Anavaran Investments

We have always had a love-hate relationship with Pipavav Shipyard. Our analysts love to hate such stocks and had recommended investors to avoid the company’s public offering 2 year back. In a report titled A Sinking Feeling , refer tinyurl.com/7eokzve, ;they cited following rationale for the AVOID rating:

“We believe the offer price band of INR55-INR60 is overpriced. The company has no operational history and is entering a highly competitive industry with a Management with little previous experience in these new markets. Even after assuming Management’s guidance on future growth and based on the other details available from the prospectus and our fundamental valuation of the company, we value the Pipavav common stock at INR 45.59 per share. We believe Pipavav should continue to grow as a private company for at-least another 2 years and then come to the public market.”

Lack of focus and corporate governance issues of certain sections of management were key reasons for staying away from the stock. Established in 1997, as a ship dismantling facility, the company later changed directions to become a ship manufacturing facility due to lack of orders in the former business. Management eventually moved on to offshore dirlling contruction before finally settling for defence vessels.

The stock stagnated around offer price for over a year and then Punj Llyod sold their stake in the company to other promoter, SKIL, @ Rs59 per share in early 2010. Presence of Punj Llyod was the only thing that we liked in Pipavav as their EPC expertise was likely to bring some offshore oil rig orders. Wtih their exit our bearish stance on the company increased further.

However to our surprise the stock prices doubled  in couple of months. Markets were abuzz with news that RIL is likely to BUY stake in the company. No such news materialized and stock price gradually cooled down.

Now, two months back, Pipavav Shipyard was again the blue eyed stock on Dalal Street. With string of savvy investors flocking to the stock and news of defence vessels contracts, it seemed sky was the limit for Pipavav’s share price. When everyone was singing paeans for the company, we once again dared to differ with Mr.Market rating the stock, once again, a SELL.

The stock was then trading around Rs90 and has slided more than 40% since then. While decline in broader market is partly to blame, cancel of the valued  defence contract and pledging of promoter holding have accentuated the companies problems.

We often remain clueless on nature of Pipavav’s operations. We tried to sum up our stance on the company in a following tweet dated 27 Sept 2011,

“Pipavav-from shipbreaking to shipyard to oil rigs to naval docks,all in a decade reminds of an old song.kahin pe nighahein kahin pe nishana”.

Closing Note: Money could only be made in such stocks by stock rigging and not by building oil rigs. Hence, the stock may be good for speculators, but would be better for investors only if they stay away from it.