Shipbuilding stocks on roll; Cochin, GRSE zoom upto 58% so far in Apr

Shares of shipbuilding & allied services companies are on a roll, with Cochin Shipyard, Garden Reach Shipbuilders & Engineers (GRSE) and Mazagon Dock Shipbuilders rallying by up to 10 per cent on the BSE in Thursday’s intra-day trade on a healthy outlook.

Thus far in the month of April, these stocks have zoomed up to 58 per cent. In comparison, the S&P BSE Sensex was up 0.11 per cent at 73,933 at 10:52 am.

With all the policy initiatives taken by the Government of India in recent times for encouraging & supporting ‘Atmanirbharata’, the overall scenario for warship building looks quite positive in coming years.

The defence shipbuilding segment continues to look promising on account of an ambitious acquisition plan of the Indian Navy and Indian Coast Guard which is quite encouraging for the Indian Shipbuilders and the entire ecosystem. 

A number of Requests for Proposals (RFPs) for various shipbuilding projects have been floated by the Ministry of Defence (MoD) during the last one year and some more are expected to come out in the near future.

Among the individual stocks, GRSE hit a new high of Rs 1,078, rallied 10 per cent on the BSE in intra-day trade. In the past three days the stock soared 24 per cent. Thus far in the current month, it zoomed 41 per cent after the company said it has achieved an annual turnover to the tune of Rs 3,400 crore (provisional & unaudited) for FY2023-24, the highest ever in the history of the company.

GRSE’s order book stands at Rs 23,592 crore and most of this comes from the shipbuilding sector, with the limited contribution from the ship repairs and other verticals like the portable steel bridges and so on. 

The management said their target would be to maintain a similar order book value in the range of Rs 23,000 to Rs 25,000 crore in the coming years too.

Shares of Cochin Shipyard (CSL) hit a new high of Rs 1,376, up 8 per cent in intra-day trade, surging 25 per cent in the past three months. So far in the current month, it zoomed 58 per cent. 

A sharp surge in the stock price of CSL after the company on April 6 said that it has signed the Master Shipyard Repair Agreement (MSRA) with the United States Navy. 

The MSRA is a non-financial agreement and is effective from April 05, 2024. This will facilitate repair of US Naval vessels under Military Sealift Command in CSL.

Analysts expects CSL to witness notable 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. With an order backlog of around Rs 22,300 crore as of December-23 (7x TTM revenues) with pick-up in execution, gives 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) is also expected to pick-up considerably over FY24-26E, analysts at ICICI Securities said.

Meanwhile, shares of Mazagon Dock rallied 6 per cent to Rs 2,449.30 in intra-day trade today. Thus far in the month of April, the stock zoomed 32 per cent. It is trading close to its record high level of Rs 2,490 touched on January 16, 2024. The company has a strong order book position of Rs 38,389 crore as on December 31, 2023.