Mazagon Dock Shipbuilders Ltd, which was conferred Navratna status in the June quarter, reported a strong set of Q1 results on account of lower interest expense and higher other income. This led to increase in its earnings estimate for FY25. That said, post 119 per cent rise in the defence PSU stock this calendar so far, Nirmal Bang Institutional Equities suggested a 'Sell' recommendation on the Mazagon Dock, citing expensive valuations.
The Mazagon Dock Shipbuilders stock has rallied 127 per cent since Nirmal Bang's initiating coverage report on the defence sector on April 5. It 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.
Mazagon Dock Shipbuilders reported sales growth of 8.5 per cent YoY, which was a 19.6 per cent miss over the Nirmal Bang estimates. Ebitda and profit after tax for Mazagon Dock grew 274 per cent YoY and 121 per cent YoY, respectively.
"The decline in raw material and procurement costs by 22.9 per cent and 49.1 epr cent YoY led to improved Ebitda. As per management, all major high-value procurements have been done. Only base and depot space, which has to be handed over to the Navy during delivery and beyond the delivery to fulfill the warranty obligations, has to be spent additionally. For Ebitda and PAT, the deviation from NBIE expectations was (31.8 per cent) and 41.8 per cent, respectively," Nirmal Bang said.
The company is expecting LD refunds for two more submarines, and the same is being discussed at different stages. Therefore, the provisions against the liability for the second destroyer, which is nearing completion, will be released.
Mazagon Dock reported a 121 per cent rise in net profit at Rs 696.10 crore in Q1 against Rs 314.34 crore in the year-ago quarter. Revenue for the quarter rose 8.48 per cent to Rs 2,375.02 crore from Rs 2,172.76 crore YoY. Profit before tax and exceptional items stood at Rs 888.79 crore in the first quarter against Rs 383.32 crore YoY.
At the end of June quarter, Mazagon Dock's order book was valued at Rs 36,800 crore. The company plans to bid for eight next-generation corvettes, and other projects are still in the early stages. In FY25, the company is expected to deliver one destroyer, one frigate, and one submarine.
The stock closed at Rs 4,997.10 on Wednesday. Nirmal Bang's target of Rs 4,468 suggests a potential 11 per cent downside ahead.