Shipbuilding stocks in focus: GRSE, MDL, Cochin Shipyard gain up to 7%

The Defence Acquisition Council (DAC) is likely to discuss proposals of mega projects worth around Rs 1.2 trillion for approval in a meeting scheduled for today.

Shares of shipbuilding companies, such as Mazagon Dock Shipbuilders (MDL), Garden Reach Shipbuilders & Engineers (GRSE) and Cochin Shipyard, have surged up to 7 per cent in intra-day trades today.

The rally in these stocks came after reports stated that the Defence Ministry's Defence Acquisition Council (DAC) would likely meet today (September 3, 2024) to discuss proposals of mega projects worth around Rs 1.2 trillion for approval. 

The projects include seven new generation frigates (P-17B) worth around Rs 70,000 crore and 1,700 future ready combat vehicles (FRCV) worth around Rs 50,000 crore.

Among the individual stocks, MDL surged 7 per cent to Rs 4,489.05, followed by GRSE (up 6 per cent at Rs 1,948.55) and Cochin Shipyard (4 per cent higher at Rs 1,930). In comparison, the BSE Sensex was down 0.13 per cent at 82,452 at 10:33 AM.

However currently, these stocks are quoting 23 per cent to 35 per cent below their respective record high levels they touched in the month of July.

Thus far in the calendar year 2024, the market price of these companies has zoomed up to 181 per cent. In comparison, the BSE Sensex was up 14 per cent.

MDL, GRSE, Larsen & Toubro (L&T), and Goa Shipyard, are expected to participate in the tender for 7 P-17B frigates and the deal is expected to be split between two shipyards (like in the case of existing P-17A frigates contract).

Furthermore, the indigenisation level of the new generation frigates is expected to be more than 75 per cent. In case of FRCVs, Bharat Forge and L&T are expected to participate in the tender. With an indigenisation level of more than 50 per cent, FRCVs will gradually replace the T-72 tanks of the Indian Army, ICICI Securities stated in a research note.

With all the policy initiatives taken by the government in recent times aimed at encouraging and supporting ‘Atmanirbharta’, the overall scenario for warship building looks quite positive in coming years, GRSE said in its FY24 annual report.

The defence shipbuilding segment continues to look promising on account of the ambitious acquisition plan of the Indian Navy and Indian Coast Guard, which is quite encouraging for Indian shipbuilders and the entire ecosystem, the company stated in its annual report.

A number of Request for Proposals (RFP) for various shipbuilding projects have been floated by the defence ministry during the last one year, and some more are expected to come out in the near future, it added.

Further, the defence ministry's plan to increase the export of defence products to $3.59 billion by the end of 2024-25 augurs well for all of us, the company noted.