ABS Marine Services coming with IPO to raise upto Rs 96 crore

ABS Marine Services 

• ABS Marine Services is coming out with initial public offering (IPO) of 65,50,000 shares of Rs 10 each in a price band Rs 140-147 per equity share.  
• The issue will open for subscription on May 10, 2024 and will close on May 15, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 14.00 times of its face value on the lower side and 14.70 times on the higher side.
• Book running lead manager to the issue is GYR Capital Advisors.
• Compliance Officer for the issue is Ganesh SaiKrisshna.

Profile of the company

The company was started by its diligent promoter, Capt. P B Narayanan, a person with long experience of more than 4 decades in the Shipping Industry. The company started operations with two offshore vessel management and as of the date of December 31, 2023 it has 5 owned vessels comprising of 2 advanced offshore vessels serving the Oil & Gas sector & 3 Harbour Crafts serving the Indian Ports sector. It has one long term chartered specialised multipurpose offshore vessel serving the Oil & Gas Sector. In addition, as of December 31, 2023 it is carrying out total ship management of 12 vessels on behalf of Government, public sector undertakings, private companies and port authorities. It providing crew management services to a further 24 ships comprising Oil Tankers, Gas Tankers, Bulk Carriers, Passenger Vessels and High Speed Crafts.

The company’s existing business is divided into four divisions: 1) Ship Owning 2) Ship Management 3) Marine Services and 4) Port Services. The company’s fully owned, chartered-in, totally managed & crewed fleet includes state of the art DP-2 Multipurpose offshore Supply Vessels, Anchor Handling Towing Supply Vessel, multi-disciplinary Ocean Research Vessels, Coastal Research Vessels, Fishery Oceanographic Research Vessel, Bulk Carriers, Gas Tankers, Oil Tankers, Passenger Vessels, High Speed Crafts & Harbour Crafts. It is a fully integrated company with in-house complete vessel management including commercial management. The company’s customers are primarily comprised of Government of India, large industrial concerns, public sector undertakings, port authorities and private sector. It has also entered into 10 strategic contracts with government agencies which contributes towards its Revenue from Operations. Out of the ten contracts, one major contract with the Ministry of Earth and Science (MOES) contributes towards its 23.50% of the Revenue from operations.

Proceed is being used for:

• Acquisition of off shore vessel.
• Funding the working capital requirements of the company.
• General corporate purposes.

Industry overview

India is strategically located on the world’s shipping routes with a coastline of approximately 7,517 km. As of 2021, India owns over 30% global market share in the ship breaking industry and is home to the largest ship-breaking facility in the world at Alang. India is the 16th largest maritime counry in the world and the Indian maritime sector contributes to around 95% of the India’s trade by volume and 70% by value. India is the 3rd largest globally in terms of ship recycling by tonnage. To promote India's shipping and port industry, the government has also introduced various fiscal and non-fiscal incentives for enterprises that develop, maintain and operate ports, inland waterways and shipbuilding in India. The Maritime India Vision 2030 has identified over 150 initiatives to boost the Indian maritime sector. The Vision 2030 was launched by Hon’ble Prime Minister of India in March 2021. It is ed after significant consultation with over 350 public and private stakeholders comprising of ports, shipyards, inland waterways, trade bodies and associations, and legal experts. The vision serves as a blueprint to achieve an accelerated and coordinated development of India’s diverse maritime sector, comprehensively identifying over 150 initiatives covering all facets of the country’s maritime sector. 100% FDI allowed under both government and automatic route. 

India has 12 major and 200 non-major/intermediate ports (under state government administration). Jawaharlal Nehru Port Trust is the largest major port in India, while Mudra is the largest private port. Jawaharlal Nehru Port becomes first 100% Landlord Major Port. Moreover, India is one of the world's top 5 ship recycling countries. Amongst the Major Ports, Deendayal Port handled the maximum Cargo of 137.56 Mn Tonnes with a share of 17.6% followed by Paradip Port (17.3%), JNPA (10.7%), Visakhapatnam Port (9.4%), Mumbai Port (8.1%), Chennai Port (6.2%), SMP Haldia (6.2%), Kamarajar Port (5.6%), NMPA (5.3%), VOC Port (4.8%), Cochin Port (4.5%), Mormugao Port (2.2%) and SMP Kolkata (2.1%) during April-March, 2022-23. Under public-private partnerships (PPP), there are 58 projects worth $5 Billion (Rs 40,000 crore) under various stages of implementation. Of these, 33 projects of $3.4 Bn (Rs 27,000 crore) are operational whereas 25 projects for over $1.6 Bn (Rs 13,000 crore) are under implementation. 19 such projects with total investment of $1.1 Bn (Rs 8,862 crore) have been completed in 2021 alone.

Pros and strengths

Established brand name and reputation: The company has started its operations in 1992 and have been able to establish a reputation and strong customer relationships with various public sector undertakings and the Government. With more than four decades of experience of its Promoters, in its industry, it has been able to maintain a long-standing relationship with some of its government customers. It intends to continue to leverage the goodwill of its brand to enhance its relationships with existing customers and to seek new customers to help it grow its business. Its brand name and the reputation that the company has built over the last three decades provides it with access to opportunities to bid for large contracts for its services.

Diversified fleet: The company’s fully owned, chartered-in, totally managed & crewed fleet includes state of the art DP-2 Multipurpose offshore Supply Vessels, Anchor Handling Towing Supply Vessel, Multi-disciplinary Ocean Research Vessels, Coastal Research Vessels, Fishery Oceanographic Research Vessel, Bulk Carriers, Gas Tankers, Oil Tankers, Passenger Vessels, High Speed Crafts & Harbour Crafts. It is a fully integrated company with in-house complete vessel management including commercial. This fleet diversification allows it to enter into chartering & ship management arrangements of varying duration with different types of customers. Its existing fleet as well as next generation of fleet will have better functional capabilities and operate more efficiently than equivalent older vessels thereby allowing it to provide improved services to its customers.

Proven ability to acquire vessels at optimal price and deploy vessels: The company typically acquire pre-owned vessels when there is a demand for vessels in any particular segment where it operates. It only purchases well-maintained vessels from international operators. On identification of a potential vessel for acquisition, the vessel is subject to stringent vetting by experienced in-house marine engineers and master mariners, as well as by external inspectors. A detailed financial feasibility analysis is undertaken by its finance team and is based on input parameters such as the price of acquisition of the vessel, expected charter hire, dry dock schedule and associated costs, balance useful life of the vessel, expected daily operating cost and the expected disposal cost, and covers output parameters that include the internal rate of return, return on equity, return on capital employed and the payback period. It works on certain benchmarks in each of the above parameters and proceed to acquire a vessel when an optimal combination of the benchmarks is achieved. It has the ability to determine the equilibrium between age of vessel and acquisition price to maximize return on capital employed. Following the acquisition of a vessel, its in-house teams monitor and maintain operating efficiency during the life of the vessel. 

Risks and concerns

Dependent on few clients: The company derives a significant portion of its total revenue from contracts with customer from PSU customers and that it will continue to cater to PSU entities, it is exposed to various risks inherent in doing business with PSU entities. These risks include: participation in PSU contracts could subject it to stricter regulatory requirements which may increase its compliance costs; PSU tenders are awarded to the lowest bidder that meets the technical conditions of the tender, which makes winning PSU tenders difficult. In addition, if it has to lower its pricing in order to win tenders, it would exert pressure on its margins; the tender process is long and may be subject to significant delays; terms and conditions of PSU contracts, including requests for proposals and tenders tend to be more onerous and are often more difficult to negotiate than those for other commercial contracts; and PSU contracts may not include a cap on direct or consequential damages, which could cause it to assume additional risks and incur additional expenses in servicing these contracts.

Substantial working capital requirements: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards employee cost. As of March 31, 2024, it has Rs 1,193.53 lakh outstanding working capital loan. Its growing scale and expansion may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sourcing of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations. Further, it has high inventories and outstanding amount due from its debtors which may adversely affect its cash flows and its business operations.

Impact of potential information technology, cybersecurity attacks: The company’s business is dependent upon information technology systems, including internet-based systems, to support business processes. It also utilizes IT solutions that cover various aspects of its operations. The complexity of its computer systems may make them potentially vulnerable to breakdown, malicious intrusion and computer viruses. It cannot assure that it will not encounter disruptions to its information technology systems in the future and any such disruption may result in the loss of key information or disruption of its business processes, which could adversely affect its business and results of operations. In addition, its systems are potentially vulnerable to data security breaches, whether by employees or others that may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of its employees, customers and others. Any such security breaches could have an adverse effect on its business and reputation.

Outlook

ABS Marine Services is engaged in providing offshore vessel management, crew management and other seafarer/port related services. Registered and incorporated in Chennai, the company has an international presence delivering services through offices strategically positioned in Mumbai, Kochi, Kakinada, and Singapore. The company comprises a team of professionals fully trained and qualified in all aspects of crew & technical management, ship operations, shipping law & finance management. It follows the practice of managing all seaborne logistics functions, including repair and maintenance, in-house. On the concern side, the company’s operations are subject to extensive laws, treaties and agreements governing the management, transportation etc all of which are designed to protect the environment from pollution, as well as other national, state and local laws and regulations in force in the jurisdictions in which its vessels operate or are registered.

The company is coming out with an IPO of 65,50,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 140-147 per equity share. The aggregate size of the offer is around Rs 91.70 crore to Rs 96.29 crore based on lower and upper price band respectively. On performance front, the total income of the company for fiscal year 2024 was Rs 13,801.90 lakh against Rs 11,380.78 lakh total income for Fiscal year 2023. An increase 21.27% in total income. This increase was due to increased revenue on account of additional contracts and revision in contract rates. The company had reported a profit after tax (PAT) for the Fiscal 2024 of Rs 2,541.19 lakh against profit after tax of Rs 1,021.68 lakh in Fiscal 2023. An increase of 148.73%. This was due to increase in overall business and efficiency demonstrated by the company in controlling costs. Meanwhile, the company intends to further strengthen its relationships with customers by striving to meet or exceed their business needs. As a major portion of its income is generated from repeat clients, it intends to leverage its existing relationships with these customers to expand its business. It will continue to explore and evaluate measures to integrate its shipping activities with the overall maritime and logistic requirements of the customers with a view to providing efficient and economical, maritime and logistical solutions to the end users.