Synopsis:
Elara Capital has maintained a ‘Sell’ rating on Garden Reach Shipbuilders & Engineers Limited (GRSE) despite a strong order pipeline, citing near-term execution and margin concerns, with a target price of Rs. 2,140 implying ~22 percent downside.
Despite a strong multi-billion-dollar order pipeline in the defense stock, analysts remain cautious, with Elara Capital assigning a ‘Sell’ rating, reflecting concerns over execution challenges, margin pressures, and near-term financial performance outweighing long-term visibility.
With the market capitalization of Rs. 31,553.35 crore, the shares of Garden Reach Shipbuilders & Engineers Limited is trading at Rs. 2,754, up by 1.5 percent from its previous day close price of Rs. 2,714.80. The stock has made an intraday high of Rs. 2,829.80.
What’s the News?
Elara Capital maintains a ‘S ell’ rating with a target price of Rs. 2,140, reduced from Rs. 2,260, implying a downside of 22.29 percent from current market price of Rs. 2,754.
Why Elara Capital has assigned a ‘Sell’ rating
Order Book
GRSE currently holds an order book of ~Rs. 21,700 crore, down ~4 percent QoQ due to faster execution in Q1FY26. Elara Capital notes that most existing orders—including one large survey vessel, seven ASW-SWC ships, four NGOPVs, and various government and export projects—are expected to be completed by FY28–29, signaling peak execution.
While the pipeline is strong, with major orders like 8 P-17 Bravo frigates (~Rs. 70,000 crore) and 8 next-generation corvettes (~Rs. 40,000 crore) plus other patrol and survey vessels, these new projects will only start in FY26–27 and extend execution into FY29.
Margins & Execution
In Q1, GRSE’s gross margin rose 1,030 bps year-on-year to 42.8 percent, driving EBITDA margin up by 290 bps to 8.5 percent through operating leverage from large-scale execution. The company expects a provision reversal of Rs. 330 crore over the next one and a half years, with half likely in H2 FY26 and the rest in FY27, as major projects like P-17A and ASW-SWC complete. Based on these factors, Elara Capital has given a ‘Sell’ rating on GRSE.
Valuation
GRSE’s share price has jumped about 60 percent in the past six months,. However, Elara Capital has reiterated a ‘Sell’ rating, citing limited near-term growth drivers, even though longer-term earnings are expected to improve with FY27 EPS seen up 17 percent and FY28 EPS up 39 percent.
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About the Company
Garden Reach Shipbuilders & Engineers Limited (GRSE), founded in 1884 and based in Kolkata, designs and builds a wide range of naval and defense vessels for the Indian Navy, Coast Guard, and government agencies, including frigates, corvettes, patrol vessels, landing ships, survey vessels, and ferries.
It also develops advanced platforms like unmanned and autonomous vessels, ship-based drones, green ships, and naval surface guns. Beyond shipbuilding, GRSE manufactures portable bridges, deck machinery, and marine equipment, while also providing engine assembly, overhaul, testing, dry docking, refit, and repair services for defense and commercial ships.
Financial Outlook
In Q1FY26, GRSE reported revenue of Rs. 1,310 crore, down 20 percent from Rs. 1,642 crore in Q4FY25 but up 30 percent from Rs. 1,010 crore in Q1FY25. Net profit came in at Rs. 120 crore, falling 51 percent from Rs. 244 crore in Q4FY25 yet rising 38 percent from Rs. 87 crore in Q1FY25, showing strong YoY growth despite a sharp sequential decline.
A return on equity (ROE) of about 27.6 percent, a return on capital employed (ROCE) of about 36.6 percent demonstrate the company’s financial position. At the moment, the company’s P/E ratio is 56.4x lower as compared to its industry P/E of 72.8x.
Written by Akshay Sanghavi
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