Rs 18/Share Dividends: PSU Defence Stock Recommended To Accumulate; 184% Returns From 1-Year Lows

PSU shipping and defence company, Cochin Shipyards is committed to achieving the objectives of net zero emissions as mentioned in 'MIV 2030' and 'Amritkal Vision 2047'. In the latest development, the company has signed a memorandum of understanding (MoU) with Adani Group green tugs. On the back of a strong pipeline and order execution pick up in H2FY24, brokerage Geojit has recommended accumulating Cochin Shipyards' share price for a target price of Rs 1,265.

On December 1st, Cochin Shipyard along with the Ministry of Ports, Shipping and Waterways (MoPSW) and World Bank organized a workshop with State Government representatives and other concerned stakeholders on 'Charting a Course for Green Inland Vessels Transition in Kochi, Kerala.

The discussion held in the workshop will lead a step closer towards achieving the objectives of net zero emissions as mentioned in 'MIV 2030' and 'Amritkal Vision 2047'. MoPSW is taking all measures to achieve the target of net zero carbon emissions. This initiative is in line with the Government's policy of the maritime sector playing an instrumental role and paving the way for India to set sail towards Green Sustainability Transportation under the visionary leadership of the Prime Minister.

The Ministry of Ports, Shipping and Waterways along with some key stakeholders of maritime and inland waterway transportation sectors in India including Cochin Shipyard Limited, the Kochi Water Metro and state departments associated with water transportation shared progress towards green transition through illustrations of existing and upcoming vessels based on alternate fuels (such as electric, hydrogen and methanol).

Following this, Cochin Shipyard signed an MoU with Adani Harbour Services-backed Ocean Sparkle for the construction of green tugs after delivering the first of the two tugs ordered by the latter.

On BSE, Cochin Shipyard's share price settled at Rs 1166.50 apiece, down by 3.18% with an m-cap of Rs 15,344.19 crore. Nevertheless, in the trading week that ended on December 1st, Cochin shares rallied by 4% on the exchange.

In six-months, Cochin shares have zoomed by nearly 133% on BSE. Year-to-date, the upside is over 120%. From its 52-week low of Rs 411 apiece, Cochin shares have given a massive 184% return as of now. Its 52-week high is at Rs 1,258 apiece.

Cochin is also among the top dividend-paying PSU stocks. In the last 12 months, the company declared dividends of up to Rs 18 per share for its shareholders. As per Trendlyne data, the company delivered about 14 dividends since August 2018.

Should you buy Cochin Shipyard share price?

In its latest research note, Geojit highlighted that the company's Q2FY24 revenue was above our estimates; it grew by 40% YoY, led by a 33% YoY increase in shipbuilding and a 62% YoY jump in ship repairs. Reported EBITDA grew by 40% YoY to Rs.195cr. EBITDA margins largely remained flat at 20.4% on account of higher employee costs of 19% YoY and provision & other expenses. Net profit grew by 59% YoY to Rs.191cr, supported by a 42% YoY increase in other income.

With overall pick-up order execution and higher repair orders, including IAC, Geojit's note added, "We upgrade our EBITDA margin estimates by 420bps & 210bps, respectively, for FY24E & FY25E. Consequently, EPS estimates are revised upward by 32% & 10.4%, respectively, for FY24 & FY25E."

Furthermore, the brokerage said that the current order backlog is healthy at ~Rs22,00cr, which has improved earnings visibility for the next 2-3 years. The order pipeline is expected to be further boosted by repeat orders from IAC, which are under active consideration by the DAC (Defence Acquisition Council). Other opportunities include hybrid electric catamaran passenger vessels, coastal carriers for European clients, tugs, and fast patrol vessels (FPV). The overall order opportunities amount to Rs.13,000cr.

Also, it said, FY24 revenue is expected to be boosted by the launch of 3 ASW corvettes, while execution of 2 ASW corvettes will start in Q3. Further, IAC has docked for the guarantee refit, installation of MF-STAR, and concurrent work package agreed with the Indian Navy, and the unfinished order value on IAC will be fully executed, with 40% in FY24 and the remaining in FY25. The current repair order is at Rs.700cr.

Apart from this, Geojit also pointed out that Cochin's capacity expansion is nearing completion. It said, CSL Dry Dock (Rs1,790cr) expansion and its ISRF (International Ship Repair Facility) (Rs970cr), is expected to be completed by December 2023, while commissioning will be in mid-2024.

This is expected to double the operational capability of the yard by enabling it to construct and repair larger vessels like LNG carriers, new-generation aircraft carriers, etc. In the long term, we expect revenue to witness robust growth with healthy margins, aided by a diversified product mix (repair and shipbuilding), it said.

Lastly, on the valuation, Geojit's note said, "Given the improvement in order book visibility, capacity expansion, and strong execution capabilities, we continue to maintain our positive view on the stock. We value CSL at a P/E multiple of 26x on FY25E, with a target price of Rs.1,265 and maintain Accumulate rating."