strong listing gain is expected

The public sector undertaking defence company Mazagon Dock Shipbuilders share is set to debut on bourses today, October 12, 2020, after a stellar IPO subscription.

The Rs 444 crore initial public offering (IPO) was subscribed 157.4 times, which is the highest subscription till now in 2020. The response was also the highest-ever response to a PSU issue. The issue price has been fixed at Rs 145 per share at the higher end of the price band.

The IPO by the 'Miniratna' ran from September 29, 2020, and October 1, 2020, and was sold in the Rs 135-145 price band. The portion reserved for high net worth individuals (HNIs) in the issue was subscribed nearly 679 times, while that reserved for retail investors was filled in nearly 35.63 times. The portion reserved for qualified institutional buyers (QIBs) was subscribed 89.71 times, while employee quota received 3.88 times bids.

The strong order book, stable business, debt-free books, and a reasonable valuation, it gives a sense that the equity shares of the Mazagon Dock will see a bumper listing with at least more than 50 per cent gains over the issue price, though the premium has been reduced from around 100 per cent.

Mazagon Dock Shipbuilders Ltd (MDSL) is India's leading Defence public sector undertaking shipyard under the Ministry of Defence (MoD). Mazagon Dock is primarily engaged in constructing and repairing warships and submarines for MoD and other types of vessels i.e. cargo ships, multipurpose support vessels, barges and border outposts, tugs, dredgers, water tankers, etc. for commercial clients.

Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 6.1x FY20 earnings (at the upper end of the issue price band), which is lower vs. peers like Garden Reach Shipbuilders and Cochin Shipyard (trading at 12.2x and 6.6x of its FY20 earnings, respectively).

Further, MDSL has a healthy ROE of 16 per cent coupled with highest dividend yield (7.4 per cent) and higher cash on balance sheet among its peers.