March 4, 2023
analysis123 analysis123
COCHIN SHIPYARD, Execution likely to pick up…
Call & Research Report by ICICI Securities
Sector: Ship Building
CMP Rs. 471, Target Rs. 620 (32% upside potential)
Target Period: 12 Months
Cochin Shipyard (CSL) was incorporated in 1972 as a Government of India company, with the first phase of facilities coming online in 1982. CSL is the largest shipbuilding and maintenance facility in India.
● The yard has facilities to build vessels up to 1.1 lakh tonnes (lt) and repair vessels up to 1.25 lt annually
● CSL has secured shipbuilding orders from internationally renowned companies from Europe and the Middle East in the recent past
Q3FY23 Results: Below expected performance in the ship-building segment.
● Revenue was at Rs 641.7 crore, down 32.7% YoY on account of weak execution in ship-building segment. Ship-repair showing improvement QoQ
● EBIDTA came in at Rs 148.8 crore, up 5.2% YoY on lower RM and better performance in high margin ship-repair segment
● PAT was at Rs 110.4 crore, down 14.7% YoY
What should investors do? Execution is expected to improve significantly over FY24-25E, which would drive revenues. Margins are also expected to improve led by improving performance in ship repair segment and operating leverage benefits.
● We maintain our BUY rating on the stock
Target Price and Valuation: We value CSL at Rs 620 i.e. 13x PE (FY25E).
Key triggers for future price performance:
● Order backlog is estimated at ~Rs 21000 crore (~7x TTM revenues) including contract for six NG missile vessels. Majority of large contracts in the order book are expected to witness meaningful execution from FY24E onwards
● Healthy order book and strong pipeline of projects in the coming two to three years from Indian Navy and other international customers
● Capacity expansion for ship-repair activities to help get more orders in this segment, which is also a higher margin business
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