The share price of one of India’s leading warship builders fell around 9 percent in two trading days after the brokerage assigned a sell rating for a downside of 74%.
At 9:30 a.m., On Tuesday, Mazagon Dock Shipbuilders Ltd (MDSL) shares were trading at ₹4,565.20, reflecting a decrease of 3.38 percent from the previous closing price. The company’s market capitalization is ₹92,878 crore.
What Happened:
ICICI Securities has given ‘Sell’ rating on Mazagon Dock Shipbuilders stock and raised the target price to ₹1,165 apiece, from ₹900 earlier which implies a downside of 74% from the current market price.The brokerage believes the defence stock Mazagon Dock Shipbuilders share is overvalued at current market price.
The brokerage highlighted that Mazagon Dock Shipbuilders reported a significant rise in EBITDA, reaching ₹6.4 billion, which is a 2.7x increase year-on-year. This performance was driven by several factors, including an impressive EBITDA margin of 27.2% compared to 16.9% in Q4FY24.
The improvement in margins was attributed to the early delivery of ships, which resulted in costs coming in lower than budgeted. Additionally, the company secured new orders worth ₹25 billion in Q1, boosting its order book to ₹368 billion as of the end of June 2024.Brokerage mentioned.
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Looking ahead, the company has outlined a substantial capital expenditure plan of ₹40-50 billion over the next 3-4 years. The analyst anticipates that the EBITDA margin will remain elevated in FY25/26E, as the company continues to deliver ships ahead of schedule. However, it is expected that margins will gradually decline once the execution of new contracts begins.
In its report, the brokerage noted that Mazagon Dock Shipbuilders has recently seen an improvement in margins, primarily due to the ahead-of-schedule delivery of vessels, which has resulted in lower-than-budgeted costs.
The brokerage expects these elevated margins to persist until FY27E, given that several major deliveries are scheduled over the next 2-3 years. However, as Mazagon Dock Shipbuilders begins executing new orders, revenue recognition is expected to shift to a milestone-based approach, which could cause EBITDA margins to decline to a range of 12-15%
About Company:
Mazagon Dock is the country’s largest shipbuilder, both in terms of revenue and order book, and is tasked with manufacturing some of the Indian Navy’s most ambitious programs, including its Scorpene class of submarines and the Visakhapatnam and Kolkata class destroyers.
Mazagon Dock Shipbuilders Limited is a leading shipyard in India. It primarily manufactures for the defence sector and has built 801 vessels including 27 warships ranging from advanced destroyers to missile boats and 7 submarines.
Mazagon Dock, India’s only shipyard manufacturing destroyers and conventional submarines for the Indian Navy, also produces cargo and passenger ships, supply vessels, water tankers, tugs, dredgers, fishing trawlers, and barges for various customers across India.
Financials:
In the fiscal year 2023-24, the company achieved a consolidated net profit of ₹1,936 crores, marking a substantial 73% increase from the previous fiscal year. Additionally, total revenue for the year grew by 21%, reaching ₹9,466 crores.
Stock Returns:
Mazagon Dock’s shares have delivered a remarkable return of 156% over the past year, meaning a shareholder investment of ₹.1 lakh would now be worth ₹.2.56 lakhs.
Recent order:
In the first week of May 2024, Mazagon Dock Shipbuilders Limited signed individual shipbuilding contracts with a European client for the design, construction, and delivery of three 7,500 DWT multi-purpose hybrid-powered vessels, valued at USD 42 million (approximately ₹. 350 crores).
Written by Omkar Chitnis
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