Mazagon Dock, Garden Reach, Cochin Shipyard at record high on strong growth outlook

Shares of shipbuilding stocks surged higher in trade on September 8 with Garden Reach Shipbuilders & Engineers, Cochin Shipyard and Mazagon Dock Shipbuilders hitting record high at Rs 973.95, Rs 1,258 and Rs 1,258, respectively on strong growth outlook.

At 10:57 am, shares of Mazagon Dock Shipbuilders, Cochin Shipyard and Garden Reach Shipbuilders & Engineers were up 4-12 percent on the BSE.

Mazagon Dock Shipbuilders has reportedly signed the Master Ship Repair Agreement with NAVSUP Fleet Logistics Center Yokosuka, an entity of the US Government.

The agreement is expected to create sizable opportunities for Mazagon Dock in repairs of US Navy ships. Recently, the US government also signed the same agreement with L&T Shipyard.

According to ICICI Securities, the US has been exploring cost-effective ship repair options in India and considering the substantial size of the US Navy fleet, the brokerage firm believes this will create significant opportunities for defence shipyards in the near future.

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As for Cochin Shipyard, the company has ship repair orders worth approximately Rs 700 crore as of June end of 2023.

Though, Kotak Institutional Equities has lowered its rating on Cochin Shipyard shares to ‘sell’ because they believe the current market price assumes that future orders, like the one for IAC-1 or similar carrier orders, will come at a higher cost.

Garden Reach Shipbuilders and Engineers is focused on its ship repair division which has higher margin work orders.

In FY22, income from ship repairs made up 2.3 percent of the total sales for Garden Reach, which was more than twice the previous year’s figure. Ship repairs currently account for only 0.5 percent of the company’s order book. The company has decided to cap it to around maximum 5 percent in the next three to five years.

Sanjeev Prasad, Managing Director & Co- Head, Kotak Institutional Equities, told CNBC-TV18 that the capital goods, defence and shipbuilding space have done very well while quickly adding that the stock prices are tough to rationalize now.

He added that the market is discounting the order wins and execution well in advance.

Gains in the shipbuilding stocks are also followed by large deals on the bourses today. Around 10.8 lakh shares of Cochin Shipyard or 0.8 percent equity, worth Rs 133.3 crore changed hands at Rs 1,240 per share. Meanwhile, about 6.1 lakh shares of Mazagon Dock Shipbuilders or 0.3 percent equity, worth Rs 143 crore changed hands at Rs 2,250.

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