Miniratna PSU Stock Gets Buy Call After 1:2 Stock Split Declaration: Do You Own?

One of India's top shipbuilding and repair yards, Cochin Shipyard Ltd. is a mid-cap company. The Government of India has awarded CSL a Miniratna classification, making it one of the top 10 public sector organisations in the country. Subject to shareholder approval, the company announced a 1:2 stock split. Following this, ICICI Direct Research gave the stock a buy call rating with a target price of Rs 1340.

Cochin Shipyard Ltd (CSL) Stock Split

The Board of Directors "Approved the sub-division/ split of existing 1 (One) Equity Share of face value of Rs. 10/- (Rupees Ten Only) each fully paid up into 2 (Two) Equity Shares of face value of Rs. 5/- (Rupees Five Only) each fully paid up, subject to shareholders approval. The record date for the purpose of above sub-division/ split of Equity Shares shall be decided after obtaining approval for sub-division/ split from the shareholders through postal ballot electronic voting process and will be intimated in due course," said the company in a stock exchange filing.

The rationale behind the stock split action is to comply with DIPAM guidelines on capital restructuring, to encourage wider participation of small investors; and to enhance liquidity of the equity shares of the company in the stock market, said CSL in a stock exchange filing.

Cochin Shipyard Share Price Target

"We expect CSL to witness significant YoY growth in revenues & profitability over FY24-25E, led by execution pick-up in both the segments and increasing share of margin accretive ship-repair segment. We estimate revenue, EBITDA and PAT to grow at ~34%, ~78% and ~52% CAGR respectively over FY23-25E as against the de-growth seen over FY20-23. Valuations look attractive considering the multiple growth drivers. We value CSL at Rs 1340 i.e. 25x FY25E P/E," said the brokerage firm ICICI Direct Research in a note.

Commenting on the investment rationale for CSL, the brokerage said "With advanced state-of-theart infrastructure, CSL is adept with execution of diversified projects in both ship-building and ship-repair segments. Order backlog of ~Rs 22000 crore as of Sept-23 (8.4x TTM revenues) with pick-up in execution, provides strong revenue growth visibility in the coming years. Capex in new dry-dock and ISRF (International Ship Repair Facility) projects to be completed by Q1FY25, would further expand manufacturing capacities. Large scale contracts for India Navy like ASW-SCW corvettes (balance order value of Rs 5542 crore), Next Gen Missile Vessels (balance order value of Rs 9803 crore) with post commission works of Indigenous Aircraft Carrier (pending order value of Rs 1340 crore) are expected to witness meaningful execution during FY24 and FY25. Moreover, on commercial vessels front, all the domestic & export contracts in hand, are under execution as per schedule."

"Order pipeline remains strong in defence and commercial ship-building and ship-repair segments including exports. About Rs 13000 crore worth of ship-building contracts are in pipeline; tenders expected to be floated in medium term. Apart from these, Rs 84000 crore worth of orders are in RFP stage as per the management. In defence segment, we believe that India Navy's future plan of warships procurement presents a strong prospects for CSL. Discussions on another aircraft carrier are also in advanced stages and offers additional order opportunity of Rs 40000 crore. In commercial segment, electric vessels opportunity emerges from Europe as 2500 vessels are scheduled to be replaced with green vessels. In ship-repair segment too, company sees sizable opportunity in both defence & commercial industries," the research analysts of ICICI Direct Research stated further.

Cochin Shipyard Financials

Consolidated net profit for the September quarter at Cochin Shipyard was Rs 181.52.50 crore, up 61% from Rs 112.79.45 crore in the same period the previous fiscal. Consolidated revenue from operations jumped by 48% to Rs 1,011.71 crore in Q2FY24 from Rs 683.18 crore in Q2FY23. While the margin shrank by 80 basis points to 19%, EBITDA jumped by 41.2% to Rs 191.2 Cr in Q2FY24.

Disclaimer

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