Shares of Mazagon Dock Shipbuilders Ltd. (MAZDOCK), a prominent defense PSU, recently took a 7% hit after reporting disappointing March quarter results. Despite this, Nirmal Bang Institutional Equities is still bullish, maintaining a “Buy” rating and raising its target price to Rs 4,350, suggesting a potential 25% upside.
Q4 Performance and Key Takeaways
The March quarter saw revenue climb a modest 2.3% year-over-year, but EBITDA and PAT plummeted by 82.8% and 50.9% respectively, falling short of Nirmal Bang’s estimates. This sharp decline in profitability was mainly due to increased provisioning for potential losses on two contracts—one for supplying FPV to the Coast Guard and another with Denmark. While the stock faced a recent dip, it has still delivered an impressive 114% return over the past year.
Nirmal Bang’s Optimistic Outlook
Nirmal Bang has significantly upped its valuation multiple for MAZDOCK by 71%. They’re now valuing the stock at 45 times its March 2027 EPS, well above its three-year average PE of 20.1 times. The brokerage forecasts robust CAGRs (Compound Annual Growth Rates) for revenue, EBITDA, and PAT at 21%, 35%, and 27% respectively, between FY25 and FY27.
Future Growth Drivers and Order Book Expansion
Mazagon Dock is poised for a significant boost in margins and profitability as major orders come to fruition. The company is confident that contracts for the P75 additional submarines and P75I submarines will be signed in FY26. These projects are expected to swell the order book from the current Rs 32,000 crore to over Rs 1.25 lakh crore. The anticipated economies of scale from these large submarine projects, coupled with efficiency improvements from “Shipyard 4.0” and digital transformation efforts, are set to significantly enhance the shipyard’s overall profitability.
Valuation and Risks
Currently, MAZDOCK trades at a 1-year forward PE of 36.20 times. Nirmal Bang’s target PE of 45 times indicates a premium valuation based on strong future growth expectations. However, investors should closely monitor the provisioning for potential losses on existing contracts, as this represents a key risk factor.
In conclusion, despite a challenging recent quarter, Mazagon Dock Shipbuilders is viewed by Nirmal Bang as a promising investment, driven by a robust order pipeline and anticipated improvements in operational efficiency and profitability.