This PSU stock outperformed market, surged 40% in five trading days

Shares of Mazagon Dock Shipbuilders Limited (MDL) continued its upward movement, as they rallied 8 per cent to hit a new high of Rs 601.55 in Thursday’s intra-day trade, on the back of heavy volumes and strong business outlook. The stock of public sector undertaking (PSU) company traded higher for the fifth straight day, surging 40 per cent during the period.

At 11:05 AM; MDL traded 5 per cent higher at Rs 584.90, as compared to 0.78 per cent rise in the S&P BSE Sensex. The average trading volumes on the counter more-than-doubled as around 6.9 million equity shares changed hands on the NSE and BSE.

In the past three months, the market price of MDL more-than-doubled or zoomed 136 per cent, as against 9 per cent rise in the S&P BSE Sensex. Currently, the stock traded 315 per cent higher against its issue price of Rs 145 per share. MDL made its market debut on October 12, 2020.

MDL made a strong start to the current financial year 2022-23 (FY23) with spectacular performance and reported best ever quarterly performance for the June quarter (Q1FY23).

The company reported highest ever profit after tax (PAT) of Rs 217 crore, up 134 per cent year-on-year (YoY) from Rs 93 crore, in the year-ago period. Revenue from operations, too, grew 84 per cent YoY to Rs 2,230 crore from Rs 1,214 crore, a year ago.

For FY23, the company has an order book worth Rs 43,343 crore, which essentially comprises of four 15 Bravo missile guided destroyers, four 17 Alpha Stealth Frigates and six Scorpene submarines, of which four are already delivered, the company said.

Analysts at ICICI Securities believe that MDL’s execution capability will improve in the coming period, led by increasing indigenisation of platforms and sub-systems. The next two year’s revenue CAGR is expected at 18.2 per cent versus 7.5 per cent CAGR in FY19-22. Besides, the margin for FY24E is also set to improve substantially, led by positive operating leverage.

With an already strong order backlog of Rs 43,343 crore as of August 2022 (6.4x TTM revenues), MDL is well placed to benefit from Indian Navy’s big procurement plan for the next three tom four years, analysts said.

"The Indian Navy’s major projects in the pipeline are next generation destroyers, next generation frigates, conventional submarines and next generation corvettes. The estimated cost of these four projects is around Rs 1.8 trillion. Thus, it provides a huge opportunity for MDL given its strength across building submarines and major warships (mainly destroyers and frigates)," the brokerage firm said in stock update. 

MDL is one of India's four strategic defence shipyards and the only one to manufacture destroyers and submarines in India. It is a Defence Public Sector Undertaking (DPSU) under the Ministry of Defence (MoD).

The company is engaged in construction and repair of warships and submarines for the MoD for use by the Indian Navy/ Indian Coast Guard, and vessels for commercial clients with a maximum shipbuilding and submarine capacity of 40,000-DWT (deadweight tonnage). It is India’s only shipyard that has built destroyers and conventional submarines for the Indian Navy.

Returns in %

Period

MDL SENSEX 1 Week 25.99% 3.56% 1 Month 53.27% -1.31% 3 Month 136.34% 8.69% 6 Month 113.37% -2.00% 1 Year 128.75% -1.30%

Technical View

Bias: Positive

Support: Rs 550; Rs 521

Resistance: Rs 622; Rs 652

The stock has witnessed a frenzied rally, gaining as much as 40 per cent in just five trading seesions. Further, in the last four trading sessions the stock has closed above the higher-end of the Bollinger Band on the daily chart, indicating the strength of the bulls.

Similarly, on the weekly chart, the stock has sustained above the higher-end of the Bollinger Band for the last seven weeks. The stock price has nearly doubled during the same period.

For now, the near term bias is likely to remain bullish as long as the stocks trades above Rs 550, with far-off support seen at Rs 521. On the upside, the quarterly Fibonacci chart indicates a target of Rs 622 and Rs 652. 

(With inputs from Rex Cano)