Cochin Shipyard soars 13% in 2 days on healthy order book

ICICI Securities remains positive on CSL led by strong earnings visibility considering healthy order backlog, expected pick-up in execution, and strong opportunities in ship-building segment

Shares of Cochin Shipyard (CSL) hit a new high of Rs 662.50, up nearly 4 per cent on the BSE in Monday's intra-day trade. In the past two trading days, the stock of the shipbuilding company has surged 13 per cent even as it reported weaker-than-expected September quarter results (Q2FY23).

The company's consolidated revenue during the quarter declined 1.9 per cent year-on-year (YoY) at Rs 683 on account of muted execution in ship-building segment. On sequential basis, the revenue jumped 55 per cent. Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin declined 382 bps YoY mainly due to contraction in margin in the ship-building segment. Profit after tax was down 14 per cent YoY, but up 167 per cent QoQ at Rs 112.80 crore.

The board has declared an interim dividend of 70 per cent or Rs 7 per equity share of Rs 10 each for the financial year 2022-23. The company has fixed November 22, 2022 as the record date for the aforesaid interim dividend.

CSL, a state-owned company, is the largest shipbuilding and maintenance facility in India. The yard has facilities to build vessels up to 1.1 lakh tonnes, and repair vessels up to 1.25 lakh tonnes annually. The company has secured shipbuilding orders from internationally renowned companies from Europe and the Middle East in the recent past.

According to ICICI Securities, CSL's Q2FY23 performance was impacted mainly on account of slower than expected execution; possibly in its major active projects. Order backlog is estimated to be at around Rs 21,000 crore post the recent vessels contract of Rs 1,000 crore from Europe.

The majority of the large contracts in order-book is expected to witness meaningful execution from FY24 onwards (like 6 NG Missile Vessels, ASW corvettes, export order of vessels). Moreover, shiprepair segment, which is already doing better, would see more good opportunity in the future post the expansion of facilities at Mumbai, Kolkata and Port-Blair, it said.

The brokerage firm remains positive on CSL led by strong earnings visibility considering healthy order backlog, expected pick-up in execution and strong opportunities in ship-building (in both domestic & exports) and ship-repair segments.

Meanwhile, in its FY22 annual report, CSL said the company foresees more orders from the European clients which would be a pathbreaker for the Company. The Indian Navy’s order for Next Generation Missile Vessels is in its final stages which is expected to be placed on CSL anytime soon.

"CSL has also signed contract for building India's largest dredger, which will open up a new business vertical, and is confident of getting further similar orders. CSL is also optimistic in garnering ship repair orders at its main facility at Kochi and its ship repair units at Mumbai, Kolkata and Port Blair. The overall outlook in the Ship repair segment looks steady," the company said.

At 10:54 am, Cochin Shipyard was trading 3 per cent higher at Rs 663.15, as compared to 0.18 per cent decline in the S&P BSE Sensex. In the past three months, the stock has zoomed 100 per cent, as compared to 3.8 per cent rise in the benchmark index.