ABG Shipyard Ltd

Q2FY11 Result Update

Enhancing investment decisions

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (- 10-25% from CMP) Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this data / Report. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

November 29, 2010

ABG Shipyard Ltd

Results in line
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 2/5 (CMP has downside) Machinery

Fair Value Rs 328 CMP Rs 406

CFV MATRIX
Excellent Fundamentals

Fundamental Grade

5 4 3 2 1

ABG Shipyard Ltds (ABGs) Q2FY11 revenues were in line with CRISIL Equities expectations driven by execution of shipping orders. Our outlook for the company remain cautious on the back of huge fleet addition expected in the shipping market. We have revised our estimate for FY11 and FY12 due to faster execution of orders and maintain our fundamental grade of 3/5. Q2FY11 result analysis Q2FY11 revenues increased by 38.3% y-o-y and 23.6% q-o-q to Rs 5.6 bn driven by shipping orders execution. EBITDA margin was 26.2% compared to 27% in Q2FY10. EBITDA was up by 33%. The company (standalone) incurred a loss of Rs 70 mn on the sale of shares in Great Offshore. Adj. PAT grew by 38.9% to Rs 637 mn. EPS for the quarter was Rs 12.5 compared to Rs 9 in the corresponding quarter last year. During the quarter, ABG also booked subsidy sales of Rs 225 mn. Total accounted subsidy is Rs 4.7 bn, out of which Rs 0.6-0.7 bn is due for payment from the Government of India (GOI). Key developments The company has bagged orders worth Rs 20 bn for two rigs in the last two months. Also, it bagged orders for two vessels amounting to Rs 3.7 bn. Of its current order book of Rs 150 bn, unexecuted orders comprising Rs 110-120 bn would be executed over the next three to four years. During the past three months, the stock has jumped 63%. We believe the increase is largely due to expectation of restoration of capital subsidy and bagging of large orders from government shipping companies as the government has relaxed the eligibility criteria for shipyards. We would be closely monitoring the developments which could impact positively our fair price estimates. Valuations: Current market price has downside We continue to value ABG based on the discounted cash flow method using cashflows from FY12-FY15. Based on our revised earnings estimates, we have increased our fair price valuation to Rs 328 per share. We have also revised our valuation grade to 2/5 from 3/5 due to the steep increase in stock price. However, we might further revise the fair price upward depending on developments going ahead.

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY / SENSEX NSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn) /(US$ mn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5890/19585 ABGSHIP 10 51 20674/457 49329/1090 521/180 1.4 42.9% 3,360,489 1,489

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sep-09 Promoter Dec-09 FII Mar-10 DII Jun-10 Sep-10 Others 57.1% 57.1% 57.1% 57.1% 57.1% 9.3% 9.3% 10.8% 12.8% 12.4% 13.9% 19.7% 15.5% 18.1% 15.2% 16.8% 12.8% 17.3% 14.1% 16.3%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) Dividend yield RoCE (%) RoE (%) P/E (x) P/BV (x) EV/EBITDA (x) FY08 9,726 3,135 1,598 31.4 37% 1% 25% 26% 12.8 2.9 7.9 FY09 14,185 4,169 1,718 33.7 7% 1% 18% 21% 11.9 2.4 9.0 FY10 18,200 5,320 2,238 43.9 30% 1% 16% 24% 9.2 1.9 7.1 FY11E 23,660 6,626 2,355 46.3 5% 1% 14% 16% 8.7 1.7 5.7 FY12E 29,457 8,145 2,751 54.0 17% 1% 18% 20% 7.5 1.4 4.6

PERFORMANCE VIS--VIS MARKET

Returns ABG NIFTY 1-m 32% -2% 3-m 63% 6% 6-m 62% 20% 12-m 97% 18%

ANALYTICAL CONTACT
Chetan Majithia (Head) Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com chetanmajithia@crisil.com vrampuria@crisil.com

Source: Company, CRISIL Equities estimate NM: Not meaningful; CMP: Current Market Price CRISIL EQUITIES | 1

ABG Shipyard Ltd

Q2FY11 Result Summary(Standalone)
(Rs mn) Income from Operations (Increase) / Decrease In Stock Consumption of Raw Materials Raw materials cost (% of net sales) Employees Cost Other expenses EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Operating PBT Other Income Exceptional Items PBT Tax Profit After Tax (PAT) Adj PAT Adj EPS (Rs) Q2FY11 5,555 557 2,725 59.1% 161 658 1,454 26.2% 141 1,313 401 912 5 (74)# 843 280 563 637 12.5 Q1FY11 4,495 1,358 1,142 55.6% 139 610 1,245 28% 137 1,108 421 688 25 (137.5) 575 191 384 522 10.2 Q2FY10 q-o-q (%) y-o-y (%) 4,016 116 2,076 54.6% 93 641 1,090 27% 47 1,044 425 619 77 695 237 459 459 9.0 23.6 (59.0) 138.7 346bps (85.9) 7.8 16.8 -153bps 2.9 18.5 (4.6) 32.6 (79.2) 46.5 46.5 46.5 22.1 22.1 38.3 380.5 31.3 451bps 74.1 2.6 33.3 -98bps 201.1 25.8 (5.6) 47.4 (93.2) 21.2 18.3 22.7 38.9 38.9

Topline increase by 38.3% to Rs 5.5 bn

Operating Margin was marginally down to 26.2%

S o u r c e : C o m p a n y , CR I SI L E q u i ti e s #The subsidiary company would have incurred the remaining loss of ~Rs 200 mn on sale of Great Offshore

Quarterly EBITDA margin steady

(Rs Mn) 6,000 5,000 4,000 3,000 2,000 1,000 0 Jun-09 Mar-09 Mar-10 Sep-08 Dec-08 Sep-09 Dec-09 Jun-10 Sep-10 25% 20% 15% 10% 5% 0% 26% 20% 30% 36% 28% 40% 35% 27% 27% 27% 30% 25%

Quarterly PAT and PAT margin steady

(Rs Mn) 900 800 700 600 500 400 300 200 100 0
Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 Mar-09 Mar-10 Jun-09 Jun-10

17% 14% 12% 9% 9% 11% 10% 9% 10%

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Net Sales

EBITDA Margin (RHS)

PAT

PAT Margin (RHS)

S o u r c e : C o m p a n y , CR I SI L E q u i ti e s

S o u rc e : C om p a n y, C R I S I L Eq ui t i e s

Share price movement vs market index

450 400 350 300 250 200 150 100 50 0 May-09 May-10 Sep-09 Nov-08 Nov-09 Sep-10 Mar-09 Jul-09 Mar-10 Jan-09 Jan-10 Jul-10 Nov-10

Fair value movement since initiation

(Rs)
600 500 400 300 200 100 0
Feb-10 Mar-10 Mar-10 May-10 Nov-09 Dec-09 Apr-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Oct-10 Nov-10 Jan-10 Jan-10 Jun-10 Jun-10

(In '000)
14000 12000 10000 8000 6000 4000 2000 0

Traded Quantity

ABG

Fair Value

ABG

NIFTY

-Indexed to 100 S o u r c e : N S E , CR I S I L E q ui ti e s S o u rc e : N S E, C R IS IL Eq ui t i e s

CRISIL EQUITIES | 2

ABG Shipyard Ltd

EARNINGS ESTIMATES REVISED UPWARDS
We have revised our earning estimates for FY11 and FY12 due to faster execution of orders. FY11E Particulars Revenue EBITDA EBITDA margin Adj. PAT Adj. PAT margin Adj. EPS Unit (Rs mn) (Rs mn) % (Rs mn) % Rs Old 21,760 6,092 28.0 2,304 10.59 45.3 New 23,660 6,626 28.0 2,355 9.96 46.3 % change 8.7 8.8 2.2 63bps 2.2 Old 27,200 7,529 27.7 2,726 10.02 53.5 FY12E New 29,457 8,145 27.7 2,751 9.34 54.0 % change 8.30 8.2 0.9 68bps 0.9

CRISIL EQUITIES | 3

ABG Shipyard Ltd

VALUATION
We continue to value ABG based on the discounted cash flow method using cashflows from FY12-FY15. We have revised our earnings estimates due to faster execution of orders and also because of higher-than-expected flow of orders. We have also revised our fair price to Rs 328. At our fair value, implied P/E multiples are 7.1x and 6.1x based on our FY11 and FY12 earnings estimates.

One-year forward P/E band

(Rs) 1200 1000 800 600

One-year forward EV/EBITDA band

(Rs mn) 70000 60000 50000 40000 30000

400 200 0
Jun-07 Jun-08 Jun-09 Jun-10 Feb-08 Feb-09 Feb-10 Aug-07 Aug-08 Aug-09 Aug-10 Dec-07 Dec-08 Dec-09 Apr-07 Apr-08 Apr-09 Apr-10 Oct-07 Oct-08 Oct-09 Oct-10

20000 10000 0
Jun-07 Jun-08 Jun-09 Feb-08 Feb-09 Aug-07 Aug-08 Aug-09 Feb-10 Jun-10 Jun-10 Aug-10 Aug-10 Dec-07 Dec-08 Dec-09 Apr-07 Apr-08 Apr-09 Apr-10 Oct-07 Oct-08 Oct-09 Oct-10 Oct-10

ABG

2x

4x

6x

8x

10x

ABG

2.0x

4.0x

6.0x

8.0x

S o u r c e : N S E , CR I S I L E q ui ti e s

S o u r c e : N S E, C R I S I L E q ui t i e s

P/E premium/discount to NIFTY

40% 20% 0% -20% -40% -60% -80% -100%
Jun-07 Jun-08 Jun-09 Jun-10

P/E movement
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
Jun-07 Jun-08

+1 std dev

-1 std dev
Feb-08 Feb-09 Jun-09 Aug-07 Dec-07 Aug-08 Dec-08 Aug-09 Dec-09 Feb-10 Apr-07 Apr-08 Apr-09 Apr-10 Oct-07 Oct-08 Oct-09

Feb-08

Feb-09

Aug-07

Aug-08

Aug-09

Feb-10

Aug-10

Dec-07

Dec-08

Dec-09

Apr-07

Apr-08

Apr-09

Apr-10

Oct-07

Oct-08

Oct-09

Premium/Discount to NIFTY

Median premium/discount

Oct-10

-5.0

1yr Fwd PE (x)

Median PE

+1 std dev

-1 std dev

S o u r c e : N S E , CR I S I L E q ui ti e s

S o u r c e : N S E, C R I S I L E q ui t i e s

CRISIL IER reports released on ABG Shipyard Ltd

Date 24-Nov-09 31-Jan-10 18-Feb-10 4-Jun-10 16-Sep-10 29-Nov-10 Nature of report Initiating coverage* Q3FY10 result update Flash Note Q4FY10 result update Q1FY11 result update Q2FY11 result update Fundamental grade 3/5 3/5 3/5 3/5 3/5 3/5 Rs 242 Rs 259 Rs 259 Rs 259 Rs 259 Rs 328 Fair value Valuation grade 4/5 4/5 3/5 3/5 3/5 2/5 CMP (on the date of report) Rs 202 Rs 315 Rs 262 Rs 253 Rs 244 Rs 406

* For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

CRISIL EQUITIES | 4

ABG Shipyard Ltd

FINANCIALS
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY08 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY08 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 31.4 33.5 139.7 2.1 50.9 F Y09 33.7 39.1 169.6 2.1 50.9 FY10 43.9 54.2 210.8 3.6 50.9 FY11E 46.3 62.3 242.3 3.6 50.9 FY12E 54.0 83.4 291.7 3.6 50.9 226 476 3 271 3.0 8.8 1.3 1.3 0.7 0.6 4.7 439 544 11 271 1.9 4.7 0.7 1.1 2.0 2.0 2.6 302 336 16 342 1.5 3.6 0.5 0.8 2.7 2.7 1.9 302 450 18 257 0.8 1.8 0.6 1.4 1.6 1.5 2.2 293 300 18 193 0.6 1.5 0.7 1.5 1.5 1.4 2.6 12.8 2.9 7.9 2.8 7% 1% 11.9 2.4 9.0 2.8 6% 1% 9.2 1.9 7.1 2.3 8% 1% 8.7 1.7 5.7 1.8 8% 1% 7.5 1.4 4.6 1.4 7% 1% 32% 16% 26% 25% 22% 29% 12% 21% 18% 17% 29% 12% 24% 16% 12% 28% 10% 16% 14% 15% 28% 9% 20% 18% 16% Cash flow (Rs Mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash posiiton C losing cash Quarterly financials (Rs Mn) Net Sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q2FY10 4,016 NM 1,090 NM 27.2% 459 459 NM 11.4% 9.0 Q3F Y10 4,928 23% 1,787 64% 36.3% 823 823 79% 16.7% 16.2 Q4FY10 5,202 6% 1,060 -41% 20.4% 529 529 -36% 10.2% 10.4 Q1F Y11 4,495 -14% 1,245 17% 27.7% 384 384 -27% 8.5% 4.8 Q2FY11 5,555 24% 1,454 17% 26.2% 563 563 46% 10.1% 12.5 1,115 (119) 996 (813) 868 12,452 (119) 12,333 (375) 478 11,274 (238) 11,036 (244) 279 (9,561) (238) (9,799) 221 500 2,507 (238) 2,269 300 800 (2,987) (49) (3,036) (9,598) (69) (9,667) (5,155) (2,281) (7,436) (2,709) 1,142 (1,567) (1,400) 745 (655) FY08 2,456 (849) 109 (489) 1,227 F Y09 2,428 (772) 271 (4,969) (3,041) FY10 3,303 (1,014) 524 (6,657) (3,844) FY11E 2,674 (829) 815 8,926 11,587 FY12E 4,106 (1,355) 1,497 (5,562) (1,314) 37% 55% -5% 37% 46% 33% 7% 7% 28% 28% 30% 30% 30% 25% 5% 5% 25% 23% 17% 17% F Y09 FY10 FY11E FY12E FY08 9,726 3,135 32.2% 109 3,027 644 2,382 65 9 2,456 849 1,607 9 1,598 F Y09 14,185 4,169 29.4% 271 3,897 1,471 2,426 63 (61) 2,428 772 1,656 (61) 1,718 FY10 18,200 5,320 29.2% 524 4,796 2,493 2,303 949 52 3,303 1,014 2,289 52 2,238 FY11E 23,660 6,626 28.0% 815 5,811 2,679 3,131 53 (510) 2,674 829 1,845 (510) 2,355 4,106 1,355 2,751 2,751 FY12E 29,457 8,145 27.7% 1,497 6,649 2,595 4,054 53 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deffered tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Receivables Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 13,999 28,519 42,826 35,385 41,144 4,078 84 10,987 868 16,017 7,384 8,633 12,039 395 13,679 478 26,591 12,833 13,757 10,661 704 19,618 279 31,261 10,109 21,153 14,104 1,042 14,654 500 30,300 17,340 12,960 17,136 1,297 14,794 800 34,028 14,467 19,561 1,443 3,865 5,308 58 4,571 10,064 14,635 127 5,511 13,754 19,265 2,408 20,159 1,000 21,159 1,266 20,062 1,000 21,062 520 5,208 5,208 1,675 13,999 17,660 17,660 2,220 28,519 28,934 28,934 3,158 42,826 19,374 19,374 3,671 35,385 21,881 21,881 4,410 41,144 509 6,606 7,115 509 8,129 8,638 509 10,224 10,733 509 11,831 12,340 509 14,344 14,853 FY08 F Y09 FY10 FY11E FY12E

Source : Compa ny, CRISIL Equities estimate Note: All ratios are computed on Adj PAT

CRISIL EQUITIES | 5

CRISIL Independent Equity Research Team

Mukesh Agarwal Tarun Bhatia Chetan Majithia Sudhir Nair Nagarajan Narasimhan Ajay D'Souza Manoj Mohta Sachin Mathur Sridhar C Director Director, Capital Markets Head, Equities Head, Equities Director, Research Head, Research Head, Research Head, Research Head, Research +91 (22) 3342 3035 +91 (22) 3342 3226 +91 (22) 3342 4148 +91 (22) 3342 3526 +91 (22) 3342 3536 +91 (22) 3342 3567 +91 (22) 3342 3554 +91 (22) 3342 3541 +91 (22) 3342 3546 magarwal@crisil.com tbhatia@crisil.com chetanmajithia@crisil.com snair@crisil.com nnarasimhan@crisil.com adsouza@crisil.com mmohta@crisil.com smathur@crisil.com sridharc@crisil.com

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