Why Mazagon Dock Share Price is Rising

Can the government continue with its huge capex plans for the Indian defence sector?

Will defence and shipbuilding stocks have the balance sheet and the management bandwidth to grow at a much faster rate in the future?

Will the market continue to award premium valuations to these stock?

These are just some of the questions that investors are left wondering with these days... such has been the euphoria surrounding defence stocks in India.

Among the lot, one stock that has outshined its peers is Mazagon Dock Shipbuilders.

In 2023 so far, the stock has shot up by 170%. For the past couple of days, the stock has started to show signs of momentum. Today, the stock was up over 3%.

Let's find out the key factors supporting the rally in Mazagon Dock share price.

New Deal for Hybrid Vessels

The current rally comes after the state-owned firm informed on December 15 that it has inked a US$ 42 million contract with a European client.

Here's an excerpt from its regulatory filing...

• "This is to inform that Mazagon Dock Shipbuilders Limited (MDL) has signed individual Shipbuilding Contracts with the European client for the construction of three (03) units of 7,500 DWT Multi-Purpose Hybrid Powered Vessels on December 14, 2023, for a value of approximately $42 million."

Mazagon Dock will construct three state-of-the-art 7,500-deadweight tonne (DWT) multi-purpose hybrid powered vessels in the next 27 months.

Mazagon Doc did mention about this deal in its management commentary during the release of September 2023 results. It informed about receiving a letter of intent for an export order from a European client.

The shipbuilding company has won a slew of orders in the past three months, which brings us to the second reason why the stock has found so many takers.

Massive Order Book

Shares of Mazagon Dock have been in demand throughout 2023 owing to its healthy order book, raising prospects of strong future growth.

In the past, the company has seen its order book decline from a peak of Rs 550 bn in 2019.

As of September 2023, the company's order book was around Rs 375 bn. This is to be executed by the financial year 2026. The company is expecting to report peak revenue and profit by then.

It has major contracts, such as Project-17A frigates, Project-15B destroyers, and Project-75 submarines, in its order book.

In addition, it has signed a Memorandum of Understanding (MOU) with Germany's Thyssenkrupp to participate in an Indian Navy submarine tender worth approximately US$ 5.2 bn.

Apart from this, Mazagon Dock has also entered into multiple agreements with private businesses. These agreements aim to boost defence exports from US$ 1.5 bn to US$ 5 bn by the end of the financial year 2024-25.

All this indicates the company's growth prospects are quite bright.

Sound Financials to Support Growth

Following a strong Q1 for financial year 2024, the company reported an even better September quarter with revenue coming in at Rs 18.3 bn compared to Rs 17 bn it reported a year ago.

Net profit for the same period increased to Rs 3.3 bn, compared to Rs 2.1 bn in the year-ago quarter.

The company's cash balance at the end of financial year 2023 was Rs 132.8 bn, making it one of the most cash-rich midcaps in India.

Going forward, the company is expecting more orders from Europe.

The company has already revised its revenue growth projection for the entire year to 12-15% from the earlier guidance of 10-12%.

Also, the company recently entered into a ship repair agreement with the US government.

This agreement allows voyage repairs of US Navy Ships, making Mazagon Dock one of the two shipyards in India with such an agreement.

How Mazagon Dock Share Price has Performed Recently

In the past one month, the stock is up by 8%. In 2023 so far, shares are up over 170%.

Mazagon Dock has a 52-week high of Rs 2,483 touched on 8 September 2023 and a 52-week low of Rs 613 touched on 27 March 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 repairing activities for its clients.

In the last three years, the company's revenue has grown at a CAGR of 22.6%, driven by a healthy order book. The net profit also grew by a CAGR of 32.1% during the same period.

It's a zero debt company, having paid consistent dividends.

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

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...