Mazagon Dock Shipbuilders has surged 127% since Nirmal Bang’s initial coverage on the
defense sector from April 5. Currently, the stock is trading at 30.4 times its estimated FY26
earnings per share (EPS), a valuation significantly higher than its three-year average
price-to-earnings (PE) ratio of 11.1.
After a strong performance in Q1, driven by reduced interest expenses and higher other
income, Mazagon Dock Shipbuilders Ltd., which achieved Navratna status in the June
quarter, saw an upward revision in its FY25 earnings forecast. However, despite a 119%
increase in the stock this year, Nirmal Bang Institutional Equities has issued a ‘Sell’
recommendation, citing the stock’s high valuation.
The company’s stock has climbed 127% since the April coverage report on the defense
sector. Trading at 30.4 times the projected FY26 EPS, this is well above the 11.1 times
three-year average PE ratio. Nirmal Bang, which recently downgraded the defense sector to
‘Sell’ due to steep valuations relative to fundamentals, continues to recommend selling
Mazagon Dock, setting a target price of Rs 4,468.
Even after valuing the stock at 25 times June 2025 EPS—taking into account the significant
sector and company-specific growth factors—a potential 11% downside to the current market
price remains, according to Nirmal Bang.
Mazagon Dock Shipbuilders recorded an 8.5% year-on-year (YoY) increase in sales, though
this was 19.6% below Nirmal Bang’s estimates. The company’s earnings before interest,
taxes, depreciation, and amortization (EBITDA) and profit after tax (PAT) grew 274% and
121% YoY, respectively. The decrease in raw material and procurement costs by 22.9% and
49.1% YoY contributed to the improved EBITDA. According to the management, most
high-value procurements have already been completed, with only base and depot expenses
remaining, necessary for delivery to the Navy and subsequent warranty obligations. For
EBITDA and PAT, the deviations from Nirmal Bang’s expectations were 31.8% and 41.8%,
respectively.
Mazagon Dock anticipates liquidated damages refunds for two additional submarines, with
discussions ongoing. Provisions against liabilities for the second destroyer, nearing
completion, will also be released. In Q1, Mazagon Dock reported a 121% increase in net
profit to Rs 696.10 crore, compared to Rs 314.34 crore in the same quarter the previous year.
Revenue for the quarter increased by 8.48% to Rs 2,375.02 crore from Rs 2,172.76 crore
YoY. Profit before tax and exceptional items rose to Rs 888.79 crore from Rs 383.32 crore
YoY.
As of the June quarter, Mazagon Dock’s order book was valued at Rs 36,800 crore. The
company is bidding for eight next-generation corvettes, with other projects in early stages. In
FY25, the company is expected to deliver a destroyer, a frigate, and a submarine. The stock
closed at Rs 4,997.10 on Wednesday, with Nirmal Bang’s target price of Rs 4,468 indicating
an 11% potential decline.
