Multibagger Mazagon Dock gets ‘sell’ call from ICICI Securities; brokerage sees over 66% downside – here’s why

ICICI Securities issues ‘sell’ call on Mazagon Dock Shipbuilders, setting target price at 900, indicating over 66% downside from previous close.

Pranati Deva
Published5 Jun 2024, 11:10 AM IST
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Mazagon Dock: Positive factors already factored in, EPS growth constrained due to peak execution stage of current order book, says ICICI Securities.
Mazagon Dock: Positive factors already factored in, EPS growth constrained due to peak execution stage of current order book, says ICICI Securities.

Multibagger stock Mazagon Dock Shipbuilders has received a ‘sell’ call from domestic brokerage house ICICI Securities as it believes the positives have already been factored in.

The brokerage has a target price of 900 for the stock, indicating a massive downside of over 66 percent from its previous close of 2,679.30 (as on June 4).

"In our view, factoring in the potential orders of P75 (3 additional submarines), P75I, and next-gen destroyers, and margins at an elevated level in the near term, we believe the positives have already been factored in the stock price. We maintain SELL on MDL with a revised TP of INR 900 (earlier INR 880/share), as per DCF methodology," it said.

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Stock price trend

The defence stock has delivered multibagger returns over the past year, soaring by 171% amid the PSU rally wave. However, in 2024 year-to-date, the stock has risen only 13%, following a 19% drop in two of the three sessions in June. In contrast, it saw substantial gains of 35.5% in May and 26% in April. Before these increases, the stock experienced two consecutive months of decline, falling 9% in February and 10.5% in March. In January, the stock remained relatively flat, with a modest increase of 0.4%.

After the recent fall, the stock is now 23 percent away from its record high of 3,478.15, hit on May 30, 2024. Meanwhile, it is still over 170 percent higher from its 52-week low of 990.00, hit on June 8, 2023.

Meanwhile, in the last 3 years, the stock has soared over 1177 percent.

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Better-than-expected Q4FY24 performance

The brokerage noted that Mazagon Dock Shipbuilders (MDL) reported a robust Q4FY24 with an EBITDA of 520 crore, marking a 1.5x year-on-year increase. This performance was supported by an improved EBITDA margin of 16.9 percent, up from 10.1 percent in Q4FY23, due to a refund of liquidated damages charges amounting to 140 crore, operational leverage, and reduced subcontracting and other expenses, it said. Further, management is expecting FY25 to be the peak revenue booking year of the current order book; margins are likely to remain at an elevated level, added ICICI.

The company also secured a significant contract to build 14 Fast Patrol Vessels (FPVs) for the Indian Coast Guard, valued at 1,070 crore, informed ICICI. It further stated that MDL's FY24 saw an order inflow exceeding INR 72 billion, excluding revisions in the P-17A order value. Looking ahead, MDL has planned a capital expenditure of 2,500-3,000 crore over the next 3-4 years. Additionally, the board has recommended a final dividend of 12.11 per share for FY24, it highlighted.

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Limited upside

The brokerage has factored in three big-ticket potential orders in the medium term: 1) 6 submarines under the P-75I program; 2) an extension of the P75 order for three additional submarines; and 3) next-gen destroyers (four for MDSL). Despite these orders, it expects EPS growth to be constrained as the current order book is in the peak execution stage and the brokerage envisages meaningful contribution from new orders once the current order book is exhausted.

Outlook: Opportunities galore; upside capped

Over the next 5-7 years, ICICI expects a nearly 1.2 lakh crore order inflow opportunity available for MDL; however, ordering/execution timelines remain unclear at this stage. Further, despite the euphoria around MDL’s prospects, ICICI sees risks emanating from the depleting current order book and considerable uncertainty around the ordering timelines of the Indian Navy’s key procurement programmes.

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Besides, the budgetary allocation for the naval fleet in the interim budget for FY25 is stable, implying that it would be spent to meet the committed liabilities, hence, fresh ordering is unlikely in FY25. Despite factoring in all available opportunities in estimates, the brokerage still feels that at CMP, risk-reward is not favorable. In its view, while EPS is likely to be range bound at 80-110/share from FY25-FY32E, there are risks to ordering/execution timelines.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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News in Numbers

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$81 M

₹3,000 Cr

₹15,399 Cr

₹1.28 T

4,275 Kms

First Published:5 Jun 2024, 11:10 AM IST
HomeMarketsStock MarketsMultibagger Mazagon Dock gets ‘sell’ call from ICICI Securities; brokerage sees over 66% downside – here’s why

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