Garden Reach Shipbuilders & Engineers soars 13% on strong Q1 results

Analysts at ICICI Securities expect execution to remain healthy over the next two years, led by execution of orders in hand

Shares of Garden Reach Shipbuilders & Engineers (GRSE) rallied 13 per cent to hit a record high of Rs 661.35 per share in Monday’s intra-day trade, amid heavy volumes.

The stock of defence company surpassed its previous high of Rs 636.75, touched on July 11, 2023. The average trading volumes on the counter jumped nearly 10-fold as around 5.2 million equity shares changed hands on the NSE and BSE.

In Q1FY24, GRSE reported 52.8 per cent year-on-year (YoY) jump in profit after tax at Rs 76.68 crore, on strong operational performance and higher other income.

The company's revenue, too, increased 30.4 per cent YoY to Rs 755.9 crore, led by execution of strong order backlog. Other income increased 72.9 per cent YoY to Rs 70.6 crore.

Earnings before interest, taxes, depreciation, and amortisation (Ebitda), meanwhile, increased 37.6 per cent YoY to Rs 46.1 crore.

Gross margin, on the other hand, improved 490 bps YoY to 38.9 per cent on lower raw material cost.

However, Ebitda margin was higher only 32 bps YoY to 6.1 per cent as higher other expenses (due to increase in sub-contracting charges) negated impact of improvement in gross margins.

GRSE is a premier warship building company in India under the administrative control of Ministry of Defence (MoD). The main businesses of GRSE include shipbuilding and ship repairing, engine assembling and testing, and engineering products.

The company has a total of eight units, of which seven (shipbuilding and repair, engineering and training) are located in and around Kolkata, and one (engine division – assembles and tests new diesel engines and repairs and reconditions old engines of Naval and Coast Guard Ships) is in Ranchi, Jharkhand.

Analysts at ICICI Securities said GRSE’s revenue growth remained strong during the quarter, led by execution of strong order backlog. The major contracts on hand are anti-submarine warfare corvettes, survey vessels, P-17A frigates and export contracts.

"The Order backlog is estimated to be at around Rs 23,300 crore (9x FY23 revenues), which is to be executed over the next 3-4 years. Moreover, orders pipeline remain strong led by large value orders like next generation corvettes, ocean patrol vessels et," the brokerage firm added.

Analysts, moreover, expect execution to remain healthy over the next two years led by execution of orders in hand. Moreover, margins are also expected to improve led by positive operating leverage.

In the prior month, Brickwork Ratings reaffirmed and withdrew ratings for the bank loan facilities of GRSE amounting to Rs 4,675.01 crore.

The rating reaffirmation continues to factor in the company's steady financial and operational performance in FY23, majority ownership of the Government of India (74.50 per cent), long operational track record, low counterparty risk, strong order book position of around Rs 25,111 crore as on 31 Mar 2023, favourable demand outlook, and continued superior liquidity position, they said.

"The rating strengths are partially offset by volatility in profitability and competition from private shipyards on account of competitive bidding," the rating agency added.