Mazagon Dock shares down 3%, take 2-day fall to 10%; stock analyst targets

Shares of defence PSU Mazagon Dock Shipbuilders tanked 3 per cent in Monday's trade, in addition to a 7.20 per cent drop on Friday, taking its two-day fall to nearly 10 per cent. The fresh drop in the share price in the backdrop of a 60 per cent surge on the counter in the past three months, has been on account of weak set of quarterly results. Brokerages such as Antique Stock Broking and Nirmal Bang Institutional Equities retained their 'Buy' calls on the stock with a target price suggesting up to 25 per cent potential upside on the stock.     

Notwithstanding near-term moderation in revenue growth, medium-term outlook strong backed by robust order pipeline, they said.

Mazagon Dock's standalone Ebitda was below consensus estimates, as it fell sharply by 83 per cent YoY and 89 per cent QoQ mainly due to 281 per cent YoY increase in other expenditure and provisions. 

"The company’s present order book stands at Rs 32,200 crore. In the near term, a major catalyst will be the order for three additional Scorpene submarines, which is expected to be awarded to Mazadock on a nominated basis. This order can potentially more than double the company’s order book," Antique Stock Broking said. 

Further, awarding of P75I order -- estimated value of Rs 70,000 crore; and P17B (Rs 70000 crore) is also on the anvil, Antique Stock Broking said.

"We maintain BUY rating with a target of Rs 3,858 (earlier Rs 3,433) at a core target P/E multiple of 50x FY27 earnings (earlier 45x FY27 core earnings). The stock (and the sector) may trade at premium valuations in view of large order pipeline, government’s focus on developing shipbuilding sector, and potential strategic tie-ups with globally established shipyards," it said. 

Nirmal Bang Institution Equities has maintained its 'Buy' call and upped its valuation multiple for the stock by 71 per cent to arrive at a target of Rs 4,350 apiece. The target price suggests a potential 25 per cent upside for the stock ahead.   

For the March quarter, Mazagon Dock's sales rose 2.3 per cent YoY but Ebitda and PAT declined 82.8 per cent and 50.9 per cent YoY. The performance was below Nirmal Bang's own estimates. 

"The significant drop in Ebitda can be traced back to an increase in provisioning for other expenses, which surged 436 per cent YoY. Thisv increase is primarily linked to two contracts: one involving the supply of FPV to the Coast Guard and the other related to the Denmark contract," Nirmal Bang said.

With the arrival of fresh projects, a notable rise in margins and profitability is anticipated. 

"The economies of scale associated with these large submarine projects, along with the efficiency initiatives driven by Shipyard 4.0 and digital transformation efforts, are anticipated to improve the overall profitability of the yard," Nirmal Bang said.