
Disappointing March quarter results sent shares of multibagger defence PSU Mazagon Dock Shipbuilders Ltd tumbling 7 per cent on Friday. But Nirmal Bang Institution Equities has retained its 'Buy' call and upped its valuation multiple for the stock by 71 per cent to arrive at a target of Rs 4,350 apiece. The target price suggests a potential 25 per cent upside for the stock ahead.
Nirmal Bang said Mazagon Dock Shipbuilders Ltd is trading at a 1-year forward PE ratio of 36.20 times. Despite the stock rallying 43 per cent since its preview note on April 11, Nirmal Bang said it now values the stock at 45 times March 2027 EPS (+2 SD above mean), which is above its three-year average PE of 20.1 times, with a target price of Rs 4,350 implying an upside of 25.1 per cent.
The shipyard is seen clocking revenue, Ebitda, and PAT Growth CAGRs of 21 per cent, 35 per cent, and 27 per cent, respectively, over FY25-FY27. The multibagger stock is up 114 per cent in the past one year.
Mazagon Dock expects a notable enhancement in margins and profitability in the coming years as substantial orders come to fruition. The defence PSU is confident that the contracts for the P75 additional submarines and the P75I submarines will be signed in FY26.
"This is anticipated to raise the order book from the current Rs 32,000 crore to over Rs 1.25 lakh crore. With the arrival of these projects, a notable rise in margins and profitability is anticipated. The economies of scale associated with these large submarine projects, along with the efficiency initiatives driven by Shipyard 4.0 and digital transformation efforts, are anticipated to improve the overall profitability of the yard," Nirmal Bang said.
For the March quarter, revenue rose 2.3 per cent YoY but Ebitda and PAT declined 82.8 per cent and 50.9 per cent YoY. The performance was below
Nirmal Bang's own estimates.
"The significant drop in Ebitda can be traced back to an increase in provisioning for other expenses, which surged 436 per cent YoY. Thisv increase is primarily linked to two contracts: one involving the supply of FPV to the Coast Guard and the other related to the Denmark contract," Nirmal Bang said.
The brokerage noted that the Mazagon Dock management believes there is a likelihood of incurring losses on these contracts prompting them to make a provision in accordance with accounting standard 37.
"This provision will be reviewed quarterly, and adjustments will be made to the profit and loss statement based on the assessment, potentially reducing the provision over time," it said.