Pick-up in execution to drive growth…
About the stock: Cochin Shipyard (CSL), incorporated in 1972 as a Government of India company, is one of the leading ship-building & ship-repair yard in India
• Company has built and delivered 180 vessels as of Mar-23 including large, medium & small vessels, offshore support vessels and defence vessels
• During FY23, ship-building segment contributed ~74% to total revenues of ₹ 2364.6 crore while ship-repair segment contributed balance ~26%
• Order backlog stood at ~₹ 22300 crore as of Dec-2023, including ₹ 21500 crore in ship-building and ₹ 800 crore worth of contracts in ship-repair
Investment Rationale:
• Strong capabilities in ship-building & ship repair; execution pick-up of strong order-backlog to drive growth: With advanced state-of-the-art infrastructure (capacity of up-to 110000 DWT in ship-building and up-to 125000 DWT in ship-repair), CSL is adept at executing diversified projects in both these segments. With commissioning of new dry dock facility and International Ship Repair Facility (ISRF), company’s capabilities have increased significantly. Order backlog of ~₹ 22300 crore as of Dec-23 (7x TTM revenues) with pick-up in execution, gives strong revenue growth visibility. Large-scale contracts for Indian Navy (like anti-submarine corvettes, next-gen missile vessels, post commission works of Indigenous Aircraft Carrier) are expected to witness meaningful execution over FY25- 26E. Moreover, execution of commercial vessel contracts (20% of orderbook) is also expected to pick-up considerably over FY24-26E
• Order inflows opportunity remains robust: Order pipeline remains healthy in defence and commercial ship-building and ship-repair segments including exports. About ₹ 9000 crore worth of ship-building contracts are in pipeline where tenders expected to be floated in medium term. Apart from these, ₹ 84000 crore worth of contracts are in RFP stage as per the management. In defence segment, we believe that India Navy’s future plan of warships procurement presents a strong prospects for CSL. Discussions on another aircraft carrier are also in advanced stages and offers additional order opportunity of ₹ 40000 crore. In commercial segment, electric vessels opportunity emerges from Europe as 2500 vessels are scheduled to be replaced with green vessels. In ship-repair segment too, company sees sizable opportunity in both defence & commercial industries
Rating and Target Price
• We expect CSL to witness significant YoY growth in revenues & profitability over FY24-26E, led by execution pick-up in both the segments and increasing share of margin accretive ship-repair segment. We estimate revenue and PAT to grow at ~23% & ~36% CAGR respectively over FY23-26E as against the de-growth seen over FY20-23
• Valuations look attractive considering the multiple growth drivers. We value CSL at ₹ 1055 i.e. 36x FY26E P/E
Leave a Reply