Fundamental Analysis Of Cochin Shipyard: Defence is an essential part of any country’s security. With rising geopolitical tensions and security threats around the world, increasing defence expenditure is crucial.

Defence companies need to improve their expertise, technological advancements, and manufacturing to ensure they have an edge over their competitors. In this article, we will focus on Cochin Shipyard, which operates in the shipbuilding sector.

Fundamental Analysis Of Cochin Shipyard

Company Overview:

Cochin Shipyard was established in 1972 and is overseen by the Ministry of Ports, Shipping, and Waterways. A team of experts chose Cochin as the location for the country’s first greenfield yard. It specializes and is a market leader in vessel construction, refits, and repairs of various types of vessels. It including ship life extension and periodic upgrades.

The Shipbuilding division manufactures a diverse range of products, including oil tankers, bulk carriers, electric passenger ferries, passenger vessels, tugs, aircraft carriers, pollution control vessels, and more. Meanwhile, the Ship Repair division maintains and services a wide range of vessels, including tankers, bulk carriers, aircraft carriers, defence vessels, and commercial and specialised vessels.

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As of March 31, 2023, it had built and delivered 21 large vessels, 35 offshore vessels, 93 small and medium-sized vessels, and 31 defence vessels. Their manufacturing capacities are across India such as Cochin, Kolkata, Mumbai, Udupi, Port Blair and Howrah.

They were involved in key reputational projects, such as India’s first indigenous aircraft carrier, INS Vikrant, which was commissioned in September 2022.

Segment Analysis:

Cochin Shipyard generates revenue from operations in segments such as shipbuilding (69.72%, down 28.62% YoY), ship repair (22.22%, down 15.81% YoY), and others (8.06%, down 21.23% YoY) in FY23. According to the most recent Q3FY24 transcript, the current order book was around Rs 21,500 crores, with ship repair orders accounting for around Rs 800 crores.

Industry Analysis:

The defence sector has undergone significant changes in recent years. Over the forthcoming 5 to 7 years, the Indian Government aims to allocate approximately US $130 billion towards enhancing fleet capabilities across all armed services branches.

The Ministry of Defence aims to generate a revenue of $25 million in defence and aerospace manufacturing by 2025, with exports totaling around $5 billion.

Changes under FDI route were done, up to 74% is now allowed through the automatic route, up from 54% previously. This allows foreign firms to establish manufacturing units and own and control the business. 

The exports grew by 334% in the previous 5 years and India exports to more than 75 countries under collaborative efforts. These initiatives will assist the country in importing technological sharing and facilitating advancements for greater use in the sector.  

Similarly, key defence projects help to boost domestic manufacturing, create jobs, and add tangible value to the nation’s security. Initiatives help India achieve self-sufficiency while reducing its reliance on other countries to purchase aircraft and warships to a greater extent.

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Fundamental Analysis Of Cochin Shipyard – Financials

Revenue and Net Profit: 

Cochin Shipyard reported revenue from operations of Rs. 2,364.55 crore in FY23, down 25.89% from Rs. 3,190.95 crore in FY22. Net profits fell 45.96% to Rs. 304.71 crore in FY23 from Rs. 563.96 crore in FY22. There was an exceptional item of Rs. 61.81 crores in FY23, a prior-period error recognised in the current year.

Financial performance in FY23 was lower than the previous year due to different factors. It includes missing out on a few significant orders, difficulties with completing the first major naval refit, and the expiration of the MoU with UTL warships, which was renewed in March 2023.

Particulars/ Financial YearRevenue from Operations (Cr.)Net Profit (Cr.)
2022-23₹2,364.55₹304.71
2021-22₹3,190.95₹563.96
2020-21₹2,818.90₹608.66
2019-20₹3,422.49₹632.01
2018-19₹2,962.16₹477.79

Profit Margins:

OPM in FY23 stood at 20.31% compared to 25.51% in FY22 and NPM decreased to 11.85% in FY23 from 16.33% in FY22. Over the 5 years, OPMs were 20-30% range and NPMs were 11-20% range.

The decline in margins was partially attributed to the rise in subcontract and other direct expenses, which surged to 18.39% from 12.87% in FY22, alongside an increase in employee costs as a percentage of revenue, climbing to 14.13% in FY23 from 9.74% in FY22.

Particulars/ Financial YearOPM (%)NPM (%)
2022-2320.31%11.85%
2021-2225.51%16.33%
2020-2130.54%20.22%
2019-2025.95%17.23%
2018-1924.94%14.97%

Return Ratios:

The RoE of the company in FY23 stood at 5.89%, down from 13.39% in FY22. RoCE in FY23 was 7.96% down from 17.08% in FY22. The decrease in return ratios was due to a decrease in net profits. 

The decrease in net profit in FY23 impacted RoE, rising reserves over 5 years might have impacted its declining RoE. RoCE decreases can be attributed to lower net profits and higher equity base and borrowings.

Particulars/ Financial YearRoE (%)RoCE (%)
2022-235.89%7.96%
2021-2213.39%17.08%
2020-2115.69%19.56%
2019-2017.93%23.49%
2018-1914.51%22.17%

Debt Analysis:

The debt-to-equity ratio of the company was 0.13, over the years they maintained a low debt-to-equity ratio. The interest coverage ratio was 9.24 times in FY23, down from 15.41 times in FY22. Although the interest cost has decreased, the decreasing trend of net profits since FY20, which was their peak earnings over 5 years, has affected the ratio.

Particulars/ Financial YearD/EInterest Coverage
2022-230.139.24
2021-220.1315.41
2020-210.0914.87
2019-200.0318.19
2018-190.0449.45

Fundamental Analysis Of Cochin Shipyard – Key Metrics

Here are some of the key metrics of Cochin Shipyard

ParticularsAmountParticularsAmount
CMP₹882.15Market Cap (Cr.)₹23,090.00
Stock P/E (TTM)59.51EPS (TTM)₹14.75
RoE (%) (TTM)8.25%RoCE (%) (TTM)10.40%
Promoter Holdings (%)72.86%Public Holdings (%)20.83%
Debt to Equity Ratio0.13Interest Coverage Ratio9.24
Current Ratio (TTM)1.39Net Profit Margin (%)10.98%

Fundamental Analysis Of Cochin Shipyard – Future Plans

  • By FY25, the company is guiding for turnover growth of 12-15%. Margins expected from shipbuilding is expected around 18-19%.
  • MoD awarded a Rs 488.25 crore contract maintenance work of equipment on INS Vikrant, expected to be completed by Q1 FY25.
  • Cochin Shipyard received an order from a European client to design and build one Hybrid Service Operation Vessel(SOV) worth approximately Rs 500 crores, with delivery expected by 2026 in January 2024.
  • The company received new orders in Q3 FY24 from the MoD totalling Rs. 313.42 crores for the mid-life upgrade and repowering of a naval platform expected to complete in 24 months.
  • Rs. 1,799 crores for worth new dry dock and Rs. 970 crores from the International Ship Repair Facility (ISRF) are some of the Key ongoing/future projects. Multipurpose vessels for European clients, and supporting the offshore wind energy market in Europe.
  • Once the new dry dock is fully operational by mid-2024 after installation of the 600-ton gantry crane, it will enable taking up new shipbuilding projects.
  • Subsidiary Hooghly Cochin Shipyard Limited (HCSL) is expected to handle more orders for smaller vessels for inland waterways

Read more: Fundamental Analysis Of DRC Systems India

Conclusion

As we approach the end, let us take a brief look at the Fundamental Analysis Of Cochin Shipyard. Cochin shipyard has been performing well and with the increasing interest in the Defence sector, the prospects look promising. The Indian government’s active participation in manufacturing defence items in India is likely to gain more traction.

An improvement in the company’s earnings over time would significantly enhance shareholder value. We would love to hear your thoughts on the company’s potential. Please share your views in the comments section below.

Written by Santhosh

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