Garden Reach Shipbuilders & Engineers (GRSE) Ltd shares fell sharply in Tuesday's trade after analysts from a few brokerages maintained their 'Sell' call on the stock. The counter tanked 8.82 per cent to hit a day low of Rs 1,751.60. It was last seen trading 6.82 per cent lower at Rs 1,790. At this price, the scrip has declined 30.45 per cent in a month.
Analysts at Elara Capital reiterated a 'Sell' call on GRSE as it expected the company's margins to remain elevated in the near term. "Garden Reach Shipbuilders & Engineers' (GRSE IN) Q1 revenue rose 34 per cent year-on-year (YoY) to Rs 1,010 crore, 11 per cent ahead of our estimates, as it is currently in a peak execution cycle phase (based on bell-curve theory). Current execution includes three P-17A frigates, four survey vessels, eight antisubmarine warfare shallow water craft (ASW-SWC), next-generation electric ferry for the West Bengal government, and four next-generation offshore patrol vessels (NGOPVs)," they stated.
"We pare FY25E/26E EPS 22 per cent/19 per cent on lower gross margin and drop in other income (on delayed ordering for next-generation Corvette). We reiterate 'Sell', due to deferment of a large order in NGC to FY26 from FY24, which may advance revenue growth beyond FY26, and given 91 per cent stock outperformance versus the Nifty in the past three months. We expect an EPS CAGR of 25 per cent in FY24-27E with a ROE of 27% and a ROCE of 26% in FY25E-27E," Elara also said
Prior to this, ICICI Securities analysts also maintained a 'Sell' rating on GRSE shares. The company's EBITDA margin dipped to 5.6 per cent (6.1 per cent in Q1 FY24 and 8.9 per cent in Q4 FY24), and PBT margin declined to 11.4 per cent (13.5 per cent in Q1 FY24), mainly due to gross margins slipping, they said.
"Implied OB, as of Q1 FY25-end, stood at Rs 23,100 crore. GRSE has received orders worth Rs 1,500 crore (including export order of $82.6mn from a Bangladesh and German company) during YTD FY25. Sub-contracting expenses, as percentage of revenue, declined from 14.9 per cent in Q1 FY24 to 13 per cent in Q1 FY25. Factoring in big-ticket orders of NGC (5 nos.) and NGD (2 nos.), we estimate EPS to persist in the range of Rs 55–65/share through to FY32; also we may expect some delays in the execution of orders from Bangladesh due to current geopolitical tensions. Maintain SELL with a DCF-based target price of Rs 515," ICICI Sec further stated.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said, "The stock is in a consolidation phase. The results are up to the mark but there is profit booking taking place in defence stocks currently. So, investors can hold on to the stock. Fresh buying is advised on dips from a medium- to long-term perspective."
Technically, support on the counter could be seen at the Rs 1,730-1,750 zone in the near term. On the higher end, resistance may be found in the Rs 1,850-1,920 range.
Osho Krishan, Senior Research Analyst - Technical & Derivatives at Angel One, said, "GRSE has retracted nearly 50 per cent of the rally seen from the lows of Rs 673 to the Rs 2,834 zone. The stock has a strong support around Rs 1,750, breaching which it may plunge lower to Rs 1,500. On the higher end, a series of resilience can be seen from Rs 2,000 to the Rs 2,250-odd zone in the near period and a decisive breakthrough could only bring some mojo back in the counter."
Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking, said, "The stock looked weak on daily charts. One can buy it on dips at around Rs 1,680 level for a upside target of Rs 1,850, keeping a stop loss placed at Rs 1,640."
Jigar S Patel, Senior Manager - Technical Research Analyst at Anand Rathi Shares and Stock Brokers, said, "Support will be at Rs 1,730 and resistance at Rs 1,920. A decisive close above Rs 1,920 level may trigger a further upside towards Rs 2,000."
The expected trading range will be between Rs 1,630 and Rs 2,050 during the short term, Patel added.
The company is a premier warship-building company, under the administrative control of the Ministry of Defence. As of June 2024, the government held a 74.50 per cent stake in the state-owned firm.