Brokerage ICICI Securities sees over 10 per cent upside in Mazagon Dock Shipbuilders despite an over 200 per cent rally in the state-owned firm on Dalal Street in the ongoing calendar year. Shares of the company jumped to Rs 890.05 on December 6, 2022 from Rs 278.90 on December 31 last year.
With a rally of 219 per cent, Mazagon Dock Shipbuilders is the top performer of 2022 in the PSU pack. It is followed by Bharat Dynamics (up 145 per cent), Hindustan Aeronautics (up 127 per cent), Bank of Baroda (up 112 per cent) and Indian Bank (up 110 per cent).
The company is engaged in the construction and repair of warships and submarines for the Ministry of Defence to be used by the Indian Navy along with other vessels for commercial clients. Mazagon Dock Shipbuilders is India’s only shipyard to have built destroyers and conventional submarines for the Indian Navy.
Over the last 10 years, the company’s revenue increased at 10.5 per cent CAGR over FY13-22 while EBITDA and profit after tax advanced at 3.6 per cent and 3.9 per cent CAGR, respectively, during the same period due to a fall in operating margins.
ICICI Securities has set a target price of Rs 1,025 for Mazagon Dock Shipbuilders, showing an upside of 15 per cent from the current market price. However, it downgraded the recommendation on the stock from ‘Buy’ to ‘Hold’.
“We expect Mazagon Dock Shipbuilders to deliver earnings CAGR of 24 per cent in FY22-24E led by 18 per cent revenue CAGR and sustainable margins,” the brokerage said in a report on December 6.
It further added that the strong order backlog at Rs 42,000 crore gives strong revenue visibility. “The order book comprises three major contracts – Project17A frigates, Project-15B destroyers and Project-75 submarines. The company is also well placed to benefit from the Indian Navy’s big procurement plan for the next three to four years,” ICICI Securities added.
On the other hand, the brokerage also prefers Bharat Electronics (BEL) in the defence space with a target price of Rs 135. Shares of the company traded at Rs 106 in the morning trade on December 7, while the benchmark BSE Sensex was down 203 points, or 0.33 per cent, at 62,422.
It believes that a strong order book and healthy pipeline in defence electronics offer strong visibility for Bharat Electronics, diversifying into non-defence to help improve margins.
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