Mazagon Dock Shipbuilders shares: Nirmal Bang cuts target price on defence PSU stock; here's why

Even as defence PSU Mazagon Dock Shipbuilders Ltd reported a 76 per cent surge in September quarter profit, Nirmal Bang Institutional Equities has cut its target price on the stock to Rs 4,106 from Rs 4,315. The brokerage said it has factored in a higher numbers than the management guidance, but the stock has run up, and it sees only a limited upside from here.

Adjusted PAT grew 75.8 per cent YoY on lower interest expense (down 14 epr cent YoY) and slightly better other income (up 1.1 per cent YoY). Ebitda grew 189 per cent YoY, driven by revenue growth of 51 per cent
YoY. At the end of September quarter, Mazagon Dock's order book was valued at Rs 39,900 crore.

While recommending a 'Hold' rating, Nirmal Bang said Mazagon Dock's gross margin and Ebitda margin came in at 38.1 per cent and 18.5 per cent, respectively, which were lower than its estimate of 40.9 per cent and 18.8 per cent, respectively. The management informed the brokerage that there were no reversals of liquidated damages in Q2FY25.

Mazagon Dock's Q2 management commentary was bullish on the long-term order book following the delivery
of platforms in FY25. The company has secured Rs 6,000-7,000 crore orders from ONGC and export orders worth Rs 1,000-2,000 crore from Denmark. Mazagon Dock projected a 12-15 per cent PBT margin over three years.

"Given the company's current execution pace, revenue booking, and future order pipeline, we anticipate it will exceed its guidance. We have estimated a larger PBT margin of 24 per cent/27 per cent/25 per cent for FY25E/26E/27E. The marginal cut in the EPS estimates at 1.7 per cent/4.2 per cent for FY25 and FY26 is due to lower EBITDA margin despite a significant beat in Revenues," it said.

Overall, the brokerage expects revenue for Mazagon Dock to grow at 20 per cent, Ebitda at 29 per cent and PAT at 19 per cent compounded annually, over FY25-FY27.

Mazagon Dock shares are up 83 per cent in 2024 so far and 115.81 per cent in the past one year. The stock settled at Rs 4,187.30 on Tuesday, up 3.98 per cent.

The stock is trading at a 1-year forward P/E of 26.6x, above the three-year average P/E of 14.8 times. Nirmal Bang, which upgraded the stock to 'Hold' in our preview note on October 11, said it valued the stock at 25 times September 2026 estimates EPS, + 1SD above its 3-year average P/E supported by a healthy order book and execution visibility.