Mazagon 'Docks' super Q2

Mazagon Docks is very much in the limelight today morning, riding pretty on the back of its excellent Q2FY25 earnings. The stock, which had closed yesterday at Rs.4194.90, opened over 1% higher and soon rose to an intraday high at Rs.4328.45, up more than 3%. Its 52-week high is at Rs.5859.95.

The company reported a 51% (YoY) jump in revenue at Rs.2757 crore and PAT came in at Rs.585 crore, up 76%. Net Margin has strengthened from 18.2% to 21.2%, leading to an EPS of Rs.29 for Q2FY25 and Rs. 64 for H1FY25 (doubled YoY from H1FY24 EPS of Rs.32), against Rs. 96 for FY24.

H2 is typically stronger than H1 for defence companies, as order execution gathers pace. What is even more encouraging is 8% sequential increase in outstanding order book to Rs. 39,872 cr (as of 30.9.24), translating into a book-to-bill ratio of 4.2x, based on FY24 revenue of Rs. 9,467 cr. Submarine heavy engineering orders remained strong, thanks to Rs. 6,255 cr inflow from ONGC. Entire order book is guided to be executed by CY26-end, providing excellent earnings growth visibility over the next 24 months. Besides current order book, pipeline is also seen attractive, as India looks strengthen naval defence capabilities in the Indian Ocean region, to ward off threat from China and Pakistan.

Media reports indicate Indian Navy clearing 6 submarines worth up to Rs 60,000 cr to be built by Mazagon Dock in partnership with Germany's ThyssenKrupp, besides 7 new warships worth ~Rs. 70,000 cr, being the most advanced stealth frigates ever constructed in India.

Mazagon Dock is the only shipyard to be conferred Navratna status and India’s only shipyard to have built Destroyers, conventional Submarines for Indian Navy and manufacture Corvettes in India. It plans Rs. 4,000-5,000 cr capex over the next 3-4 years, for greenfield shipyard at Nhava Yard and 12,000-ton capacity Floating Dry Dock.

Company is debt free with cash balance of Rs. 14,300 cr.

Our Editor, Mr SP Tulsian opines that based on FY25E EPS of about Rs. 145, share is trading at a current year PE multiple of 24x, net of cash of Rs. 711, which is seen attractive for expected growth, high margins and 40% RoE. He has given a ‘buy’ call with a target of Rs.4450 in 3 months.