Shipbuilders PSU stocks on down-trail, Mazagon Dock, GRSE, Cochin Ship plunges by 10%

New Delhi: The Shares of shipbuilding companies were recorded low, falling up to 10 percent on the BSE in Tuesday’s intra-day trade amid growth concerns. Mazagon Dock Shipbuilders (MDL) tanked 10 percent to Rs 4,206.55, while, Garden Reach Shipbuilders & Engineers (GRSE) plunged 9 percent to Rs 1,643 and Cochin Shipyard (CSL) was locked at the 5 percent lower circuit at Rs 1,453.80. In comparison, the BSE Sensex was down 0.53 percent at 80,717.

The three stocks, CSL (51 percent), GRSE (42 percent), and MDL have renewed up to 51 percent from their respective 52-week highs touched in July 2024. Among individual stocks, CSL was standing at a 5 per cent lower circuit on the BSE. Last week, the government sold a 5 percent stake or 13 million shares in CSL via offer for sale (OFS). The share sale was to fetch about Rs 2,000 crore to the exchequer.

Fitch Ratings on analyzing CSL FY24 annual report dated September 7, 2024, maintained its negative outlook for the shipping sector on the earnings, mainly reflecting the continuing challenges for container shipping, which could lead to year-on-year (YoY) worsening of the results. 

The main risks include the potential for weaker-than-expected global GDP growth or geo-political developments causing adverse dislocations. A potential increase in trade protectionism (or “friend-shoring”) could also see changes in trade flows and limit demand across a few high-margin or critical products.

Despite this current pessimist trail, shipbuilding activity is likely to show robust performance due to the present healthy order book and the need for new tonnage meeting new rules and regulations, replacing an aging fleet (above 14 years). New building prices increased across segments in 2023 and are likely to see further increases in 2024, the company said.

As per the ICICI Securities, the margins of MDL have improved in recent times led by the delivery of vessels leading to the lower cost being incurred compared to budgeted. The brokerage firm expects high margins to be sustained until FY27E as major deliveries are planned over the next 2-3 years. However, once MDL starts executing new orders, its revenue recognition is likely to be milestone-based, and hence, the EBITDA margin could taper off to 12-15 percent.

Meanwhile, analysts at Elara Capital reiterated a ‘Sell” rating on GRSE, due to the deferment of a large order in Next Generation Corvettes (NGC) to FY26 from FY24, which may advance revenue growth beyond FY26, and given stock outperformance versus the Nifty. The brokerage firm pares FY25E/26E EPS 22 percent/19 percent on lower gross margin and drop in other income (on delayed ordering for NGC).