The IPO of Mazagon Dock Shipbuilders (Mazagon) — a defence PSU — joined the list of firms that have had a sterling debut. The stock listed at ₹216.25 — a gain of about 49 per cent compared to its offer price. It, however, dipped 20 per cent intra-day and closed at ₹173.

At the issue price, Mazagon was valued at 6.8 times its FY20 earnings. At the last traded price, the stock is valued at nearly 8.1 times. Its listed defence PSU peers — Garden Reach Shipbuilders & Engineers (GSRE) and Cochin Shipyard — currently trade at 18 and 7.8 times their trailing 12-month earnings. In our view, post the listing gains, Mazagon seems over-valued, given its mediocre financial metrics and weak earnings growth visibility in the near term.

However, investors seemed to have attached value to its dominance and expertise in the warship-building space, strong outstanding order book and healthy cash reserves. Assured dividends by CPSEs, could also be a contributing factor.

AatmaNirbhar Bharat theme

Playing on the themes of ‘AatmaNirbhar Bharat’ and the recently formulated ‘draft Defence Production and Export Promotion Policy 2020’, the IPO of Mazagon was subscribed by 155.5 times.

With Mazagon having broken the records, in terms of subscription, the listing was expected to be on par with IRCTC — which emerged as an IPO hero, last year. The IPO of IRCTC, launched in September 2019, was subscribed by 109 times. The stock saw listing gains of over 101 per cent and has been on a dream run ever since. However, Mazagon seems to be better off when compared to its peers — GSRE and Cochin Shipyard, that were listed in 2018 and 2017, respectively. While the former listed at a 12 per cent discount to its offer price, Cochin Shipyard fetched its IPO investors a one per cent gain on listing.The Centre’s conservative pricing strategy for IPOs of State-run firms seems to have worked well for Mazagon.

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