Mazagon Dock Shipbuilders’ share price sailed northwards to reach a fresh 52-week high of ₹ 936.40 apiece on the National Stock Exchange on Monday (NSE).
Mazagon Dock Shipbuilders (MDS) is India’s only shipyard to have built destroyers and conventional submarines for the Indian Navy; one of the initial shipyards in India to manufacture Corvettes (Veer & Khukri Class) in India. It primarily builds and repairs ships, submarines and other types of vessels for domestic and international clients. It primarily manufactures for the defence sector and has built 799 vessels including 26 warships.
In the past six months, its share price zoomed 230.52% to give multibagger returns. Its shares were trading at ₹ 915.35 apiece at 03:10 PM on Monday. If an investor would have invested ₹ 1 lakh in the company’s shares six months ago, the value of their holdings would have been ₹ 3.30 lakhs!
MDS upped its revenue citing its strong order book that has gained from India’s focus on local manufacturing of arms and defence equipment. It had an order backlog of ₹ 43,343 crores as of August 2022 (6.4x TTM revenues). This indicates that they have plenty of projects in the pipeline and could provide them with revenue over the next two years.
The order book includes ₹ 19,795 crores in project-17A (Nilgiri class frigates), ₹ 18,897 crores in Project-15B (Visakhapatnam class Destroyers), and ₹ 4,400 crores in Project-75 (Kalvari class submarines). The estimated cost of its projects is ₹ 1.8 trillion and this provides it with a huge opportunity, given its strength across building submarines and major warships (mainly destroyers and frigates).
Analysts at ICICI Securities believe that MDS’ capability will improve in the coming period, led by increasing indigenisation of platforms and sub-systems. They expect the next two-year revenue CAGR at 18.2%, as against 7.5% in FY 19-22. In addition, the margin for FY24E is set to improve substantially on the back of positive operating leverage.
In general, the defence sector is booming in India. It is buoyed by healthy order books, revenue expansions and the government’s push for localization. The government has taken measures such as simplification of procedure for procurement of defence products, provision for funding of up to 70 per cent of development cost by the government, and a hike in foreign direct investment (FDI) to 74 per cent through the automatic route. These factors are expected to boost investments in the sector.
While it has turned attractive for investors, analysts caution that steep valuations, execution hiccups, competition pressures and cash flow generation risks may pose threats to the rally that defence stocks have seen recently.
Written by Simran Bafna
Disclaimer
The content in this news article is not investment advice. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
