India's defence shipbuilding stocks have underperformed the broader defence sector rally this year despite large order pipelines and long-term growth plans.
The Nifty Defence Index has gained about 24% so far in 2026, while shares of Garden Reach Shipbuilders & Engineers Ltd. (GRSE) and Mazagon Dock Shipbuilders Ltd. have risen about 15% and 2%, respectively. Investors appear to be waiting for fresh order inflows after both companies reported a decline in their order books despite ongoing project execution.
The key issue for both shipbuilders is revenue visibility. While execution remains strong, future growth depends on securing large defence contracts that are yet to be formally awarded. Management at both companies expects significant order inflows over the next few years, supported by a sizeable defence procurement pipeline.
GRSE Reports Record FY26 Results
GRSE posted its strongest financial performance in FY26. Revenue rose 38% to Rs 7,002 crore after the company delivered eight warships to the Indian Navy. EBITDA increased 92.9% to Rs 812 crore, while net profit climbed 42% to Rs 748 crore.
Order Book Decline Remains a Concern
Despite the earnings growth, GRSE's order book declined to Rs 15,324 crore, falling below Rs 20,000 crore for the first time in five years. The order book consists of nine active projects and provides revenue visibility of about two years.
Shipbuilding accounts for 95% of the order book, while non-defence business contributes roughly 22.5%. The decline in backlog has raised concerns because future revenue growth depends on a steady flow of new contracts.
Large Defence Orders Could Rebuild Visibility
GRSE has already secured the Rs 33,000 crore Next Generation Corvette project, with the final contract expected to be signed in the first quarter of FY27. Once awarded, the company's order book could increase to about Rs 48,324 crore.
Management estimates a broader order pipeline of around Rs 1.5 lakh crore. This includes Project-17 Bravo frigates, mine countermeasure vessels and landing platform docks. The Ministry of Defence plans to split major shipbuilding orders between two shipyards, allowing multiple yards to participate in large programmes. GRSE expects to secure at least part of several upcoming projects.
The company is also bidding for smaller projects, including offshore patrol vessels, multipurpose vessels and interceptor boats.
Commercial Shipbuilding Gains Ground
GRSE is expanding beyond defence contracts through commercial and export shipbuilding. Non-defence activities now account for 22.5% of the company's order book.
One of its key projects is a Rs 1,345 crore contract from a German client for 12 multipurpose vessels. Management expects commercial projects to contribute more meaningfully to revenue by FY28. The company is also in discussions with European customers seeking alternatives to shipyards in China and South Korea, which currently have large order backlogs.
Growth Outlook Through FY29
Management expects FY27 revenue growth to remain in line with the pace seen over the past three to four years, with margins around 11.5%.
From the second half of FY28, execution of the Next Generation Corvette project is expected to support growth. The company also expects revenue to increase further from FY29 if it secures a share of future Project-17 Bravo orders. GRSE is expanding its shipbuilding capacity from 28 to 32 platforms by 2026 to support future demand.
Mazagon Dock Faces Similar Challenges
Mazagon Dock reported slower growth in FY26 than GRSE. Revenue increased 13.8% to Rs 13,006 crore, while EBITDA rose 6.4% to Rs 3,405 crore. Net profit grew 6.8% to Rs 2,578 crore.
Its order book stood at Rs 20,535 crore at the end of March 2026, providing revenue visibility of about 1.5 years. Management expects the order book to exceed Rs 1 lakh crore by the end of FY27 if upcoming contracts are awarded.
Defence Pipeline Remains Strong
Mazagon estimates its medium-term opportunity pipeline at about Rs 3.4 lakh crore. Potential projects include submarines, frigates, destroyers, landing platform docks and mine countermeasure vessels.
Management has guided for baseline revenue growth of about 5% in FY27. It expects growth to accelerate once new submarine programmes move into execution. Timely contract awards remain critical to that outlook.
Commercial Expansion and Colombo Dockyard
The company is also expanding into commercial shipbuilding and ship repair to reduce dependence on Indian Navy orders, which account for 80% to 90% of its business.
Mazagon is pursuing projects from organisations including ONGC, Shipping Corporation of India and Indian Oil Corp. Ltd. It expects near-term commercial orders worth around Rs 1,000 crore.
The company plans to invest about Rs 5,000 crore over the next four to five years in a greenfield shipyard at Tuticorin in Tamil Nadu as part of a broader investment programme of Rs 15,000 crore to Rs 18,000 crore.
Mazagon has also acquired a 51% stake in Colombo Dockyard, Sri Lanka's largest shipyard. The acquisition expands its presence in commercial shipbuilding and repair while providing access to customers in Europe and Scandinavia. Management aims to increase Colombo Dockyard's revenue by 50% to Rs 1,500 crore within two years. However, the subsidiary's recent losses remain an area to watch.
What Could Trigger the Next Rally?
GRSE and Mazagon Dock trade at price-to-earnings multiples of about 43 times and 39 times, respectively, above their five-year median valuations.
Both stocks have delivered modest returns this year despite strong sector performance. The next phase of gains is likely to depend on the conversion of large defence opportunities into firm contracts, improving revenue visibility and supporting long-term earnings growth.
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