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S. Vaidya Nathan

AN investment may be considered in the stock of Bharati Shipyard, as a rising order book, expansion in capacity, and modernisation that would enable it build a wider range of ships, promise robust revenue and earnings growth.

The stock, which trades at about Rs 160, has more than doubled when compared with the initial public offering price of Rs 66. We still remain bullish on the prospects of this small-cap stock that trades at a price earnings multiple of about 10 times its likely FY-06 earnings.

The modernisation and expansion plans are likely to be completed in a phased manner over the next 15 months. The revamp of a ship building facility acquired last year is also likely to lead to a scaling up of revenues. An order book of about Rs 750 crore makes for a high degree of clarity on revenues over at least a two-year period even if the company maintains its FY-05 growth rate of about 50 per cent.

As major shipyards in key shipbuilding destinations such as South Korea and Japan and emerging ones such as China and Brazil have booked orders that are likely to keep facilities humming over the next three years, growth prospects for smaller players are encouraging.

In this backdrop, the recent orders that Bharati Shipyard has bagged from European customers in 2005 is likely to act as a good reference point for bagging further business. Orders from domestic players for ships used in exploration and coastal shipping is also likely to drive further growth in order book and this augurs well for revenue and earnings growth.

A delay in the completion of its expansion and modernisation programme is the principal risk to growth and as such, to our recommendation.

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