>Ship Building (EMKAY)

We stand vindicated on our stance on the shipbuilding industry with the deceleration in order inflows gaining momentum since Sep'08 and virtually coming to a halt in Feb'09 with inflows of 0.1 Mn dwt. CY08 started on a strong note and clocked healthy order inflows of 154 Mn Dwt, despite the downturn since Sep'08. However , India disappointed with a sharp drop in incremental orders to 0.1 Mn Dwt (0.1% share of 154 Mn Dwt). India's inability to hold on to its market share at the very onset of the downturn - raises serious concerns on the Indian player's ability to remain unscathed during the downturn. This is especially since we foresee impact of the downturn to be more severe, going forward. We believe that the industry is largely over-ordered and is likely so see higher incidences of cancellations and execution delays. We have revised our revenue and earnings estimates downwards for FY09-12E period. We maintain our 'SELL' rating on ABG Shipyard with revised target price of Rs63 and 'REDUCE' rating on Bharati Shipyard with target price of Rs 45.

Our downturn scenario is playing out.
CY08 surpassed our estimates with 154 Mn Dwt of order inflows. However, we believe that the sharp deceleration witnessed incremental orders of under 1 Mn Dwt while Feb'09 saw inflows virtually dry up with 0.1 Mn Dwt. With key assumptions panning out as per expectations, we believe that out earlier envisaged 'Best Case' scenario is playing out. The industry, with 154 mn Dwt order inflows in CY08, is over-ordered by 96 Mn Dwt or 16.7% of total assessed demand, indicating complete dry out and reversals of order inflows during CY09-12E period. We believe that the bulk segment (Dry and Liquid) is the most vulnerable segment to cancellations.

India a no show - market share dips to 0.1% from 0.8%
Despite an overall robust CY08, India failed to capitalize on the available opportunity. India's share in incremental orders dropped to a dismal 0.1% or 0.1 Mn Dwt in CY08 against 1.5% or 3.6 Mn Dwt in CYo7. We had expected marginal players to be the first victims in a downturn, but were surprised at the beating it has taken at the very onset of the downturn. India also witnessed decline in orders in the offshore segment - its niche strong hold.

To see full report: SHIP BUILDING