Mazagon Dock berths

Mazagon Dock is in the news today – the Govt announced its plans to offload upto 4.83% stake in the company through an OFS, starting today through 7th April. Govt will be initially selling 2.83%, with an option to offload an additional 2% if demand is strong, taking the total sale up to 4.83%. The OFS has opened today for institutional investors and 7^th will be retail investors. Any unsold shares will be reallocated to other eligible bidders.

The floor price has been set at Rs.2525, which is at a 8% discount over yesterday's close.

The stock is currently down the red, falling over 7% to an intraday low at Rs.2542.50 and is trading presently around the same levels.

So why is the stock price on a decline? Some reasons for this:

1. Increased Supply in the Market – When a large shareholder (like the government) sells its stake, it increases the number of shares available for trading, which can lead to a temporary drop in price due to supply-demand dynamics.
2. Discounted Price for OFS – Typically, an OFS is offered at a discounted rate compared to the prevailing market price to attract investors. This often leads to short-term selling pressure as traders anticipate the stock moving closer to the discounted price.
3. Profit Booking by Investors – Given Mazagon Dock's strong rally in recent months, some investors may be booking profits before the government’s stake sale is completed, fearing a potential short-term dip.
4. Market Sentiment & Volatility – Any major stake sale by the government can create uncertainty, leading to volatility in stock price movements.

Despite this short-term pressure, Mazagon Dock remains a fundamentally strong company with a robust order book and growth prospects in defense shipbuilding.

As per Mr.SP Tulsian, the stock is a solid buy. It has an outstanding order book of Rs. 34,787 cr (as of 31.12.24), translating into a book-to-bill ratio of 3.7x, based on FY24 revenue of Rs. 9,467 cr. Submarine heavy engineering orders remained strong, thanks to Rs. 5,955 cr inflow from ONGC. Mazagon Dock is the India’s only shipyard to have built Destroyers, conventional Submarines for Indian Navy and manufacture Corvettes in India. Company is debt free with cash balance of Rs. 15,000 cr+. Stock is due to receive good orders, as 3 Scorpene Sub Marines Orders may get inked soon by the MoD- CCS.