Why Mazagon Dock Shipbuilders Share Price is Rising

Dinesh Tripathi, the chief of Indian Navy, recently said that India is close to finalising three significant deals worth nearly Rs 1.25 trillion, before the end of December 2024.

One of these deals includes Scorpene submarines.

Naturally, this made us wonder about the scope of the project and which companies would take away a huge chunk of these orders.

Turns out, only one company would be responsible for taking this complex project - which will feature advanced technology and an indigenous combat management system.

In case you haven't guessed it, the company is none other than Mazagon Dock Shipbuilders.

In the past 5 days, the company's stock price is up 7% while in a month, the defence shipbuilding company has rallied over 33%.

Let's look at the reasons behind the current rally and what lies ahead.

Upcoming Stock Split

Corporate actions are usually believed to offer some good news to investors, particularly in the case of amalgamation and mergers.

In many cases, corporate actions do not involve any potential future positive benefits to the company as is the case with bonus issues and stock splits.

However, the market still reacts positively to the announcement of bonus shares and stock splits.

Mazagon Dock is currently riding the positive tailwinds of an upcoming corporate action.

The BSE 200 company is set to trade ex-split soon.

The record date for Mazagon Dock's stock is nearing, its scheduled for Friday, 27 December 2024.

Currently, the stock price is trading at a little over Rs 5,000 but the stock is set to become affordable for retail investors with this split.

This is the first time in the company's trading history that it has announced such a corporate action. While Mazagon Dock has issued dividends in the past, it has never carried out a stock split or issued bonus shares.

Massive Deals in the Pipeline

Mazagon Dock Shipbuilders stands at the forefront of significant development as the Indian Navy nears the finalization of three critical defence deals worth nearly Rs 1.25 trillion.

The company confirmed that commercial negotiations for the project are ongoing but reiterated that it has not received any final communication regarding the matter.

Among these, the procurement of three additional Scorpene-class submarines presents a key opportunity for Mazagon Dock to reinforce its pivotal role in India's naval defence capabilities.

The Scorpene submarine deal, valued at nearly Rs 400 bn, is in the final stages.

The construction of these submarines will be carried out through a collaborative effort between Mazagon Dock and the French Naval Group, reflecting Mazagon Dock's expertise in submarine manufacturing.

The deal underscores Mazagon Dock's integral position in India's defence ecosystem, enhancing its reputation as a leading player in complex shipbuilding projects.

On top of this, Mazagon Dock Shipbuilders recently announced that it has received a purchase order worth Rs 1.2 bn from the Maharashtra State Power Generation Company (MAHAGENCO).

The company bagged a contract for supply installation and commissioning of AI-based comprehensive infrasecure project at GTPS-Uran and KGSC-Pophali and AMC of the items after 1 year. The cost of this project is Rs 1.2 bn and is to be executed by 10 October 2025.

2024 Was Phenomenal for Mazagon. What About 2025?

In 2024 so far, Mazagon Dock share price has rallied 130%.

Since listing in October 2020, the stock price has had a phenomenal run on the bourses, surging over 3,000%!

Over the past five years, Mazagon Dock's revenue and net profit have grown at a compounded annual growth rate (CAGR) of 15.5% and 30.9% respectively from FY20-24.

It has been delivering strong returns, with the RoE and RoCE averaging at a healthy 18.2% and 26.1%, respectively.

Given its aggressive approach and huge order book, what can investors expect from Mazagon Dock in the coming years?

Well, Mazagon Dock is on track for stable margins and strong revenue growth in FY25.

The company's chairman and managing director Sanjeev Singhal has outlined expectations for a 10-12% revenue growth in FY25 and 2026, fuelled by sustained demand in the defence sector.

Singhal also shared that the company expects to earn around Rs 70-80 bn in revenue from a significant ONGC project.

Furthermore, Mazagon Dock's order book growth is projected to align with this revenue growth, with Singhal targeting a 12-15% increase in the current financial year. The outlook reflects continued optimism driven by both existing and upcoming projects.

Also, with a Rs 30 bn investment planned over the next 3-4 years, Mazagon Dock is aiming to expand its production capacity to handle larger and more complex military vessels. This is supported by the company's free cash reserves of Rs 40 bn, ensuring financial stability for these ventures.

One of the key infrastructural developments involves 37 acres of land owned by the company near Nhava Sheva Port, which it plans to develop into a greenfield shipyard with a floating dry dock.

The healthy order book and planned capex auger well for its future earnings.

However, investors should conduct thorough research into the company's financials and corporate governance practices to ensure a potential investment aligns with their financial goals and risk tolerance.

How Mazagon Dock Share Price has Performed Recently

In the past 5 days, Mazagon Dock share price is up 7%. In a month's time, the stock price has rallied 32%.

Mazagon Dock's 52-week high of Rs 5,859 was scaled on 5 July 2024 and it hit a 52-week low of Rs 1,797 on 14 March 2024.

At present, shares of the company trade at Rs 5,200.

At the current price, Mazagon Dock trades at a price to earnings multiple of 41x, compared to its median PE of 15.2x.

The stock also looks expensive on the price to book value multiple at 14.7x compared to its median P/BV of 3.7x.

About Mazagon Dock Shipbuilders

Mazagon Dock is a defence public sector undertaking (PSU) under the administrative control of the Ministry of Defence.

It is one of India's leading shipyards, specializing in the design, construction, repair, and refit of warships and submarines for the Indian Navy.

The company also builds and repairs various types of vessels and related engineering products for commercial clients.

It builds warships (destroyers, frigates, corvettes, patrol vessels), submarines (conventional), merchant ships (tankers, bulk carriers, container ships), and provides ship repair services.

For more information, check out Mazagon Dock's financial factsheet.

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