Cochin Shipyard shares log worst fall in two years; what lies ahead for the defence stock?

Shares of Cochin Shipyard Ltd (CSL) tanked over 9% to log their worst two-year fall on Friday (September 11). Cochin Shipyard stock closed 9.40% lower at Rs 1381.50 in that session. Market cap of the firm fell to Rs 36,344 crore. Cochin Shipyard has a one-year beta of 1.32, indicating very high volatility during the period.

Cochin Shipyard shares are trading lower than the 5 day, 10 day, 20 day, 30 day, 50 day, 100 day, 150 day and 200 day moving averages, indicating bearishness in the defence stock.

Brokerage ICICI Direct Research downgraded the stock to 'Hold' from 'Buy' as it expects company's margins to moderate. It assigned a price target of Rs 1,590 per share, suggesting a 14 per cent upside.

"Over FY26-28E, we expect CSL to deliver revenue CAGR of 12% on steady execution while EBITDA CAGR at 6% due to higher share of lower-margin contracts as guided by the management. We believe that substantial pickup in execution across both shipbuilding and ship-repair segments (including defence & commercial) along with steady order flows would be the key monitorable in the longer-term. We recommend HOLD on CSL with a target price of Rs 1,590 per share (based on 45x P/E on FY28E EPS)," said the brokerage.

Brokerage Antique has a hold rating on the defence sector stock with a target price of Rs 1671. The brokerage believes that valuations continue to price in a more constructive execution outlook than what the current quarterly run-rate suggests, and remain at a sharp premium to peers such as Mazagon Dock Shipbuilders.

On Friday, the stock saw weak investor sentiment after the company said it expects Earnings Before Interest, Tax, Depreciation (EBITDA) margins to moderate and stabilise at around 14%, compared with 17% in the June quarter and 16% in FY26.

Cochin Shipyard said the elevated margins seen historically were partly driven by high-margin nominated orders and income earned on its surplus cash holdings. As these factors normalise, overall margins are expected to settle at more sustainable levels.

Cochin Shipyard expects its revenue to grow by around Rs 12% in FY27, with the potential to accelerate to 15%, the company said during its investor call. However, Blended margin guidance of the firm came 300 bps lower than Kotak's earlier estimates.