Buy Garden Reach Shipbuilders & Engineers Ltd For Target Rs.3,500 by Choice Institutional Equities Ltd
NGC Catalyst in Focus; Order Pipeline Key to Re-rating
GRSE delivered a strong Q1FY27 performance with revenue growth of ~38% YoY and PAT rising ~44%, reflecting a robust execution across its diversified shipbuilding portfolio. The operational momentum remains healthy evident from sustained delivery and improving execution efficiency. We believe the company continues to benefit from a favourable project mix and steady progress across key programs, although inherent lumpiness in revenue recognition persists
That said, the key narrative shift, in our view, is towards order visibility, particularly the Next-Generation Corvette (NGC) program, where the management has guided for contract finalisation in Q2FY27. This is a critical trigger, as NGC (8-ship program) not only provides multi-year revenue visibility (~8 years execution) but also meaningfully strengthens the order book. Beyond NGC, a robust pipeline (~INR1.5 Trn opportunity) across defence and non-defence platforms, which provides a strong medium-term visibility, though timelines remain contingent on tender finalisation.
Structurally, we remain positive on GRSE given its strategic positioning in specialised naval platforms, improving capacity (targeting 32 from 28) and proactive expansion across both coasts. However, we believe near-term trigger will be NGC contract signing acting as the immediate catalyst. We maintaining our ‘BUY’ rating with a TP of INR 3,500, valuing it on 35x of FY28E EPS.
Outperformed our expectation
* Revenue up by 38.5% YoY and down by 14.4% QoQ at INR 18,146 Mn (vs CIE estimate of INR 17,028 Mn)
* EBITDA up by 33.3% YoY and down by 58.0% QoQ at INR 1,492 Mn (vs CIE estimate of INR 1,447 Mn). EBITDA margin stood at 8.2% (vs CIE estimate of 8.5%), contracting by 32 bps YoY * PAT up by 43.8% YoY and down by 43.0% QoQ at INR 1,728 Mn (vs CIE estimate of INR 1,467 Mn). PAT margin expanded by 35 bps YoY, reaching 9.5% (vs CIE estimate of 8.6%)
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