The domestic brokerage firm had retained its sell rating for both the stocks and given a target price of Rs 1,165, which indicated a downside potential of 77% while for GRSE the target price of Rs 515 was given, which signalled a potential downside of 74%.
Here is what ICICI Securities had said:
Mazagon Dock Shipbuilders
ICICI Securities expects high margins to be sustained until FY27E as major deliveries are planned over the next 2-3 years. However, once the company starts executing new orders, its revenue recognition is likely to be milestone-based, and hence, the EBITDA margin could taper off to 12-15%.
Despite factoring in the potential orders of P75 (three additional submarines), P75I and next-gen destroyers, and margins at an elevated level in the near term, the domestic brokerage firm believes that the stock is overvalued at the current market price.“In our view, while EPS is likely to be range bound at INR 95-120/share from FY28-32E, there are risks to ordering/execution timelines,” said analysts at ICICI Securities.Additionally, they have stated that higher-than-expected margin, higher-than-expected order value and repeat orders of frigates (which ICICI Securities has not accounted for) are key risks for the company.The shares of Mazagon Dock Shipbuilders were trading 6.5% lower at Rs 4,414 on BSE around 10:30 am today.
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Garden Reach Shipbuilders
Stating that impressive growth for the stock is in store, but it is all in the price, ICICI Securities stated that despite its estimates being at the higher end of the management’s guidance, they believe that the returns are capped.
The company’s orderbook at end-Q1FY25 was at Rs 25,230 crore while four major contracts worth Rs 1500-16-00 crore (exports Rs 700 crore) were executed in Q1 and RFPs of projects worth Rs 8500-9000 crore are likely within a year and there is a healthy prospective pipeline of more than Rs 1.3 lakh crore beyond that.
The current orderbook may be executed by FY27 and the RFP of next gen corvette (NGC) is out, and management expects L1 to be declared in the next four months. Going ahead, management has guided for revenue growth of 25-30% for FY25-26 while maintaining its PAT margins at 7.5-8%.
The current shipbuilding capacity is for concurrent construction of 20 platforms, that is 8 large and 12 small and medium. By the end of CY24, shipbuilding capacity will be enhanced from 20 to 24 ships. Also, it has taken pre-dried-out on long-term for ship repairs.
The shares of GRSE were trading 5.7% lower at Rs 1,812 on BSE around 10:30 am today.
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