Mazagon Dock Shipbuilders, the Indian state-owned war-ship building company has been at the forefront of the rally being witnessed by most Indian defence stocks collectively.
After its impressive earnings on Wednesday which saw the company more than doubling its profit since last year, analysts believe the stock will remain turbo-charged and have placed renewed bets on it.
This comes after the stock has shown some correction from its peak, allaying concerns of being overvalued.
The stock remains relatively overvalued though.
Also, while there have been concerns earlier of the stock being overbought, analysts believe with the Relative Strength Index (RSI) cooling off significantly from the overbought zone, the stock is currently well placed to buy for upside potential.
Impressive earnings performance
Mazagon Dock Shipbuilders reported a 121% year-over-year (YoY) increase in its Q1 profit after tax (PAT), reaching Rs 6,960 million ($83 million) for the quarter ended June 2024.
This is a substantial leap from Rs 3143 million ($37 million) recorded in the same period last year.
The company’s revenue from operations saw an 8.5% YoY increase, rising to Rs 23,570 million from Rs 21,728 million in the previous year’s first quarter.
The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 273.5% YoY, reaching Rs 6,420 million compared to Rs 1,720 million in the corresponding quarter of the previous financial year.
This significant increase in EBITDA has translated into a notable improvement in EBITDA margins, which rose by 1,934 basis points to 27.3%.
Its better operational performance was also aided by a significant drop in the cost of materials consumed
Additionally, Mazagon Dock’s total income for the quarter climbed to Rs 26,280 million, up from Rs 24,054 million in the same period last year, highlighting the company’s strong revenue growth.
The company had a strong order book of Rs 363,890 million ($4.3 billion) as of June 30.
The share price of the company closed at more than 3% higher than Tuesday’s close.
Share price movement in the recent past and positive triggers
In the last year, the share price of Mazgaon Dock Shipbuilders has surged by almost 168%. Year to date the price has increased by 118%.
Its market capitalisation currently stands at Rs 1 trillion.
The company, like some other Indian defence stocks like Cochin Shipyard, has been gaining broadly from the Indian government’s larger endeavour to bring down dependence on defence imports and boost exports.
This has also given some positive results, with the country registering its highest-ever growth in defence production in the financial year ending March 31, 2024.
Source: TradingView
The company had a strong order book of Rs 363,890 million ($4.3 billion) as of June 30.
Last year, it also signed a non-financial Master Ship Repair Agreement with the US Navy to service its fleet which held great strategic importance for the company.
Additionally, media reports suggest that the Indian defence ministry is nearing approval of a major Rs 700,000 million ($8.3 billion) order for warships for the Indian Navy, with Mazagon Dock Shipbuilders and Garden Reach Shipbuilders being the primary contenders for this lucrative contract.
In June, owing to its growing financial strength, the company was accorded the so-called ‘Navratna’ status by the Indian government.
This is a status that the government grants to public sector companies which fulfil certain earnings requirements like reporting an annual turnover of more than Rs 25,000 crore in the last three years, etc.
Technical analysis and forecast
Technical analysis by Prabhudas Lilladher Technical Research indicates that Mazagon Dock’s stock is currently at an attractive level after a correction from its peak of Rs 5,860.
The stock has shown signs of bottoming out just above the significant 50-day exponential moving average (EMA) level of Rs 4,550.
The Relative Strength Index (RSI) has cooled off significantly from the overbought zone, indicating a positive trend reversal, suggesting a buy signal with substantial upside potential.
According to Trendlyne, the stock’s RSI on Wednesday stood at 52.8- a comfortable level as an RSI over 70 signals a stock is overbought.
Vaishali Parekh, vice president, of technical research at Prabhudas Lilladher Capital, said
With the chart looking attractive, we suggest buying the stock for an upside target of 5,790 and 6,300 levels respectively in the coming days keeping the stop loss of 4,550.
Source: PL Capital
With a TTM PE ratio of 50.33, the stock is still overvalued, however, against a sectoral PE of 51.14, the valuation may be justified.
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