Buy Mazagon Dock shares: What Antique says as defence PSU buys 51% stake in Sri Lanka's largest shipyard

Mazagon Dock Shipbuilders' acquisition of a 51 per cent stake in Sri Lanka’s largest and most established shipyard, Colombo Dockyard, is a 'win-win' for both companies, according to Antique Stock Broking. The brokerage noted that CDPLC is the first port of call after crossing the Suez Canal and is strategically located, making it ideal for ship repair activities—an area in which MDL can look to participate.

Antique Stock Broking said the Rs 452 crore deal is valued at EV/sales of 1.3 times 2023 sales. It sees strong synergies in this acquisition, as it could significantly advance Mazagon Dock's ambition of expanding its ship-repair business. 

"We maintain a positive view on Mazdock supported by its strong order pipeline and proposed government incentives for shipbuilding, which serve as key near-term catalysts for the stock. We maintain BUY rating on the stock with an unchanged target of Rs 3,858 (at 50x FY27 core PAT)," Antique Stocm Broking said. 

As Sri Lanka's largest shipyard, Colombo Dockyard PLC (CDPLC) is equipped to offer a comprehensive range of repair services—from basic to highly complex—servicing over 200 ships annually. The facility can handle vessels of up to 125,000 DWT, significantly higher than Mazagon Dock's capacity of 60,000 DWT. It operates five dry docks, with lengths ranging from 63 meters to 263 meters, Antique Stock Broking noted.

With over four decades of shipbuilding experience, CDPLC has the capability to construct offshore support vessels, passenger vessels, tugs, coast guard vessels, and cable-laying vessels. 

In the area of ship repairs, it provides a full spectrum of services for all types of tankers, including crude oil, product, chemical, and LPG carriers. The yard can comfortably accommodate tankers up to Aframax size. Notably, most major Indian shipping companies have been sending their vessels to this facility for repair work, Antique said.

The domestic brokerage said the global shipbuilding industry continues to enjoy favorable demand conditions, with shipyards in South Korea and Japan operating at full capacity and bookings extending over the next few years. That said, Indian shipyards hold a relatively small share of the global market, hindered by lower productivity levels and limited government support. 

"Recognizing this gap, the Indian Government has shown a strong intent to position the country as a competitive hub for shipbuilding and repair. In this direction, the proposed INR 250 bn Maritime Development Fund is expected to provide a significant boost to the Indian shipbuilding sector," Antique Stock Broking said.

Overall, the brokerage said the acquisition is a win-win for CDPLC and Mazagon Dock. 

"We remain positive on Mazdock; our positive stance being underpinned by the large potential order inflows in the near-term (three additional scorpene submarines) that can double the existing order book. We retain our estimates and maintain BUY on the stock with an unchanged target price of Rs 3,858," it said.

On Monday, the stock was trading 1.12 per cent higher at Rs 3,205. The target price suggests a 20.35 per cent rise over this price.