Buy Cochin Shipyard For Target Rs.1,557 By Geojit Financial Services Ltd
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Execution in-line….margin miss
Cochin Shipyard Ltd. (CSL) is the largest public-sector shipyard in India and derives major revenue from the Navy. CSL core capabilities include Naval vessel construction, coast guard projects, commercial shipbuilding, and vessel repair services.
* In Q2FY25, revenue grew by 15% YoY led by better execution in shipbuilding (16% YoY )and ship repair (12%) business.
* However, EBITDA was flat on account of higher input costs and dip in shipbuilding margins leading to 260bps YoY decline in EBITDA margin to 18%.
* Consequently, reported PAT was flat YoY.
* Order backlog is at Rs.22,000cr, 5x FY25E projected sales provides strong visibility in next couple of years. While order pipeline remains healthy at Rs.7,820cr.
* With completion of capacity expansion at dry dock and its international ship repair will enable it construct and repair larger vessels.
* Further, CSL is actively pursuing opportunities in green energy platforms and hybrid ship, which is now a key focus area.
Outlook & Valuation
CSL’s long term prospect has improved in terms of capacity expansion, order visibility and improving ship repairs orders. With current order backlog of 5x FY25, we anticipate 17% CAGR earnings over FY24-FY26E. CSL witnessed a 61% correction in valuation and is currently trading at 1 Yr Fwd P/E of 30x. Considering, sharp moderation in valuation and healthy earnings, we value CSL at a P/E multiple of 37x on FY26E, assigning an BUY rating on the stock with a target price of Rs.1,557.
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SEBI Registration Number: INH200000345
