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ICICI Securities Report
We believe that Garden Reach Shipbuilders and Engineers Ltd. has got significant growth prospects with potential orders for next-gen corvettes and P-17B frigates in the near future.
However, the timing and extent of involvement of Garden Reach in these contracts remains critical. While management is focusing on several growth vectors at the moment – exports, commercial ship building and other equipment such as naval guns – we believe that such initiatives are still nascent.
Factoring in the best possible outcome for Garden Reach in NGC and P-17B frigate orders and other potential orders flowing in in time, we find earnings per share constrained between Rs 60-70/share.
Besides, the potential orders are expected to be on competitive bidding; hence, margins are expected to stay under pressure – though we are factoring in steady margin of 6-7%.
Maintain Sell with an unchanged target price of Rs 500 (discounted cash flow-based methodology). Our target price implies a price/earnings ratio of 10.5 times on FY26E EPS, which is fair given the considerable uncertainties around future orders and current order book peaking out in FY26E.
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