Best Shipbuilding Stock: Mazagon Dock Ship vs Cochin Shipyard vs Garden Reach Shipbuilders

The Indian shipbuilding industry is carving its path towards becoming a global powerhouse.

Valued at a modest US$ 90 million (m) in 2022, it's projected to reach a staggering US$ 8.12 billion (bn) by 2033, reflecting a remarkable compound annual growth rate (CAGR) of 50.5% in just 11 years.

Several factors are contributing to this growth such as government's Scheme for Financial Assistance to Shipyards in India (which is most likely to be extended for the next 2 years after the union budget), India's vast coastline, lower labour costs, and strong focus on exports.

On top of this, the government's push for make-in-India and growing demand from domestic sources like coastal trade and offshore exploration are also driving the growth of the shipbuilding industry.

Hence, there is a huge influx of orders from all shipbuilding players in the country.

While there are several private and public shipyards in the country, three companies, namely, Mazagon Dock Ship, Cochin Shipyard, and Garden Reach Shipbuilders & Engineers, are witnessing strong growth in order books.

Let's take a look at how these three players compare against each other on various parameters.

Business Overview

#Mazagon Dock Shipbuilder

Mazagon Dock Shipbuilder is a renowned shipbuilding company in India. It is owned by the government of India and managed by the ministry of defence.

The company primarily manufactures vessels, war ships, and submarines for the defence sector. So far, the company has built 802 vessels, 28 warships, and 7 submarines.

#Cochin Shipyard

Cochin Shipyard is one of the leading shipbuilding companies in the country.

It has a reputation of building and repairing some of the largest ships across the globe. It has built over 21 large vessels, 35 offshore support vessels, and 31 defence vessels.

Apart from shipbuilding, the company earns significant revenue from ship repairs as well.

#Garden Reach Shipbuilders & Engineers

Garden Reach Shipbuilders is a premier shipbuilding company which is under the administration of the Ministry of Defence and primarily caters to the requirements of the Indian Navy and Indian Coast Guard.

It builds vessels, boats, pontoons, barges, fishing trawlers, passenger ferries, and fire floats for various customers in and outside India.

The company also manufactures marine propulsion engines, portable bridges and deck machinery items for its customers.

Particulars	Mazagon Dock Shipbuilders	Cochin Shipyard	Garden Reach Shipbuilders & Engineers
Market Cap (in Rs billion)*	1,035.20	671.1	281.6
Order Book (in Rs billion)**	385.6	220	121.2

Source: Equitymaster | **Company Presentation|*as of July 19, 2024

In terms of market cap, Mazagon Dock Shipbuilders is the largest company having a market cap of Rs 1,035.2 billion (bn), followed by Cochin Shipyard and Garden Reach Shipbuilders with a market cap of Rs 671.1 bn and Rs 281.6 bn.

However, in terms of manufacturing capacity, Cochin Shipyard is the largest company, having the capacity to manufacture and repair up to 1.1 lakh deadweight tonnes (DWT) capacity ships.

Mazagon Dock Shipbuilders, on the other hand, has a capacity to manufacture 11 submarines and 10 warships concurrently, whereas Garden Reach Shipbuilders has a capacity manufacture 20 warships concurrently.

In terms of order book, Mazagon Dock Shipbuilders is leading with Rs 385.6 bn, followed by Cochin Shipyard at Rs 220 bn, and Garden Reach Shipbuilders at Rs 121.2 bn at the end of March 2024.

If we compare the yearly performance of these three shipbuilding stocks Cochin Shipyard is leading with a return of 677%, followed by Garden Reach Shipbuilders with 314% and Mazagon Dock Shipbuilders with 197% return.

#Revenue

All three companies majorly earn their revenue through shipbuilding and ship repairs.

Of the three companies, the highest revenue growth was witnessed by Garden Reach Shipbuilders. Its revenue has grown at a compound annual growth rate (CAGR) of 13.1% in the last five years.

This is followed by Mazagon Dock Shipbuilders, whose revenue has grown by a CAGR of 11.1%, whereas Cochin Shipyard's revenue has seen a degrowth of 4.4% during the same period.

However, in terms of absolute revenue, Mazagon Dock Shipbuilders has the highest revenue, which is 1.6x times higher than both the companies combined.

Strong order book has helped Mazagon Dock Ship and Garden Reach Shipbuilders grow their revenue, whereas Cochin Shipyard's revenue degrew due to lower revenue booking.

However, all the companies have strong order books providing revenue visibility for the next three years.

Revenue

Net Sales (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
Mazagon Dock Shipbuilders	46,140	49,048	40,478	57,333	78,272	11.10%
Cochin Shipyard	29,656	34,225	28,189	31,909	23,646	-4.40%
Garden Reach Shipbuilders & Engineers	13,864	14,333	11,408	17,544	25,611	13.10%

Data Source: Ace Equity

#Profitability

Mazagon Dock Shipbuilders is leading in terms of absolute profit numbers and profit growth in the last five years. Strong growth in revenue across segments is helping the profit growth.

The company also witnessed strong margin growth due to operational efficiency.

After Mazagon Dock Shipbuilders, Garden Reach Shipbuilders is leading with a EBITDA growth of 10.7% (CAGR) primarily due to internal efficiencies and improvement in scale of operations. The profit margins averaged at 17.7% and 10.5% respectively in the last five years.

Cochin Shipyard, on the other hand, witnessed a degrowth in profits due to lower revenue bookings. There was also a margin contraction on account of higher fixed overheads.

However, going forward, with strong revenue visibility, the profit margins are expected to remain constant for all the companies.

Profitability

EBITDA (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
Mazagon Dock Shipbuilders	8,520	8,209	8,004	8,528	14,893	11.80%
Cochin Shipyard	7,971	9,565	9,136	8,899	4,688	-10.10%
Garden Reach Shipbuilders & Engineers	2,134	2,674	2,670	3,025	3,548	10.70%
PAT (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
Mazagon Dock Shipbuilders	4,704	3,772	4,535	5,631	10,461	17.30%
Cochin Shipyard	4,778	6,320	6,087	5,640	3,047	-8.60%
Garden Reach Shipbuilders & Engineers	1,099	1,635	1,535	1,895	2,281	15.70%
Gross Profit Margin (%)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	18.50%	16.70%	19.80%	14.90%	19.00%
Cochin Shipyard	26.90%	27.90%	32.40%	27.90%	19.80%
Garden Reach Shipbuilders & Engineers	15.40%	18.70%	23.40%	17.20%	13.90%
Net Profit Margin	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	10.20%	7.70%	11.20%	9.80%	13.40%
Cochin Shipyard	16.10%	18.50%	21.60%	17.70%	12.90%
Garden Reach Shipbuilders & Engineers	7.90%	11.40%	13.50%	10.80%	8.90%

Data Source: Ace Equity

#Financial Efficiency

We can measure the financial efficiency of a business by checking its return on equity (RoE) and return on capital employed (RoCE) numbers.

These return ratios indicate a company's ability to generate returns from the equity and capital invested. A high and consistently growing ratio is considered better.

The five-year average RoE for Mazagon Dock Ship, Garden Reach, and Cochin Shipyard is 16.2%, 14.7%, and 13.7%, respectively, whereas the five-year average RoCE is 24.5%, 20.5%, and 19.6%, respectively.

Mazagon Dock Ship and Garden Reach have witnessed an expansion in return ratios on account of margin expansion, indicating strong operational efficiency. However, Cochin Shipyard witnessed a steep fall in return ratios on account of higher fixed overhead costs.

Financial Efficiency

Return on Equity (RoE)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	15.50%	12.00%	14.00%	15.50%	24.30%
Cochin Shipyard	14.50%	17.90%	15.70%	13.40%	6.90%
Garden Reach Shipbuilders & Engineers	10.70%	15.70%	14.10%	15.80%	17.10%
Return on Capital Employed (RoCE)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	26.00%	23.60%	18.90%	21.00%	32.80%
Cochin Shipyard	22.30%	24.90%	21.70%	18.90%	10.20%
Garden Reach Shipbuilders & Engineers	17.90%	21.80%	20.00%	21.60%	21.20%

Data Source: Ace Equity

#Debt Management

All three companies are debt-free companies, and their debt-to-equity ratio is 0.

However, Mazagon Dock has the most liquidity as it has an interest coverage ratio of 127.6x, followed by Garden Reach Shipbuilders (30.3x) and Cochin Shipyard (10.7x).

All three companies are investing heavily in capex and plan to remain debt-free in the medium term.

Mazagon Dock is considering building a greenfield shipyard in Navi Mumbai with a capex of Rs 20 bn. It also plans to diversify its activities by increasing its presence in underwater equipment, marine equipment, offshore platforms, and heavy engineering equipment.

The company is also investing heavily in R&D and is currently testing out expendable underwater target and mobile target emulator.

Cochin Shipyard is expanding its ship repair capacity by building international ship repair facility. The company recently inaugurated its new dry dock with a capacity of up to 70,000 DWT.

Apart from this, it is focussing on building new products such as zero-emission green vessels and hydrogen-based passenger ferry boats to expand its product portfolio.

Garden Reach Shipbuilders, on the other hand, is focussing on upgrading and refurbishing its current facilities to improve operational efficiency.

The company is also focused on export growth and is targeting a 25% CAGR growth in revenue in the next two years.

#Dividend

Companies share their profits with the shareholders in the form of dividends.

A high and consistent dividend is a good sign for a business as it indicates steady profitability.

All three companies pay regular and consistent dividends to their shareholders.

Of the three, Mazagon Dock Ship pays the highest dividend per share. In the last five years, the dividend per share grew by a CAGR of 29%, going from Rs 4.5 to Rs 16. Its dividend yield and dividend payout averaged 3.2% and 31.4%, respectively, for the last three years.

The dividend per share of Cochin Shipyard and Garden Reach Ship Builders grew by a CAGR of 5.5% and -2.3% in the last five years.

The dividend yield and dividend payout averaged 2.1% and 24.3% for Cochin Shipyard and 2.3% and 24.3% for Garden Reach Shipbuilders, respectively.

Dividend

Dividend Per Share (Rs)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
Mazagon Dock Shipbuilders	4.5	10.8	7.2	8.7	16	29.00%
Cochin Shipyard	3.3	4.2	3.9	4.2	4.3	5.50%
Garden Reach Shipbuilders & Engineers	7	7.1	5	5.8	6.2	-2.30%
Dividend Yield	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	0.00%	0.00%	3.60%	3.40%	2.70%
Cochin Shipyard	1.50%	2.40%	2.40%	2.30%	1.70%
Garden Reach Shipbuilders & Engineers	7.50%	4.20%	2.70%	2.60%	1.60%
Dividend Payout Ratio	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Mazagon Dock Shipbuilders	21.30%	57.60%	32.20%	31.30%	30.80%
Cochin Shipyard	17.90%	17.30%	16.70%	19.50%	36.70%
Garden Reach Shipbuilders & Engineers	72.40%	50.00%	37.30%	35.10%	31.10%

Data Source: Ace Equity

#Valuation

Valuation ratios help us estimate the intrinsic value of a company, and also help us analyse whether a company's shares are overvalued or undervalued when compared to its peers.

The two popular valuation ratios are price to earnings (P/E) and price to book value (P/B). A high ratio indicates the shares are overvalued, a low ratio indicates the shares are undervalued.

The P/E ratios of Mazagon Dock Ship, Cochin Shipyard, and Garden Reach Shipbuilders are 57.2x, 85.7x, and 78.8x, respectively. In terms of P/E, Cochin Shipyard's shares are highly overvalued compared to those of the other two companies.

However, in terms of P/B, Garden Reach Shipbuilders' shares are overvalued compared to those of its peers.

When compared to the industry average, all the three companies shares are highly overvalued.

Valuations	Mazagon Dock Shipbuilders	Cochin Shipyard	Garden Reach Shipbuilders & Engineers
P/E (x)	57.2	85.7	78.8
P/B (x)	16.8	13.8	17.4

Source: Equitymaster

Which Shipbuilding Stock is Better: Mazagon Dock Ship vs Cochin Shipyard vs Garden Reach Shipbuilders?

Mazagon Dock Ship is clearly a winner among the three companies as it is leading in terms of revenue growth, profit growth, dividend payments, financial efficiency, and also has lower valuation when compared to the other two companies.

The company is investing over Rs 20 bn in capex to build a greenfield shipyard. It is also working on improving its product portfolio by adding new product categories.

It successfully bagged orders for most of its new product categories ever since it introduced them.

Apart from this, it bagged an order for 24 ships to be delivered this year. It also won orders from ONGC and the Ministry of Defence worth Rs 27 bn recently.

The company is also a frontrunner for the Ministry of Defence's mega warship order worth Rs 700 bn.

Cochin Shipyard, on the other hand, is focussing on capacity expansion and new product development. Its recently opened new dock has helped the company secure orders from UK and Norway companies to build hybrid vessels and dry cargo vessels.

At the start of 2024, it bagged another international order from a European client.

With strong growth in international orders, Cochin Shipyard is inching towards its goal of increasing export orders.

Garden Reach Shipbuilders is currently investing in upgrading and modernising its facilities. It is also focussing on exports.

The company recently won orders worth Rs 8 bn from the National Centre for Polar and Ocean Research and an export order for commercial vehicles worth Rs 4.5 bn.

It is also a frontrunner for the Ministry of Defence's mega warship order worth Rs 700 bn.

Overall, all three companies are gearing up for their next leg of growth.

Moreover, with the shipbuilding scheme of the government likely to be extended beyond 2026, the government's Make in India scheme and the likely announcement of the Harit Nauka Scheme, these three shipbuilding companies could be primary beneficiaries.

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...