With the government's initiatives to increase exports and domestically produce more defence equipment, stocks related to the defence sector have recently become popular picks among investors. The majority of the stocks in the defence sector have so far this year delivered multi-bagger returns, and on the back of strong order books, companies are expected to perform well in the upcoming quarters.
Cochin Shipyard, a defence PSU stock, has delivered a staggering return of 72% so far in 2022. The stock began its upward journey in August following the commissioning of the INS Vikrant, the first made-in-India aircraft carrier built by the Cochin shipyard. Since then, the stock has experienced a one-way rally, surging from ₹332 to ₹611 apiece, producing a return of nearly 84.03%. Adding to that, the stock began trading above the ₹500 mark on October 6, after nearly four years.
Meanwhile, the stock dropped 7% to ₹611.75 from its previous closing price of ₹658.05 during Monday's intra-day after the company went ex-dividend. The company announced an interim dividend of ₹7 per share. The record date for the same is on November 22.
In its FY22 annual report, the company stated that it had been successful in securing orders despite fierce competition. The orders included the shipbuilding orders for 8 nos. of HS Eco Freighter 7000 DWT vessels for HS Service GMBH & Co. KG, Germany, and it also signed a contract for the construction of Trailer Suction Hopper Dredger for Dredging Corporation of India (DCI).
CSL is confident of getting more similar orders. The company is also optimistic about garnering ship repair orders at its main facility in Kochi and its ship repair units in Mumbai, Kolkata, and Port Blair.
"With a large order book worth 20,000 crores, encouraging business opportunities in Europe, and improving ship repair business will allow us to grow consistently in the coming years," the company added.
On November 09, the company received an order worth about ₹1,000 crore from a European client for the construction of 2 Commissioning Service Operation Vessels (CSOV) with an option to build 4 more of such vessels to be exercised by the owner within a year, the company said in an exchange filing.
On the fundamental side, the company reported a 14 per cent fall in consolidated profit at ₹112.79 crore in the quarter that ended September compared to ₹131.30 crore in the corresponding quarter of the previous fiscal.
The revenue from operations rose marginally during the quarter to ₹744.88 from ₹738.01 crore in the year-ago period. The revenue from the shipbuilding segment fell 5% YoY to ₹527.6 crore, while revenue from the ship repair segment rose 10.3% YoY to ₹155.6 crore.
Sequentially, total revenue rose by 55%. The shipbuilding revenue increased by 50.34% QoQ and ship repair revenue increased by 74.0% QoQ. EBITDA margin contracted 382 bps YoY to 19.8%. Sequentially, EBITDA margins improved sharply by 1265 bps on operating leverage benefits.
Despite the company posting negative net profit growth, domestic brokerage firm ICICI Securities has a "buy" call on the stock with a target price of ₹745 per share. According to the brokerage, the company's revenues were muted due to sluggish execution in the shipbuilding segment. However, ICICI expects the company's revenues to increase over FY24–25E on strong order book and it also expects margins to improve led by operating leverage benefits.
Cochin Shipyard is a Miniratna-listed small-cap stock with a market capitalization of ₹8,023.96. The company is mainly engaged in the construction of vessels and repairs and refits of all types of vessels, including the upgradation of ships, periodical lay-up repairs, and life extension of ships.
An average of 04 analysts polled by MintGenie have a 'hold' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.