Even as a defense power supply Mazagon Dock Shipbuilders Ltd reported a 76 per cent rise in its September quarter profit, Nirmal Bang Institutional Equities reduced its target price on the stock to Rs 4,106 from Rs 4,315. The brokerage said it had taken into consideration is reporting higher numbers than management forecast, but the stock has risen and she sees only limited upside potential from here.

Adjusted PAT increased 75.8 percent year-on-year on lower interest expense (down 14 percent year-on-year) and slightly better other income (up 1.1 percent year-on-year). Ebitda increased 189% year-over-year, driven by revenue growth of 51%
YoY. At the end of the September quarter, Mazagon Dock’s order book was valued at Rs 39,900 crore.

While recommending a ‘Hold’ rating, Nirmal Bang said Mazagon Dock’s gross margin and Ebitda margin stood at 38.1 percent and 18.5 percent, respectively, which was lower than its estimate of 40 .9 percent and 18.8 percent, respectively. Management informed the brokerage that there was no recovery of liquidated damages during the second quarter of FY25.

Mazagon Dock’s second-quarter management commentary was optimistic about long-term order backlog after delivery
of platforms in FY25. The company secured orders worth Rs 6,000-7,000 crore from ONGC and export orders worth Rs 1,000-2,000 crore in from Denmark. Mazagon Dock projected a PBT margin of 12 to 15 percent over three years.

“Given the company’s current execution pace, revenue recording and future order pipeline, we expect it to exceed guidance. We estimated a larger PBT margin of 24 percent/27 percent/25 percent for FY25E/26E/27E. The marginal decline in EPS estimates to 1.7 per cent/4.2 per cent for FY25 and FY26 is due to lower EBITDA margin despite significantly higher revenues,” it said.

Overall, the brokerage expects Mazagon Dock’s revenue to grow by 20 percent, Ebitda by 29 percent and PAT by 19 percent, compounded annually, over FY25 to FY27. .

Mazagon Dock shares are up 83 percent in 2024 so far and 115.81 percent over the past year. The stock settled at Rs 4,187.30 on Tuesday, up 3.98 per cent.

The stock trades at a 1-year forward P/E of 26.6x, higher than the three-year average P/E of 14.8x. Nirmal Bang, who upgraded the stock to “Hold” in our October 11 preliminary rating, said he values ​​the stock at 25 times estimated September 2026 EPS, +1 SD above its average P/E over 3 years, supported by a healthy order book and visibility of execution.