Shares of defence stock Mazagon Dock Shipbuilders have risen 105% in just three months, delivering multibagger returns to investors. The stock zoomed 1467% in two years and gained 1,951% in five years. However, brokerages are bearish on the stock after Q1 earnings as they find it overvalued.
ICICI Securities believes the stock is overvalued at the current market price. The brokerage also sees risks to ordering/execution timelines. It has maintained sell call on the multibagger stock and projected a 77% downside from the previous close of Rs 4,999.
"EBITDA margin could taper off to 12-15%. It is noteworthy that we are still expecting higher margin than FY17-FY23 phase due to cost efficiencies and internal competencies that the company has built over a period of time. Considering the elevated near-term margins, we have raised our EPS estimates by 51%/73% for FY25/FY26. Despite factoring in the potential orders of P75 (three additional submarines), P75I and next-gen destroyers, and margins at an elevated level in the near term, we believe the stock is overvalued at the CMP. In our view, while EPS is likely to be range bound at Rs 95-120/share from FY28-32E, there are risks to ordering/execution timelines. We maintain SELL on MDL with a revised target price of Rs 1,165 (earlier Rs 900/share), as per DCF methodology,” said the brokerage.
The defence firm reported a 121% rise in net profit for the quarter ended June 2024.Consolidated net profit climbed to Rs 696 crore on higher income against a net profit of Rs 314 crore in the year-ago period.
Total income rose 10 per cent to Rs 2,628 crore crore in Q1 from Rs 2,405.42 crore in the corresponding period of the previous year. Revenue from operations in Q1 stood at Rs 2,357 crore against Rs 2,172.76 crore in the first quarter of the previous financial year.
EBITDA climbed 273.5% to Rs 642 crore in the June 2024 quarter against Rs 172 crore in the June 2023 quarter. EBITDA margins rose to 27.3% in Q1 against 7.9% on a year-on-year basis.
Jigar S Patel, technical research analyst, Anand Rathi Shares and Stock Brokers said, "Support will be at Rs 4,850 and resistance at Rs 5,155. A decisive close above the Rs 5,155 level may trigger a further upside to 5,300. The expected trading range will be between Rs 4,800 and Rs 5,300 for short-term."
In the current session, Mazagon Dock Shipbuilders shares gained 3% to Rs 5143.45 against the previous close of Rs 4997 on BSE. Total 0.53 lakh shares of the firm changed hands amounting to a turnover of Rs 26.73 crore. Market cap of Mazagon Dock stood at Rs 1.01 lakh crore on BSE.
Mazagon Dock shares have a one-year beta of 1.4, indicating very high volatility during the period. In terms of technicals, the relative strength index (RSI) of Mazagon Dock stands at 52.8, signaling it's trading neither in the overbought nor in the oversold zone. Mazagon Dock shares are trading higher than the 5 day, 10 day, 20 day, 30 day, 50 day and higher than the 100 day, 150 day and 200 day moving averages.
Another brokerage Nirmal Bang Institutional Equities has turned bearsih on the stock. It assigned a 'Sell' recommendation on the Mazagon Dock, citing expensive valuations. The stock is currently trading at 30.4 times the estimated FY26 earnings per share, which is massively above the 3-year average PE of 11.1 times.
"We had downgraded the defence sector to 'Sell' earlier this month because of extremely steep valuations relative to sector fundamentals. We maintain 'Sell' on Mazagon Dock with a target price of Rs 4,468," Nirmal Bang said.
Despite valuing the defence stock at 25 times June 2025 EPS, which more than captures the significant sectoral and company-specific tailwinds, one gets a 11 per cent downside target to the current market price, it said.
About the company
Mazagon Dock Shipbuilders Ltd (MDS) is a shipbuilding and offshore fabrication yard. The company's major activities include shipbuilding, ship repairs and fabrication of offshore structures. It provides warships, merchant ships, submarines, support vessels, offshore platforms, passenger cum cargo vessels, trawlers, main and helidecks and barges.