Cochin Shipyard, Mazagon Dock, Garden Reach Shipbuilders rally up to 10%

Shares of ship building & allied services companies including Cochin Shipyard, Mazagon Dock Shipbuilders and Garden Reach Shipbuilders & Engineers rallied up to 10 per cent in Wednesday’s intra-day trade amid expectation of strong earnings and healthy order book position. In the past three trading days, these stocks have surged in the range of 16 per cent to 20 per cent.

Among the individual stocks, Cochin Shipyard (CSL) hit a record high of Rs 1,046.70, and surged 6 per cent on the BSE in intra-day trade today. While in the past three days, it has zoomed 20 per cent.

Analysts at ICICI Securities opined that an order backlog of around Rs 22,300 crore as of December 2023 (7x TTM revenues) with pick-up in execution, indicates strong revenue growth visibility. Large-scale contracts for the Indian Navy (like anti-submarine corvettes, next-gen missile vessels, post commission works of Indigenous Aircraft Carrier) are expected to witness meaningful execution over FY25- 26E. Moreover, execution of commercial vessel contracts (20 per cent of orderbook) are also expected to pick-up considerably over FY24-26E, the brokerage said.

According to the company's management, the order pipeline remains healthy in defence and commercial ship-building and ship-repair segments including exports. About Rs 9,000 crore worth of ship-building contracts are in pipeline where tenders are expected to be floated in the medium term. Apart from these, Rs 84,000 crore worth of contracts are in “Request for Proposal” (RFP) stage.

Analysts expect CSL to witness significant YoY growth in revenues & profitability over FY24-26E, led by execution pick-up in both the segments and increasing share of margin accretive ship-repair segment. The brokerage firm estimates revenue and PAT to grow at 23 per cent & 36 per cent CAGR respectively over FY23-26E as against the de-growth seen over FY20-23. Currently, the stock is trading close to the brokerage firm’s target price of Rs 1,055 per share.

On the other hand, shares of Garden Reach Shipbuilders & Engineers (GRSE) surged 10 per cent to Rs 903.70 on back of two-fold jumps in average trading volumes today. In the past three days, the stock rallied 18 per cent after the company said it has achieved a provision annual turnover of Rs 3,400 crore for the financial year 2023-24 (FY24), the highest ever in the history of the company. The stock had hit a 52-week high of Rs 973.95 on September 8, 2023.

GRSE has built over 780 platforms including 108 warships for the Indian Navy, Indian Coast Guard, and Government of Mauritius & Seychelles Coast Guard – highest warships built & delivered by any Indian shipyard till date. From Frigates, Corvettes, Fleet Tankers, Landing Ship Tank, Landing Craft Utility to Survey Vessels, Offshore Patrol Vessels and Fast Attack Craft - the repertoire is rich and varied.

The company also signed an MoU with the Border Roads Organisation (BRO) for the fabrication, supply, erection and launching of additional 30 Double-Lane Class 70 modular steel bridges in border areas. Additionally, the order bagged for indigenously developing and supplying ten 30 mm Naval Surface Gun for Indian Navy is another landmark achievement.

Falling in line with this trend, shares of Mazagon Dock Shipbuilders also soared 9 per cent to Rs 2,170 in intra-day trade, and surged 17 per cent in the past three trading days.