A PSU firm, which rallied more than 15 times from January 2021 to July 2024, has seen a significant decline of over 51% from its 52-week high reached on July 8, 2024. This firm is Cochin Shipyard, whose order book stood at Rs 22,587 crore as of June 30, 2024, including Rs 21,587 crore in shipbuilding and Rs 1,000 crore in ship-repair contracts.
The shipping industry is a key focus area for the government, as reflected in the Budget proposal to eliminate customs duty on components and consumables for vessel manufacturing. The government’s allocation to the Ministry of Ports, Shipping, and Waterways reached Rs 2,377.49 crore in the Union Budget 2024-25, compared to around Rs 1,029 crore in FY15.
Is the recent correction an opportunity to invest in Cochin Shipyard? Amar Ambani, Executive Director at YES Securities, said, “The company has benefited from the government’s defence indigenisation drive and the Atmanirbhar Bharat initiative, which is reflected in high-value orders for anti-submarine warfare corvettes, next-generation missiles, and aircraft carriers.”
“It has also secured marquee international orders for manufacturing various vessels. We see sustained revenue growth and margin visibility, given the growing geopolitical tensions and India’s unyielding focus on the ‘Make in India’ mission. Additionally, valuations have declined significantly amid the ongoing correction,” Ambani added.
Despite the recent correction, shares of the company traded at a price-to-earnings ratio of 43 times on November 8, 2024, against its three-year average of nearly 26 times. The P/E ratio of the company was hovering around 85 times in July 2024. For the half-year ended September 2024, Cochin Shipyard reported consolidated gross sales of Rs 1,914 crore, up 28.7% YoY, against Rs 1,487.58 crore in the same period a year ago. Meanwhile, the consolidated net profit of the company increased by 29.62% YoY to Rs 363.16 crore during the same period.
Sharing his view on the company, Ravi Singh, Senior Vice President (SVP)–Retail Research at Religare Broking, said, “Increased government orders, the growing defence sector, and increased focus on indigenous shipbuilding have helped the company. Its diversification into repairs and inland waterways has started to see an upward trend in revenues. The trends look promising—with ongoing government initiatives, capacity expansion, and global demand for shipbuilding.” He further added that the shipping industry is in a recovery phase post-pandemic, with higher demand for global trade, supply logistics, and continually increasing orders for new vessels. However, high fuel costs and geopolitical tensions are challenges.
Shares of Cochin Shipyard settled down by 5% at Rs 1,449.45 on November 8, 2024. Meanwhile, the benchmark BSE Sensex settled 0.07% lower at 79,486. Kranthi Bathini, Equity Strategist at WealthMills Securities, said, “The earnings visibility is strong in Cochin Shipyard, considering the robust order book. Any dip is a buying opportunity for investors.”