Multibagger shipbuilding stock strongly overbought on charts; can it rally further?

Shares of multibagger shipbuilding firm Mazagon Dock Shipbuilders Ltd are trading in an overbought zone. The RSI stands at 80.7, signaling the stock is strongly overbought. On June 8 last week, the large cap stock hit a 52-week high of Rs 1080 on BSE.

In the current session, the Mazagon Dock stock was trading 0.83% higher at Rs 1042.55 against the close of Rs 1033.90 in the previous session. Mazagon Dock stock opened higher at Rs 1042 and is trading 3.27% away from the 52 week high of Rs 1080 hit on June 8.

Market cap of the firm stood at Rs 21,078 crore. Total 1.14 lakh shares changed hands amounting to a turnover of Rs 11.91 crore on BSE. Mazagon Dock stock has gained 290% in a year and risen 31.69 per cent in 2023. Mazagon Dock stock hit a 52-week low of Rs 229.55 on June 20, 2022.

In terms of technicals, Mazagon Dock stock has a one-year beta of 1.5, indicating high volatility during the period. Mazagon Dock shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

The stock has been rising for last two sessions.

HDFC Securities has given a target of Rs 1231 for the stock. "Investors can buy in the Rs 1009-1050 band and add more on dips to Rs. 923-941 band(14xFY25E EPS). Base case fair value of the stock is Rs 1131(17xFY25E EPS) and the bull case fair value of the stock is Rs 1231(18.5xFY25E EPS) over the next two to three quarters. At the CMP of Rs 1029, the stock trades at 15.5xFY25E EPS," said the brokerage.

On June 3, ICICI Securities reiterated its sell call to the stock.

"Mazagon Dock Shipbuilders' (MDL) Q4FY23 performance was 50% ahead of our estimates mainly on higher-than-expected revenue. Key points: 1) Revenue grew 49% YoY (14.5% QoQ) to Rs20.8 bn mainly led by the commissioning of 5th submarine (under P75 programme); 2) EBITDA margin was 10.1% YoY (Q3FY23: 16.3%) owing to higher cost of material consumed; 3) order book at Mar'23 end was Rs 385 bn, likely to get executed by FY27. Going ahead, we perceive peak execution through to FY25E based on the current order book visibility. However, long gestation period implies free cash flow is likely to decline FY25E onwards with the unwinding of contract liability, resulting in cash depletion. Our target price on DCF-based valuation methodology remains unchanged at Rs 600. Maintain SELL on the stock. Repeat orders of P-17A frigates or P15B destroyers are a key risk to our thesis," said the brokerage.

Aamar Deo Singh, Head Advisory, Angel One said, "Mazagaon Dock, a leading player in the shipbuilding industry, has witnessed a spectacular rally with the stock gaining almost 30% YTD, to trade at record levels (CMP – Rs 1035). The company has delivered a good profit growth of 19.5% CAGR over the past 5 years, clocking 37% growth in revenues for full year FY23. Further, net profit for full year grew to Rs 1,119 crore compared with Rs 611 crore in FY22. Investor confidence remains high in the stock and there appears to be an increasing interest in this stock."

Abhijeet from Tips2trades said,"Mazagon Dock stock price is overbought with strong resistance at 1079. A daily close below support of 998 could trigger a fall till 880 in the near term."

Vaibhav Kaushik, Research Analyst, GCL Broking said, "On a technical level the stock is trading above Rs 890, which is 20 dema stocks appear fantastic for a target of Rs 1270 to 1320. Therefore, keep a stop loss at Rs 885 on closing basis."

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.

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