Garden Reach Shipbuilders & Engineers (GRSE) has got a buy rating from ICICIDirect Research as the brokerage firm has initiated coverage on the defence based public sector player. It has given a target price of Rs 630 on the counter suggesting an upside potential of another 30 per cent in the stock from the current price of Rs 480.
GRSE’s revenue recognition is set to increase during FY22-25E in its major contracts, said ICICIDirect. “Pick-up in execution will be supported by increasing indigenisation of platforms/sub-systems,” it said in its maiden report on the stock.
Revenue is expected at 52.3 per cent CAGR over FY22-25E, compared to a 8.2 per cent CAGR in FY19-22. EBITDA CAGR is expected at 61.8 per cent during the same period led by strong revenue growth and improvement in margins, the brokerage said with a target price of Rs 630, valuing it 15 times the expected EPS of FY24.
The company recorded a 53 per cent year rise in revenue of Rs 1,750 and 24 per cent growth in net profit at Rs 190 crore on year (YoY) in the financial year 2021-22. In the last five years, revenues increased at 13.5 per cent CAGR over FY17-22 while PAT increased at 73 per cent CAGR.
“Defence budget for indigenous procurement is likely to increase considerably for FY24E with the share of imports further coming down. For FY23, Rs 84,598 crore has been kept for purchasing locally produced weapons and systems,” said ICICIDirect. “GRSE is well placed to benefit from Indian Navy’s big procurement plan for the next three to four years”
The brokerage is also expecting a Rs 3,200 crore contract by FY23 end for the construction of next generation ocean going patrol vessels for the Indian Navy. Currently, next generation corvettes are the largest contract opportunity in the pipeline for GRSE, with a value of Rs 3,600 crore.
Garden Reach Shipbuilders is among India’s leading defence public sector undertaking shipyards, which primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It has delivered 107 warships and has built and supplied more than 780 vessels for maritime security, so far.
ICICIDirect expects execution to pick up in the coming period led by indigenous manufacturing of surface warships/vessels and associated subsystems/components. “Out of 1238 sub-systems notified for indigenization, 31 such components would be indigenously procured by GRSE,” it said.
The company’s order book stood at Rs 22,930 crore as of September 30, 2022 and 98 per cent of it comprised the ship building segment.
Shares of Garden Reach Shipbuilders have delivered multibagger returns in the last one year, rising about 100 per cent. The stock has surged about 380 per cent since its listing in October 2018.
Veteran Dalal street investor Ramesh Damani owned 12,51,156 equity shares or 1.09 per cent stake of the company as on December 31, 2022. His stake in Garden Reach Shipbuilders is worth Rs 61 crore.
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