Cochin Shipyard OFS: Institutional Bidders Commit ₹1,900 Crore, Govt Exercises Green Shoe Option

Cochin Shipyard OFS: Institutional Bidders Commit ₹1,900 Crore, Govt Exercises Green Shoe Option

Institutional Response to the Offer for Sale by Cochin Shipyard Institution interest saw an unprecedented kind of response to the Offer for Sale by Cochin Shipyard Ltd, which is India’s premier company for shipbuilding and maintenance. The Indian government is proposing a wholesale disinvestment of its equity stake by passing a 5% stake through the OFS route. With institutional bidders, the response has been good; in this first phase, an aggregate amount of ₹1,900 crore is committed. Considering this very strong response from institutional bidders, the government has now decided to exercise its green shoe option wherein it would sell additional stake in the company.

This is a significant step for Cochin Shipyard and the government’s divestment plan. Institutional participation has been better than expected: It reflects not only the belief in CSL’s operational capabilities but also positive sentiment toward India’s maritime sector. This blog shall cover key aspects of OFS, its significance for Cochin Shipyard, and how this could impact the company’s stock and future operations.

Background of Cochin Shipyard Limited

Cochin Shipyard was established back in 1972. It is one of the major shipbuilding and ship-repairing companies in India. Under the Ministry of Ports, Shipping, and Waterways, it constructs complex vessels, besides providing ship repair and maintenance services. Strong engineering, quality production, and prompt delivery have earned it credibility in defense and commercial shipping. CSL has, over the years, diversified its business activities into high-end offshore platforms and special-purpose vessels.

Cochin Shipyard went public with an Initial Public Offering in 2017, a move which the company has tapped the capital market with a thumping response, showing it stands on sturdy financials and prospects. CSL has been taking an active hand in some of the high-profile undertakings since listing, such as the first indigenous aircraft carrier for the defence of India, INS Vikrant. The OFS by the government is part of its larger approach to dilute the stake in PSUs and garner capital for development projects.

Offer for Sale Details

The Cochin Shipyard OFS was opened for institutional bidders on October 16, 2024. The retail investors will be allowed to participate on October 17, 2024. The government has planned to disinvest 5% equity stake, which works out to around 65.56 lakh shares at a floor price of ₹596 per share. Additionally, green shoe option allows for the government selling the excess 2.5% stake in case the issue is oversubscribed. It can potentially see the government divesting as much as 7.5% stake in Cochin Shipyard, all depending on demand.

Institutional Bidders Show Strong Interest

Institutional investors had committed ₹1,900 cr for the 5% stake on the first day of bidding, much higher than what was estimated. Such interest from investors is a great testimony to how optimistic institutional players are about the future prospects of Cochin Shipyard. The institutional component of the OFS got oversubscribed within hours and sent the government exercising the green shoe option.

Institutional investors are typically drawn to companies such as CSL on account of their strategic importance to businesses involved in key sectors such as defense and shipping, with guaranteed steady incomes due to consistent government contracts and long-term projects. The diversified portfolio of Cochin Shipyard encompasses the construction of specialized vessels for the oil and gas sector, tugboats, and passenger ships; with its growing order book for ship repairs, its investment appeal has grown manifold.

Government divestment strategy

This is also in line with the strategic divestment plan by the Indian government, which looks to attract capital by selling down stakes in the public sector undertakings. It’s looking for revenue to drive fiscal targets and help fund infrastructure and development projects. Divestment of a portion of its holdings in companies like Cochin Shipyard will help unlock value in those lines and increase the liquidity of those stocks in the market as well.

Besides, divestment will also bring financial discipline in the public sector undertakings by infusing private and institutional ownership, which ideally focuses on more performance-oriented concerns. For investors, it means reaching out to blue-chip companies with proven track records and potential for long-term growth.

Co-traversing Effect on Cochin Shipyard

Several positive outcomes can be expected from the OFS for Cochin Shipyard. First, it will increase free float in the market and improve liquidity and thus enhance attractiveness of the entity to investors, which can fetch a better price discovery. Second, this will attract a larger base of investors, including retail investors, who might be eyeing this as a good entry point into a high-performing PSU.

From an operational point of view, this is a good investment as it has a strong order book, diversified revenue streams, and strategic value to the defense sector of India. Cochin Shipyard, year after year, has given healthy financial performance with excellent revenue growth and profitability. Revenue growth was at 18% in the fiscal year 2023-2024, while net profit stood at ₹1,039 crore. Also, the company has a huge order backlog, and therefore it will have revenue visibility for some more years.

While there are continued orders such as special-purpose vessel building to the Indian Navy and entry into green shipbuilding with clean fuel power vessels, the competitive edge gets a boost through such investments.

CSL is well poised to exploit domestic and international opportunities through its investment in modernization and capacity expansion.

The Retail Investor Participation

The OFS opened for retail investors on October 17, 2024, and they can buy into Cochin Shipyard at a floor price of ₹596. There is bound to be strong demand for shares in view of the financial strength of the company, long-term contracts, and its strategic importance. Plus, given that the government has exercised the green shoe option, the scope for retail investors to garner benefit in case of price appreciation post-OFS is higher in that more shares are added to the market.

Conclusion

The recent OFS of Cochin Shipyard has attracted a lot of institutional investors to the offer, which reflects the sound fundamentals and growth prospects of the company. The intent of the government to exercise the green shoe option speaks about the robust demand for CSL shares. With a diversified revenue base, strategic importance in India’s defense and maritime sectors, and a healthy order book, Cochin Shipyard sits well on its pedestal to be able to deliver sustainable value to its shareholder.
It is in line with the government’s divestment agenda, unlocking value in public sector undertakings and raising capital for national development projects. This makes Cochin Shipyard a very compelling investment opportunity for retail investors looking to invest in a strong, growth-oriented state-owned enterprise.
Read More At Here

Disclaimer:

All above recommendations are of the market analysts. Neither the author, nor the brokerage firm, nor Stockstoday.in will be responsible for any loss arising out of any such decision taken based upon this information. All users are cautioned to take their own expert advice prior to making any investment decision.

Web Stories
India’s gig economy:
India’s gig economy:
India’s gig economy: