153% Dividends: Mazagon Dock To Pay Rs 15.34/Share Dividend; Buy Call On Defence Stock For 40% Rise

Mazagon Dock Shipbuilders is among the best-performing defence stocks in 2023 by skyrocketing nearly 152% year-to-date. That being said, this shipbuilder is going to reward investors with the interim dividend to the tune of Rs 309.39 crore for FY24. Its Q2 results were also upbeat! Hence, Antique Stock Broking has recommended as buy on Mazagon Dock for a target price of Rs 2,774, which indicates a nearly 40% upside from the current market price.

Last week, on Friday, Mazagon Dock shares ended at Rs 1,982.55 apiece, down by 0.9% on BSE with a market cap of Rs 39,986.05 crore.

There is a buy-on-dips opportunity in Mazagon Dock shares.

As per the regulatory filing, Mazagon Dock has approved the declaration of an interim dividend of 153% amounting to Rs 15.34 per share aggregating to Rs 309.39 crore which will be paid from its profits for FY24.

Also, Mazagon Dock set November 20 as the record date for reckoning the eligibility of shareholders for payment of interim dividends. November 20th will also be its ex-dividend date. However, the interim dividend shall be paid on or before December 7, 2023.

In FY23 alone, the company paid a total dividend of 159.60% amounting to Rs 15.96 per share.

During Q2FY24, the company earned a consolidated net profit of Rs 332.88 crore, as against Rs 213.90 crore in Q2FY23 and Rs 314.34 crore in Q1FY24. Consolidated revenue from operations stood at Rs 1,827.70 crore in Q2FY24 compared to Rs 1,702.36 crore in Q2FY23, however, it was lower than Rs 2,172.76 crore in Q1FY24.

In its latest report dated November 9th, Antique's note said, "The beat in 2QFY24 results are due to a refund of LD on Scorpene submarines delivered in the past. This is expected to continue for a few more quarters. The refund of LD received on Scorpene submarines was INR 1.6-1.7 bn per submarine. Back in the day, MAZDOCKS delivered six units of submarines, with some prone to time overruns, where the Indian Navy invoked liquidity damages. With arbitration favouring MAZDOCKS, the Indian Navy has refunded the liquidity damages. MAZDOCKS expects two more such refunds in the next two
quarters."

Further, the brokerage's note added, "We understand MAZDOCKS is nominated to win #3 units of P75 add-on Scorpene-class submarines. The technical discussions are about to conclude in the middle of November 23, and MAZDOCKS will submit a price report to the Indian Navy in the month of December 23. The standard time to convert the price report into a letter of award is six months or more. However, given the urgency at which the order was nominated, the letter of award could be even earlier."

Additionally, it highlighted that Mazagon Dock ended 2Q with an order backlog of INR 375 bn (4.8x FY23 revenue). With 10 yards dedicated to non-submarine, the company went on to be L1 for #6 units of NGOPV for INR 14 bn. What surprises us is that MAZDOCKS defends its move to snap low-ticket orders like patrol vessels. MAZDOCKS resorts to the claim that patrol vessels are effective utilization of idle yard.

However, it added, "We, on the contrary, fear there are no big ticket non-submarine orders immediately on the cards despite there being INR 1.5 trn remaining on paper."

Nevertheless, on the valuation, Antique's note said, "With #3 units of Scorpene class add-on orders, we forecast 21%/ 22% CAGR for revenue/ net profit over FY23-26E. On valuations, however, we retain BUY on MAZDOCKS with a TP of INR 2,774 (SoTP with 20x PE for 1HFY26 annualized core business, stake in Goa Shipyard, cash in hand, and optionality of winning P75I). Risks: Delay in winning new orders, slower execution schedule or lower margin work done."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.