Pipavav Defence - Miles to Go
Pipavav Defence is likely to see Mahindra & Mahindra Group coming in as a joint and strategic promoter, with majority stake of about 40% to be held in the company. Official confirmation for this may come out in a day or two. In anticipation of this, share price has moved to Rs. 70. On 9th January, 2015, in Market Whispers section, we gave a buy call on Pipavav at Rs.53, on hopes of new strategic investor seen coming in. Hence, we were the first to break this story.
M&M Group will initially acquire 19% stake from the existing promoter Nikhil Gandhi, who is owning about 45% stake in the company, largely through SKIL Infrastructure. Thereafter, stake of M&M will rise to 40% through a preferential allotment, as fresh funds is also required by the company, to meet its working capital requirements, which will be sourced via this preferential allotment.
Pipavav has a paid up equity share capital of Rs.736 crores, Net Worth of Rs.2,275 crores, LT debt of Rs.2,415 crores and ST debt of Rs.2,550 crores. Against this, company has fixed assets of Rs.6,250 crores, cash of Rs.300 crores and debtors of Rs.1,250 crores. Company is having world class infrastructure at Pipavav in Gujarat, with technology tie up with global giants to make defence equipments like sub-marines, warships, rocket launchers, frigettes, etc. and it is very difficult to replicate such infrastructure and set up, even in next 5 years. Due to this, many suitors like Hero, L&T, DCNS and many other Indian and foreign buyers.
So, post induction of M&M Group, company will vastly get re-rated with share price having potential to move to Rs.100 in 2015, Rs.200 in 2016 and Rs.300 in 2017. Open Offer of 26%, which is mandatorily is required to be made, may not evoke any response, even if it is made at Rs. 90 per share, against the deal expected to happen between M&M and existing promoter at Rs. 66 per share.
Miles to go……..for Pipavav!