The ₹ 444-crore IPO from Mazagon Dock Shipbuilders received a stellar response from investors back in 2020. It was issued at ₹ 145 per share and its shares were trading at ₹ 1313.00 apiece during early trades on Friday, a massive 805 percent higher!
The submarine and warship manufacturers’ shares debuted at ₹ 216.30 apiece, indicating multibagger returns of 507 percent since then. On a year-to-date basis, the company’s shares rose by 67 percent, and by 413.20 percent in the past year. In fact, it ranks 18 among the Nifty 500 stocks, with one of the best returns so far this year.
Mazagon Dock Shipbuilders is primarily engaged in the building and repairing of ships, submarines and various types of vessels and related engineering products for domestic as well as international clients.
What drove the rally?
Multiple factors like a strong order book, its financials and management commentary can be the reasons behind the rally.
Order Book
The company’s order book stood at a massive ₹ 38,755 crore and 89 percent of it is related to shipbuilding projects. The remaining 11 percent are in the submarine and heavy engineering spaces.
On June 30, the company signed a contract worth ₹ 2724.6 crores for the Medium Refit-Cum- Life Certification (MRLC) of the second Shishumar-class submarine, INS Shankush, which will extend the vessel’s life. Moreover, it signed a memorandum of understanding with the marine arm of German conglomerate ThyssenKrupp AG to jointly build submarines for the Indian Navy.
On an estimated basis, India plans to spend an estimated $ 5.2 billion on six diesel-electric submarines, with a large amount of local content expected to be used in their development, according to a report by BQ Prime.
Company Financials
The company’s revenue rose by 36 percent to ₹ 7827.00 crores in FY23, as compared to ₹ 5733.00 crores in FY22. Its net profit increased by 83 percent to ₹ 1119.00 crores in FY23 as compared to ₹ 61.84 crores in FY22. The company’s performance should not be focused on a quarter-on-quarter basis due to the long gestation period for orders.
With a market capitalization of ₹ 26,069 crores, Mazagon Dock Shipbuilders is a mid-cap company. It has a good return on equity of 25.97 percent and is almost debt free. The company’s shares were trading at a price-to-earnings ratio (P/E) of 23.30 which is lower than the industry P/E of 32.93, indicating that the stock might be undervalued as compared to its peers.
The company’s promoters hold a 84.83 percent stake in it, followed by retail investors with 11.61 percent, foreign institutions with 3.29 percent, mutual funds with 0.26 percent and other domestic institutions with 0.01 percent.
Management Commentary
In an investor update call on June 2, Sanjay Sanjeev Singhal, the chairperson of the company said that Mazagon Docks is the only builder of destroyer-class ships in India. He added that delivery of the one remaining submarine in the P-75 order was targeted for either the current or early part of the next fiscal.
Moreover, the company’s delivery of the third Destroyer of Project 15 Bravo is targeted this year and the fourth in 2024.
Written by Simran Bafna
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