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Published on: Oct. 9, 2020, 1:35 p.m.
MDL steams ahead
  • MDL: the only shipbuilder to have built destroyers and conventional submarines

By Sarosh Bana. Executive Editor, Business India

After the indifferent response to the two recent Initial Public Offerings (IPOs) of Defence PSUs (DPSUs) Hindustan Aeronautics Ltd and Bharat Dynamics Ltd, the IPO of the Mumbai-based ship-building DPSU, Mazagon Dock Ltd (MDL), positively lit up the markets.

Robust demand led to the issue being oversubscribed two times the very day it opened, on 29 September, and by 1 October when it closed, the offer broke all PSU records by being subscribed 157.4 times. The public issue received bids worth nearly Rs70,000 crore for 481.6 crore equity shares against an offer size of 3.06 crore shares worth Rs444 crore. The offer was in the price band of Rs135-145 per share.

The previous best public sector IPO had been the one a year ago of the Indian Railway Catering and Tourism Corporation Ltd (IRCTC). The Rs645 crore issue had been oversubscribed almost 112 times. In fact, MDL’s IPO raced past even that of the private sector Happiest Minds of 7-9 September, which was subscribed 151 times.

While retail investors oversubscribed MDL’s offer by 35.6 times, non-institutional investors increased their bids significantly on the final day to see their reserved portion being subscribed by 679 times. The portion meant for Qualified Institutional Buyers (QIBs) was subscribed 90 times.

The government was offloading 15.17 per cent of its share in state-owned Mazagon Dock, designated a ‘Miniratna’ in 2006. YES Securities, Axis Capital, Edelweiss Financial, IDFC Securities and JM Financial were the managers to the offer.

Aborted IPO two years ago

Calling the IPO “extremely successful”, MDL Chairman and Managing Director, Vice Admiral Narayan Prasad (retd), pointed out that it had been at the planning stage for the last two years. MDL had indeed secured SEBI approval two years ago for an IPO, but had not gone ahead, possibly deterred by the woeful result of the IPO around that time of Kolkata’s Garden Reach Shipbuilders & Engineers (GRSE), also a Miniratna under the Ministry of Defence (MoD) that makes warships for the Indian Navy and the Coastguard. In a miserable showing, GRSE stock had plunged to a 13 per cent discount to the issue price of Rs118, eventually requiring more than 60 per cent of the Rs345 crore issue to be subscribed by government firms such as SBI, PNB, LIC and GIC.

Originally established in 1774 and nationalised in 1960, Mazagon Dock has grown to become India’s premier warship building yard. It was one of two companies – the other being the private sector Larsen and Toubro (L&T) – to have been shortlisted recently by the MoD for the Rs55,000 crore Project-75 (India) for producing six new generation stealth submarines. The Request for Proposal will be issued shortly for selecting the foreign manufacturer who will tie up with the Indian partner.

  • MDL is planning on developing a greenfield shipyard across the Mumbai harbour at Nhava/Gavan, with a shiplift, wet basin, workshops, stores, and a ship repair facility spread over an area of 40 acres

Apart from constructing, and repairing and refitting, surface and undersea combatants, MDL also makes and repairs commercial vessels like cargo ships, multipurpose support vessels, barges, tugs, dredgers and water tankers. It has to date built 795 vessels, including 25 warships, four missile boats, three submarines, six Leander class, three Godavari class and three Shivalik class frigates, three corvettes, and six destroyers.

Recommending “buy” for the offer, ICICI Securities had commented that as MDL was “the only shipbuilder to have built destroyers and conventional submarines”, it could have an edge in future orders. It predicted a better growth outlook for the company in the long run, considering its strong order book, superior infrastructure facilities, and debt-free status.

MDL’s total income grew from Rs5,252 crore in 2018-19 to Rs5,567 crore last year. Its profits, however, sagged from Rs517 crore to Rs415 crore over these last two years. Its order book, as on 30 June 2019, was worth Rs54,283 crore for building four P-15 B destroyers, four P-17A stealth frigates, five P-75 Scorpene class submarines, repairing and refitting a ship, and one medium refit and life certification of a submarine for the Indian Navy.

With its activities expanding, MDL is planning on developing a greenfield shipyard across the Mumbai harbour at Nhava/Gavan, with a shiplift, wet basin, workshops, stores, and a ship repair facility spread over an area of 40 acres. It seeks to initiate infrastructure development upon securing “all relevant title of land and statutory clearances”.

The company is besides acquiring a contiguous land parcel from the Mumbai Port Trust (MbPT) that will help expand still further its capacity and capability to undertake refits and repairs simultaneously with new builds.

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