Why Mazagon Dock Shipbuilders Share Price is Falling

Mazagon Dock Shipbuilders, a key player in India's defence sector, is known for constructing advanced warships and submarines for the Indian Navy.

With a rich history and expertise in shipbuilding, the company plays a vital role in enhancing India's naval capabilities.

Last month, we wrote to you about why Mazagon Dock Shipbuilders share price is rising. It had captured the attention of investors. However, this rally has recently encountered a setback.

A broader downturn in defence stocks has cast a shadow over the entire sector, and Mazagon Dock has not been immune to this trend.

The once-surging stock is now facing a period of correction, reflecting the challenges that defence stocks are experiencing.

In 2024, Mazagon Dock's stock delivered impressive returns, rallying 97.6% and attracting significant investor interest. However, the stock has slipped by 15% over the past month, signaling a shift in sentiment.

The correction has left many wondering what factors are contributing to this decline. Let's delve into the reasons behind the recent fall in Mazagon Dock share price.

#1 Profit Booking

Mazagon Dock Shipbuilders share price has surged significantly over the past year, rallying 142.2%. In 2024 alone, the stock has jumped by 97.6%.

This impressive performance, however, has led to profit booking by investors. As the share price climbed, investors started selling their shares to lock in gains. This increased supply of shares in the market has put downward pressure on the stock.

The situation was further exacerbated when a domestic brokerage firm sharply lowered its price target for Mazagon Dock. This downgrade added to the negative sentiment and led to more investors selling their shares.

#2 Expensive Valuations

Mazagon Dock Shipbuilders share price is experiencing a decline partly due to expensive valuations.

The company's current price-to-earnings (PE) ratio stands at 41.7. This figure suggests that the stock is highly valued relative to its earnings.

Investors often view high PE ratios as a sign that a stock may be overvalued, leading to concerns about potential future returns.

Additionally, Mazagon Dock's price-to-book (PB) ratio is 12.7. This indicates the stock price is significantly higher than the company's book value per share. A high PB ratio can signal overvaluation, as investors are paying a premium for each rupee of the company's book value.

These expensive valuations can cause investors to reassess their investments. When valuations are perceived as too high, investors might choose to sell their shares, contributing to a drop in the share price.

What Next?

The company is targeting an EBITDA margin of 11% to 12% for the financial year 2025. This target is expected to be sustainable and reflects the management's commitment to maintaining a healthy profitability level.

The company is in a strong financial position with no debt or working capital issues. It is also generating interest income from investments. It aims to maintain a reasonable profit margin of around 10% to 12% in its offshore projects and repair verticals.

For the June quarter, the company's EBITDA margin saw a significant increase to 27.3%, up from 7.9% in the same period last year.

This improvement was driven by a reduction in material costs and procurement expenses. The cost of materials consumed dropped to Rs 11.1 billion (bn) from Rs 14.3 bn, and the cost of spares decreased to Rs 1.1 bn from Rs 2.1 bn.

Mazagon Dock currently holds an order book valued at Rs 400 bn, including contracts for 30 ships to be delivered over the coming years. The company is also anticipating new orders for three submarines, expected to be valued at Rs 270 bn.

The company is hopeful that new orders will be secured before the existing order book is fully completed. Additionally, Mazagon Dock is optimistic about winning the Project-75 (India) submarine order by December next year.

In summary, Mazagon Dock is preparing for future growth through a solid order pipeline and strategic planning.

How Mazagon Dock Shipbuilders Share Price has Performed Recently

In the past five days, Mazagon Dock Shipbuilders share price has tumbled 4.8%. In the last month, it is down 15%.

In 2024, so far, its share price has surged 97.6% and its up 142.2% in the last one year.

The stock touched its 52-week high of Rs 5,859.9 on 5 July 2024 and a 52-week low of Rs 1,742 on 26 October 2023.

About Mazagon Dock Shipbuilders

Mazagon Dock is engaged in manufacturing warships, submarines, cargo, and passenger ships for the defence sector. It also undertakes ship repair activities for its clients.

It primarily manufactures for the defence sector and has built 802 vessels including 28 warships ranging from advanced destroyers to missile boats and 7 submarines.

The company is looking forward to diversifying its activities and increasing its presence in the field of underwater equipment and platforms, marine equipment and platforms, heavy engineering equipment, offshore platform etc.

It has also penetrated into a new segment i.e. manufacturing of cargo containers. It has successfully bagged orders of 2,500 containers from Container Corporation of India Limited.

To know more, check out Mazagon Dock Ship's financial factsheet and latest quarterly results.

You can also compare Mazagon Dock Shipbuilders with its peers on our website:

Mazagon Dock Shipbuilders vs Cochin Shipyard

Mazagon Dock Shipbuilders vs Garden Reach Shipbuilders

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...