Why Cochin Shipyard Share Price is Falling

Defence stocks burst at the seams in 2022 even as fundamentally solid bluechip companies sulked in a turbulent market. They emerged in the spotlight following Russia's invasion on Ukraine.

The Union government, in its budget for 2022-23, has raised defense expenditure to Rs 5.2 trillion (tn), up from Rs 4.8 tn in the last fiscal.

Within this outlay, the Finance Minister has set aside Rs 1.5 tn outlay for capital procurement, of which 68% has been reserved for domestic procurement, initiating big growth stories for defense stocks.

Amid this, shares of Cochin Shipyard, India's first greenfield shipyard, have plummeted over 17% in a month.

Here is what triggered the decline in the stock price.

Profit booking

Shares of Cochin Shipyard rose over 76% from 3 January 2022 to 22 December 2022, touching their 52-week high in November 2022.

The rally was fueled by the strong order book of the company.

The company, in the year 2022, signed a contract to build India's largest dredger, which will open up a new business vertical.

It further secured shipbuilding orders from internationally renowned companies from Europe and the Middle East, driving the order book to Rs 100 bn as of September 2022 quarter.

The rally got further support from when the company announced a 70% interim dividend of Rs 7 per share for the financial year 2022-23.

On the back of this ongoing rally, the defense stock has been trading at a higher valuation, driving the Price to Earnings (PE) multiple of Cochin Shipyard to 11.4x.

This is higher than the defense industry PE multiple of 9.8x, making it overvalued on the PE front.

Therefore, the recent correction could be due to profit booking in the stocks.

Weak quarterly results

Cochin Shipyard reported a 1.9% YoY decline in revenue for the September 2022 quarter on account of muted execution in ship-building segment.

Revenue from ship-building segment (accounts for 77% of total revenue) declined 5% YoY while revenue from ship-repair segment increased 10.3% YoY.

Due to the decline in revenue, the company's operating profit fell by 19.2% YoY. Operating profit margins also contracted to 20% as other expenses went up.

During the quarter, the company also saw its depreciation costs go up. As a result, it reported a 15.2% YoY decline in net profit. Net profit margins also came in lower by 2.6%.

For the upcoming quarters of 2023, it has bagged a prestigious international export order with a European client for the construction of Commissioning Service Operation Vessels ('CSOVs') for offshore wind farms valued at around Rs 10 bn.

It is looking further looking forward to more orders from European clients.

How Cochin Shipyard shares have performed recently

Cochin Shipyard shares have declined by more than 17% in the last month. Over the year, the stock is up more than 32%.

The company touched its 52-week high of Rs 687 on 5 December 2022 and its 52-week low of Rs 280.7 on 8 March 2022.

About Cochin Shipyard

Cochin Shipyard Ltd (CSL) is a government-owned shipbuilding company. It builds and repairs the largest vessels in India.

It is mainly engaged in the construction of vessels and repairs and refits of vessels, including the upgradation of ships, periodical lay-up repairs, and life extension of ships.

The company has built and repaired some of the largest ships in India. Over the years, it has successfully responded to fluctuations in the shipbuilding requirements of the markets and has evolved from building bulk carriers to smaller and more technically sophisticated vessels such as Platform Supply Vessel (PSV) and Anchor Handling Tug Supply Vessel (AHTS).

The company offers various products including tankers, dredgers, aircraft carriers, bulk carriers, passenger vessels, and air defense ships. The company also trains personnel from graduate engineers to marine engineers.

To know more about company, check out the Cochin Shipyard company fact sheet and quarterly results on our website.

You can also compare Cochin Shipyard with its peers:

Cochin Shipyard vs Mazagon Dock Ship

Cochin Shipyard vs VMS Industries

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