Shares of Mazagon Dock rose by over 4% on June 5, even as other defense PSU stocks fell by up to 10%. This comes despite analysts urging caution on PSU investments following the unexpected election results.
ICICI Securities recently issued a ‘sell’ recommendation for Mazagon Dock, setting a target price of ₹900, which is over 66% lower than its previous close of ₹2,679.30 on the NSE. The brokerage believes that all the positives have already been factored into the current share price.
By 12:57 pm, Mazagon Dock shares were trading 3% higher at ₹2,764.05 each on the NSE. The stock has delivered impressive returns of 180% over the past year, significantly increasing investors’ money. In 2024 alone, the stock has risen 20%, outperforming the Nifty 50, which has gained 2.8% during the same period.
Mazagon Dock reported a strong Q4FY24 with an EBITDA of ₹520 crore, a 1.5x year-on-year increase, thanks to better margins and reduced expenses. The company expects FY25 to be its peak revenue year and has secured a contract to build 14 Fast Patrol Vessels for the Indian Coast Guard, valued at ₹1,070 crore.
For FY24, Mazagon Dock saw an order inflow exceeding ₹7,200 crore. Looking ahead, the company plans to invest ₹2,500-3,000 crore in capital expenditures over the next 3-4 years. ICICI Securities has factored in three major potential orders for the medium term.
Despite these orders, the brokerage expects Mazagon Dock’s earnings per share (EPS) growth to be limited due to the current peak execution stage of its order book. Over the next 5-7 years, there is a potential ₹1.2 lakh crore order inflow opportunity, but timelines are uncertain.
Analysts see risks from the depleting current order book and uncertainty around future orders. Even considering all opportunities, ICICI Securities believes the current market price does not offer a favorable risk-reward balance.
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