Cochin Shipyard shares slip 18% from record high; is the bull run over?

Shares of Cochin Shipyard Ltd have lost 18% from their record high this week. The PSU defence stock, which hit an all-time high of Rs 1,258 on September 8, 2023 slipped to an intraday low of Rs 1032 today, logging a decline of 17.96% in two sessions. On September 8, the stock of the shipbuilder closed higher at Rs 1209.30 on BSE. Before the correction, Cochin Shipyard stock had zoomed 43.10% in eight sessions.  

Cochin Shipyard shares slipped 14.09% intraday to Rs 1032.10. on Tuesday against the previous close of Rs 1201.50. The defence stock was among the top losers on BSE.  

Earlier, Cochin Shipyard stock opened higher at Rs 1202.95. Total 1.79 lakh shares of the firm changed hands amounting to a turnover of Rs 19.93 crore on BSE. Market cap of the firm fell to Rs 14,469.44 crore.         

In terms of technicals, the relative strength index (RSI) of the stock stands at 89.2, signaling the stock is strongly overbought on technical charts. Cochin Shipyard has a one-year beta of 1.4, indicating high volatility during the period. Cochin Shipyard shares are trading higher than the 5 day, 20 day, 50 day, 100 day, 200 day moving averages.  

Meanwhile, Kotak Institutional Equities assigned a sell call to the stock last week. The brokerage believes the stock is factoring in a likely repeat of indigenously-made aircraft (IAC) order to cost more such carrier orders being in the offing.    

The stock was in news on comments from the Chief of Naval Staff for a likely placement of a repeat IAC order. Indian Navy received the first indigenously-built aircraft carrier (IAC-1) from Cochin Shipyard in July 2022. 

The Chief of Naval Staff spoke of the manufacturing expertise Cochin Shipyard has acquired through INS 1, limiting the case for the prospect of the repeat order going to another entity, Kotak Institutional Equities said. 

"In our assessment, what may have changed the stance in favour of the repeat IAC order could be the prospects of one of the two aircraft carriers of India INS Vikramaditya nearing retirement in the next 10-15 years and recent strides made by China in the form of the recent far sea exercise by its indigenous carrier and impending commissioning of its third aircraft carrier," it said. 

Kotak, however, assumed a 10 per cent lower value of the repeat IAC-1 order. 

"We expect the repeat order of IAC-1 to be smaller than IAC-2, which was earlier planned, and would not have the cost overruns seen in the case of IAC-1 (six-year delay and a six-fold cost overrun). Also, the change in margin norms may further limit the top-line for Cochin Shipyard of the repeat IAC-1 order. The Rs 21,000 crore sum assumed would be equivalent to sub-7 per cent of the naval fleet capex over the next seven years based on our assessment," it said. 

Kotak has revised its fair value for the stock to Rs 990 from Rs 740.  

"We downgrade to SELL from BUY, as the CMP is factoring in an additional boost in the form of (1) a larger than Rs230 billion order size and/or (2) incremental IAC order wins/adjacency value. We would aim to consider the adjacency value, once we get more clarity on the same," it said. 

On other hand, Antique Broking has retained its HOLD rating at a target price of Rs 1,132 for the stock.  

Antique said Cochin Shipyard should see normalised execution strongly in 2HFY24. The key drivers that have not contributed significantly included Rs 9,800 crore of the NGMV order is yet to move into execution, as it was awarded in Q1FY24; Critical supply chain issues were scheduled in June 2023 for the Rs 5,900 crore.   

 "The spotlight is on IAC-2 or INS Vishal, Antique said.  Including the optionality of IAC-2, we retain HOLD rating at a target price of Rs 1,132," it said. 

AR Ramachandran from Tips2trades said, "Cochin Shipyard is bullish but also overbought on the daily charts with next resistance at Rs 1,214. Investors should book profits at current levels as a daily close below support of Rs 988 could lead to target of Rs 805 in the near term."  

Cochin Shipyard has India's largest ship building and maintenance facility and its ability to deliver complex Defence Vessels is vindicated by its delivery of India's first indigenous Aircraft Carrier (INS Vikrant), LKP Securities said. The brokerage noted that Cochin Shipyard is also constructing India's first hydrogen fuel cell vessel, adding that the company is expected to see good momentum this fiscal on the back of its strong Rs 21,000 crore order book. 

 

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