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Business News/ Markets / Stock Markets/  Cochin Shipyard share price turns multibagger in one year, but Kotak downgrades the stock to sell; here's why

Cochin Shipyard share price surged almost 10 per cent in morning trade on Friday to hit their fresh all-time high of 1,258 on BSE. The stock opened at 1,195 against the previous close of 1,146.15 and jumped 9.8 per cent to its fresh peak.

The stock has given a bewildering return in the last one year. It has surged 212 per cent in the last one year while the equity benchmark Sensex has gained only 11 per cent in the same period. In the current calendar year, the stock has jumped 135 per cent.

However, brokerage firm Kotak Institutional Equities has downgraded the stock to a 'sell' from a 'buy' but raised the target price to 990 from 740 earlier as it indicated the current market price of the stock factors in most of the key positives. 

Kotak's target price of 990 implies a nearly 14 per cent downside from the stock's September 7 closing of 1,146.15 on BSE.

Kotak downgrades Cochin Shipyard

Kotak pointed out that, as per news reports, the Chief of Naval Staff, Admiral R Hari Kumar, expressed the intent of the Navy to repeat the order of INS Vikrant (IAC-1). The Chief of Naval Staff also spoke of the manufacturing expertise of Cochin Shipyard acquired through INS 1, limiting the case for the prospect of the repeat order going to another entity.

Kotak said that the recent comments from the Chief of Naval Staff are encouraging for placement of a repeat IAC order.

The brokerage firm, however, assumes a nearly 10 per cent lower value of the repeat IAC-1 order versus IAC-1 which was of nearly 23,000 crore. It expects the repeat order of IAC-1 to be smaller than IAC-2, which was earlier planned and would not have the cost overruns seen in the case of IAC-1 (six-year delay and a six-fold cost overrun).

Besides, Kotak said the change in margin norms may further limit the top-line for the company of the repeat IAC-1 order.

Kotak said in its revised fair value of 990 (versus 740), it factored in the potential repeat order at a 10 per cent lower cost than IAC-1 and the seven-year execution period.

"We expect the same to be a sub-7 per cent share of the Naval fleet capex over this period, apt for the prospects of INS Vikramaditya (originally commissioned nearly 40 years ago) and the requirement to defend against the scenario of China growing its carrier battle groups (CBG) fleet," said Kotak.

"We downgrade Cochin Shipyard to a sell from a buy as the current market price is factoring in an additional boost in the form of (1) a larger than 23,000 crore order size and/or (2) incremental IAC order wins/adjacency value. We would aim to consider the adjacency value, once we get more clarity on the same," said Kotak.

Shares of Cochin Shipyard traded 6.53 per cent higher at 1,221 around 10:40 am on BSE.

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Updated: 08 Sep 2023, 12:02 PM IST
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