Shares of Mazagon Dock Shipbuilders Ltd are in a bear grip, falling 27 per cent from their 52-week high of Rs 5,859.95 hit on July 5. The defence stock has fallen even as the June quarter results came in strong, with Ebitda margin increasing to the highest level of 27.2 per cent, aided by lower provisions and deliveries of ships earlier than expected.
Analysts noted that Mazagon Dock Shipbuilders won contracts worth Rs 4,680 crore from ONGC and an $43 million export contract for construction of three multi-purpose hybrid powered vessels and that its Q1 order inflow stood at over Rs 2,500 crore. That said, earnings still fail to justify stock valuations after a 132 per cent rally in the past one year, analysts said.
"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," ICICI Securities.
ICICI Securities is not the only brokerage with a 'Sell' rating on Mazagon Dock shares. Nirmal Bang Institutional Equities suggested a 'Sell' recommendation on the Mazagon Dock, citing expensive valuations.
"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.
Mazagon Dock reported a 121 per cent surge in net profit at Rs 696.10 crore for the June quarter compared with Rs 314.34 crore in the June 2023 quarter. Its revenue rose 8.48 per cent YoY to Rs 2,375.02 crore from Rs 2,172.76 crore YoY.
Despite valuing the defence stock at 25 times June 2025 EPS, which more than captures the significant sectoral and Mazagon-specific tailwinds, one gets a 11 per cent downside target to the current market price, Nirmal Bang said.
ICICI Securities said the margins of Mazagon Dock Shipbuilders have improved in recent times led by ahead-of-time delivery of vessels leading to lower cost being incurred compared to budgeted. It expects high margins to sustain until FY27E as major deliveries are planned over the next 2-3 years.
"However, once MDL starts executing new orders, its revenue recognition is likely to be milestone based, and hence, Ebitda margin could taper off to 12-15 per cent," it said.
Mazagon Dock has planned capex of Rs 4,000-5,000 crore over the next 3-4 years.