Discover how MDSL’s strategic role in the defence sector’s move towards indigenisation is yielding a windfall for investors, with a staggering 188% stock price surge within the year. What’s behind this exceptional growth?
Mazagon Dock Shipbuilders Ltd (MDSL) has recently been in the news for securing significant contracts, manifesting its growth in the defense sector. Capturing attention on 20th December, the company announced a notable contract acquisition valued at ₹1,600 crore from the Ministry of Defence, marking its third successful bid this December.
The company’s ascent as a prime beneficiary of the defense sector’s indigenisation wave has not gone unnoticed by investors. With an impressive 188% stock increase this year alone, investment interest is peaking. Underpinning this surge is MDSL’s substantial order backlog, which sat at ₹37,500 crore as of September’s close—around fivefold higher than its FY23 revenue.
Antique Stock Broking’s analyst, Rohit Natarajan, acknowledges MDSL’s potential to secure the construction contract for three additional Scorpene-class submarines, an opportunity that could be worth as much as ₹250 billion. Forecasting further, the company could also snag a deal for six units of P75(I), potentially bringing in roughly ₹500 billion, he suggests.
Natarajan highlights, “Winning the full suite of nine submarines positions MDSL before an order backlog crossing ₹1 trillion, propelling revenue assurance well beyond five years.”
Mirroring this optimism, MDSL revised its FY24 revenue growth forecast, climbing from the initial 8-10% set in June to an ambitious 12-15%. The company also outperformed in Q2FY24 earnings, beyond what analysts projected. HDFC Securities notes, “Seeing revenue climb from ₹3,530 crore in FY17 to ₹7,827 crore in FY23, which represents a compound annual growth rate (CAGR) of 9.2%, we project a revenue increase about 21% CAGR from FY23 to FY26E and anticipate Ebitda margins to range between 10.5% and 11.5% from FY24E to FY26E.”
While the prognosis seems favorable for MDSL, the company must navigate potential challenges, such as the possibility of escalating raw material costs, like steel and energy, that could impinge on profitability.
MDSL’s heavy dependence on government defense orders also means policy shifts could impact its operations. Though the firm maintains a solid cash balance, sluggish cash inflows could potentially stretch its receivables days ahead.
As per Bloomberg’s data, MDSL’s shares are trading at a forward price-to-earnings (PE) multiple of 30.5 times against anticipated FY25 earnings. HDFC’s report adds that compared to its public sector counterparts, MDSL excels in profit after tax (PAT) margins and Return on Equity (RoE). Future stock re-rating depends on an enhanced book-to-bill ratio, coupled with diligent execution of existing orders.
