Mazagon Dock Shipbuilders: This defence PSU stock is trading 1900% above its IPO price; what lies ahead?
Mazagon Dock Shipbuilders, a leading defence PSU, has seen a remarkable 1282% surge in its shares over three years, trading 1900% above the issue price. The company has a strong order book of ₹38,389 crore, with notable projects from the Ministry of Defence.
Robust order wins, increased budget allocation, the government's emphasis on reducing defence imports and promoting domestic procurement, improvement in defence exports, and improved financials have significantly bolstered investor interest in defence stocks, propelling them to hit record highs.
As a result, defence stocks have emerged as standout performers over the past year, multiplying their investors' wealth in a remarkably short span. Among the top performers in the defence industry, Mazagon Dock Shipbuilders has excelled, with a stellar return of over 277% in the past year.
The company is one of India's leading defence public-sector undertaking shipyards under the Ministry of Defence (MoD). It is principally engaged in building and repairing ships, submarines, various types of vessels, and related engineering products for its customers.
Since its inception in 1934, the company has delivered 802 vessels and built 28 warships and 7 submarines, as per the Q3FY24 earnings report.
Over the past three years, the company's shares have surged by 1282%. The shares are now trading 1900% above their issue price of ₹145 per share in October 2020.
It took the stock nearly 34 months to surpass the ₹1,000 mark after its listing. Subsequently, it took only four months to cross the ₹2,000 mark in September 2023, continuing its momentum to reach a new all-time high of ₹2,977 per share in the previous trading session, nearing the ₹3,000 level.
Strong order book
As of the end of the December quarter, the company boasts an impressive order book totaling ₹38,389 crore, providing strong revenue visibility, according to the company's Q3 investor presentation.
Within the shipbuilding segment, significant orders include the P15B Destroyers and P17A Stealth Frigates, valued at ₹12,269 crore and ₹16,482 crore, respectively.
In the submarine and heavy engineering domains, contracts for projects like the P75 Kalvari submarines and Medium Refit and Life Certification (MRLC) of a submarine, worth ₹3,725 crore and ₹2,346 crore, respectively, are noteworthy additions to the order book—all secured from the Ministry of Defence.
Favorable geographical position
India's strategic location along both the East and West international trade routes positions it advantageously for vessel repairs, offering promising opportunities for the company's repair segment.
Key container routes linking America and Europe with the East traverse close to India's coastline, presenting significant repair prospects.
As per the national perspective plan of the Sagarmala project, coastal and inland waterways traffic is expected to shoot up 15 times over the next 20 years. Similarly, capacity augmentation is expected to result in a five-fold rise in traffic capacity, from the existing 350 million metric tons. This is expected to bring in additional ship repair business.
Industry outlook
The defence sector is poised for growth, supported by the government's robust commitment to its development. With the defence ministry targeting 70% self-reliance in weaponry by 2027, significant opportunities await industry participants.
Moreover, the government aims to boost India's defence exports to US$5 billion by 2024–25, underscoring the sector's increasing significance and potential.
In the interim budget for FY 2024–25, the Ministry of Defence received a total allocation of US$ 74.8 billion ( ₹6,21,540.85 crore), constituting 13.04% of the overall budget.
This represents a 4.72% increase over the previous fiscal year and an 18.35% surge compared to the allocation for FY 2022–23.
To attract foreign investment and fortify the defence sector, regulatory revisions in September 2020 enabled FDI to reach up to 74% through the automatic route and up to 100% via the government route in areas promising access to contemporary technologies.
Meanwhile, the company's Q4 and FY24 results are expected to be released on May 29. For the financial year ended March 31, 2024, the company recorded a turnover of approximately Rs. 9,400.00 crore (provisional and unaudited), compared to ₹7,827.18 crore in the previous year.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
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