GRSE shares: Brokerage retains 'Sell' despite strong Q3; here's why

Elara Capital has reiterated a 'Sell' rating on Garden Reach Shipbuilders & Engineers Ltd (GRSE) despite the company delivering strong operational and earnings performance in the December quarter of FY26.

The domestic brokerage said GRSE reported healthy topline growth in Q3 FY26, driven by its "bell curve execution cycle", as several ongoing projects moved closer to peak execution stages. Elara also pointed to margin expansion during the quarter, supported by operating leverage and likely lower provisioning.

GRSE posted a 74 per cent year-on-year (YoY) rise in net profit to Rs 170 crore in the December quarter. However, gross margin contracted by 220 basis points (bps) YoY to 25.9 per cent, impacted by an adverse revenue mix. At the same time, EBITDA margin improved by 330 bps YoY to 9.1 per cent.

The company reiterated its positive outlook, citing strong order visibility. According to Elara, this visibility should aid replenishment of the order book from FY29 onwards. However, the brokerage noted that this remains some distance away, as execution of new orders is expected to ramp up gradually over time.

Elara marginally cut its earnings estimates for FY26E, FY27E and FY28E by 2 per cent each, citing lower margin assumptions. Following this, it reduced its sum-of-the-parts target price (SOTP-TP) to Rs 2,030 from Rs 2,200 after rolling forward its valuation by one quarter.

"Thus, we lower our SOTP-TP to Rs 2,030 from Rs 2,200, assuming core shipbuilding value at Rs 2,045 on 35x (unchanged) December 2027E and a cash value of Rs 311 on 9x (unchanged) December 2027E P/E, as we roll forward by a quarter. We reiterate 'Sell' as growth is likely to peak in FY27. We expect an EPS CAGR of 21 per cent in FY25-28E with an average ROE of 30 per cent in FY26E-28E," it stated.

In a separate development, Antique Stock Broking has maintained its 'Buy' call with an unchanged target price of Rs 3,026.

Meanwhile, GRSE shares were last seen trading 2.11 per cent higher at Rs 2,572.70 in Thursday's trade. At this level, the stock has gained 67.07 per cent over the past year.