- Mazagon Dock shares fell 3% after Kotak Institutional Equities initiated sell coverage
- Kotak set a target price of Rs 1,950, indicating an 18.5% downside from current levels
- Mazagon Dock has a Rs 2.4 trillion naval order pipeline over the next 3-4 years
Shares of Mazagon Dock fell during trading hours on Thursday, July 9 as Kotak Institutional Equities initiated sell coverage on the stock, indicating a cautious view.
Mazagon Dock shares fell around 3% to Rs 2,391 apiece. The scrip was trading 2.8% lower by 1:40 pm, while the benchmark Nifty 50 index was up 77%
The brokerage, in its recent note, has set a target price of Rs 1,950, marking 18.5% downside from its current levels. Kotak highlighted India's push toward building a blue‑water navy pipeline worth Rs 4.2 trillion across ships and submarines for Indian shipyards. In this segment, Mazagon Dock has a strong outlook, supported by a Rs2.4 trillion pipeline including P75I submarines, P17‑B frigates, additional P75 submarines and next‑generation destroyers expected to be awarded to the company over the next 3-4 years.
Additionally, commercial shipbuilding and ship repair diversification provide opportunities for the company backed by policy support and PSU demand aggregation. For ship repair, Mazagon Dock's Colombo Dockyard acquisition strengthens its regional positioning, with benefits expected to come over time.
The brokerage forecast the company's growth to be driven by four marquee orders worth Rs 2.4 trillion over the next five years. However, the revenue is expected to decline over the next two years due to a weak starting order backlog. Following this, execution of new orders is expected to drive growth. Kotak expects 8%-10% revenue CAGR over the next 4-9 years. Meanwhile, EBITDA margin is likely to normalize at 14.6% against the current level of 17.4% and the past three-year average of 16.8%. The higher execution and cost efficiencies is partially offset by higher other expenses due to lack of provision reversals. In total, Kotak estimated Mazagon Dock's net profit to record 7.2% or 6% CAGR over the next 4-9 years.
Some of the long term risks for the company are faster-than-expected award of marquee projects, unexpected change in government policy regarding award of contracts on nomination basis, a major increase in defense naval capex spend, stronger-than-expected pickup in export order and high commercial shipping orders.
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