Buy Cochin Shipyard Ltd For Target Rs.1,565 by Choice Institutional Equities Ltd
Strong Medium-term Prospects; Correction Makes Valuation Attractive
Consolidated revenue grew 11.7% YoY, supported by growth in both shipbuilding and ship-repair, activities. However, profitability remained weak, with EBITDA declining 30.8% YoY. The key concern was shipbuilding profitability, which reported a segment PBIT loss of INR 61 Mn against a profit of INR 1,497 Mn in Q2FY26. In contrast, ship-repair PBIT more than doubled to INR 1,433 Mn, highlighting the improving contribution from the repair business
We believe Cochin Shipyard's medium-term growth prospects remain strong, supported by its sizeable order book of approximately INR 22,125 Cr (4.4x FY26 revenue) and opportunities across defence and commercial shipbuilding. Further, the commissioning of the New Dry Dock and International Ship Repair Facility (ISRF), along with the proposed Vadinar facility, provides an opportunity to expand its presence in high-value shipbuilding and international ship-repair markets. The growing contribution from ship repair also provides an opportunity to improve the overall business mix, given its relatively higher margin profile.
Revenue Growth Healthy, but Sharp Margin Erosion Weighs on Earnings
* Revenue was up 11.7% YoY and 14.2% QoQ at INR 12,492 Mn (vs CIE est. of INR 12,289 Mn)
* EBITDA was down 30.8% YoY and 73.6% QoQ at INR 509 Mn (vs CIE est. of INR 2,107 Mn), EBITDAM stood at 4.1% (vs CIE est. of 17.1%), contracting by 251 bps YoY and 1,358 bps QoQ. The deviation was primarily driven by a sharp decline in gross margin to 45.3%, as material expenses increased 23.1% YoY, outpacing revenue growth
? PAT was down 50.0% YoY and 64.5% QoQ at INR 538 Mn (vs CIE est. of INR 1,707 Mn). PATM stood at 4.3%, contracting by 531 bps YoY and 954 bps QoQ (vs CIE est. of 13.9%). A sharp decline in other income, alongside higher interest cost, further weighed on earnings
View and valuation:
While near-term performance may remain volatile due to uneven project execution and pressure on shipbuilding margins, we believe Cochin Shipyard is well-positioned for medium-term growth, supported by its expanded infrastructure, strong defence order pipeline and growing shiprepair opportunities. We have trimmed our FY28E/FY29E earnings estimates by 10%/11%, respectively, and now forecast a FY26–29E revenue/ EBITDA/PAT CAGR of 19.8%/19.4%/21.8%. We maintain our target price of INR 1,565, based on Sep '28E EPS. Following the recent correction in the stock, we upgrade our rating to ‘BUY’ (earlier ‘ADD’). Improvement in shipbuilding execution and profitability remains a key monitorable.
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SEBI Registration no.: INZ 000160131
