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HomeBusinessShipbuilding stocks raly up to 11%; Mazagaon, Garden Reach hit new highs

Shipbuilding stocks raly up to 11%; Mazagaon, Garden Reach hit new highs

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Shares of shipbuilding & allied services companies continued their northward movement, surging up to 11 per cent on the BSE in Monday’s intra-day trade in an otherwise weak market on expectations of strong earnings on back of healthy order book position.


& Engineers Limited (GRSE) (up 11 per cent to Rs 434.15) and (MDL) (up 6 per cent to Rs 434.15) hit respective record highs on the BSE. Cochin Shipyard (CSL) hit a fresh 52-week high of Rs 549.10, rallied 5 per cent. The stock is inching towards its record high level of Rs 599, which it touched on November 24, 2017. In comparison, at 10:59 am, the S&P BSE Sensex was down 1.2 per cent at 57,520.


In the past one month, these three stocks have outperformed the market by surging between 25-60 per cent, as compared to a 3.8 per cent decline in the S&P BSE Sensex. Further, in past three months, the market price of MDL zoomed 154 per cent, and of GRSE and CSL soared by 80 per cent and 73 per cent, respectively. In comparison, the benchmark index has gained 6 per cent during the period.


MDL is one of India’s four strategic defence shipyards and the only one to manufacture destroyers and submarines in India. GRSE is mainly engaged in the construction of warships. Cochin Shipyard is engaged in two major activities viz., shipbuilding and repair of ships/offshore rigs etc. These are Defence Public Sector Undertaking (DPSU) under the Ministry of Defence (MoD).


The defence shipbuilding segment continues to look promising on account of ambitious acquisition plan of Indian Navy and Indian Coast Guard which is quite encouraging for the Indian Shipbuilders and the entire eco-system. The Government of India has rolled out various initiatives to unlock the true potential of India’s maritime capabilities, and accelerate the growth of our ports and shipping sectors.


A number of Requests for Proposals (RFPs) for various shipbuilding projects have been floated by the MoD during last one year and some more are expected to come out in the near future. Further, the MoD plan to increase export of defence products to $ 3.59 billion by end 2024-25 augurs well for all of us, GRSE said in its FY22 annual report.


A strong order book for construction of 16 warships concurrently for Indian Armed Forces at this juncture holds exciting times ahead for the GRSE. Recent policy announcement by the Raksha Mantri declaring ‘Initial Negative List of 101 items followed by 2nd positive Indigenisation list of 108 items’ in the negative list of imports over next five years in defence segment provides huge opportunities to Indian Industry as part of larger objective of ‘Atmanirbhar Bharat Abhiyan’.


Meanwhile. for FY23, MDL has an order book worth Rs 43,343 crore, which essentially comprises of four 15 Bravo missile guided destroyers, four 17 Alpha Stealth Frigates and six Scorpene submarines, of which four are already delivered, the company said.


Analysts at ICICI Securities believe that MDL’s execution capability will improve in the coming period, led by increasing indigenisation of platforms and sub-systems. The next two year’s revenue CAGR is expected at 18.2 per cent versus 7.5 per cent CAGR in FY19-22. Besides, the margin for FY24E is also set to improve substantially, led by positive operating leverage.


With an already strong order backlog of Rs 43,343 crore as of August 2022 (6.4x TTM revenues), MDL is well placed to benefit from Indian Navy’s big procurement plan for the next three tom four years, analysts said.


Recently, CSL has delivered two Autonomous Electric Vessels for ASKO Maritime AS, Norway and has also bagged order for 8 nos. of Eco Freighter Vessels from HS Service GMBH & Co. KG, Germany. CSL foresees more orders from the European clients which would be a pathbreaker for the Company, CDL said in FY22 annual report.


The Indian Navy’s order for Next Generation Missile Vessels is in its final stages which is expected to be placed on CSL anytime soon. CSL has also signed contract for building India’s largest dredger, which will open up a new business vertical and CSL is confident of getting further similar orders. CSL is also optimistic in garnering ship repair orders at its main facility at Kochi and its ship repair units at Mumbai, Kolkata and Port Blair. The overall outlook in the Ship repair segment looks steady, CDL said.

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