Mazagon Dock Shipbuilders Limited (MDL) is one of the leading defence public sector undertakings in India, engaged in building and repairing ships, submarines, and offshore structures for the Indian Navy and other clients. The company has a rich history of over 200 years and has delivered 801 vessels since 1960, including 27 warships and 7 submarines. The company is also involved in various naval projects, such as the stealth frigates, destroyers, corvettes, landing platform docks, missile boats, and patrol boats.
The company’s performance in the stock market has been impressive, as it has witnessed a remarkable rise of more than 450% in its share price in the last one year. The stock made its debut on the stock exchanges on October 12, 2020 at ₹173 apiece over the issue price of ₹145. Since then, it has consistently delivered stellar returns to its investors. As of September 8, 2023, the stock closed at ₹2,332 apiece, marking a new all-time high.
What are the factors behind the stock’s phenomenal growth?
There are several factors that have contributed to the stock’s phenomenal growth in the past year. Some of them are:
Strong order book
The company has a strong order book of ₹54,074 crore as of June 30, 2023, which provides revenue visibility for the next six to seven years. The order book comprises of various naval projects, such as Project 15B (four guided missile destroyers), Project 17A (seven stealth frigates), Project 75 (six Scorpene submarines), and Project P-75(I) (six conventional submarines with air-independent propulsion system). The company is also expecting to receive orders for Project 28 (four anti-submarine warfare corvettes) and Project P-71 (one aircraft carrier).
Key agreement with US government
The company recently signed a Master Ship Repair Agreement (MSRA) with the US government, represented by NAVSUP Fleet Logistics Centre (FLC) Yokosuka. This is a non-financial agreement that enables the company to undertake voyage repairs of US Navy ships at its facilities. This is a significant achievement for the company, as it is one of the only two shipyards in India to have signed the MSRA. The agreement is expected to open up new opportunities for the company in the global market.
Contract for submarine refit
The company also secured a ₹2,725 crore contract from the Ministry of Defence for medium refit with life certification (MRLC) of INS Shankush, a sub-surface killer class of submarine. The contract involves upgrading and modernizing the submarine to extend its service life by another ten years. The contract is expected to be completed by June 2026.
Government support and initiatives
The company has also benefited from the government’s support and initiatives for the defence sector. The government has allocated ₹40 billion for implementing the Shipbuilding Policy 2015, which aims to provide financial assistance to shipbuilders and grant infrastructure status to the industry. The policy also provides exemption from customs and central excise duties on all raw materials and parts used in shipbuilding. These measures are expected to reduce the cost of manufacturing ships in India and improve the competitiveness of Indian shipbuilders.
Strategic location and capabilities
The company’s strategic location along the east-bound and west-bound international trade routes offers an opportunity to undertake repairs to the vessels plying on these routes. A main container route connecting America and Europe to the east passes very close to the Indian coastline, presenting a major opportunity for repairs. The company has also developed capabilities to build warships, submarines, and offshore platforms with advanced technology and sophistication.
What are the challenges and risks for the stock?
Despite its strong performance and growth prospects, the stock also faces some challenges and risks that may affect its future performance. Some of them are:
Competition from domestic and foreign players
The company faces competition from other domestic players, such as Cochin Shipyard Limited, Garden Reach Shipbuilders & Engineers Limited, Goa Shipyard Limited, Hindustan Shipyard Limited, and L&T Shipbuilding Limited. It also faces competition from foreign players, such as Hyundai Heavy Industries Co., Ltd., Daewoo Shipbuilding & Marine Engineering Co., Ltd., Samsung Heavy Industries Co., Ltd., China State Shipbuilding Corporation Limited, Fincantieri S.p.A., Naval Group S.A., ThyssenKrupp Marine Systems GmbH, BAE Systems plc., etc.
Execution delays and cost overruns
The company’s projects are complex and involve long gestation periods. They are also subject to various uncertainties and risks, such as technical issues, design changes, regulatory approvals, environmental clearances, contractual disputes, etc. These factors may cause delays in execution and cost overruns, which may affect the company’s profitability and reputation.
Lock-in period expiry
The lock-in period for the company’s pre-listing shareholders is set to expire on October 9, 2023. After this, approximately 40 million shares will become eligible for trading. This may increase the supply of shares in the market and put downward pressure on the stock price.
Geopolitical tensions and policy changes
The company’s business is dependent on the defence spending and policies of the Indian government and its allies. Any geopolitical tensions or conflicts may affect the demand and supply of defence products and services. Any changes in the defence policies or priorities of the government may also affect the company’s order book and revenue.
What is the outlook for the stock?
The stock has shown a remarkable performance in the past year and has emerged as a multibagger stock. The company has a strong order book, a key agreement with the US government, a contract for submarine refit, government support and initiatives, and strategic location and capabilities. These factors provide a positive outlook for the stock’s future growth.
However, the stock also faces some challenges and risks, such as competition from domestic and foreign players, execution delays and cost overruns, lock-in period expiry, and geopolitical tensions and policy changes. These factors may pose some headwinds for the stock’s performance.
Therefore, investors should be cautious and do their own research before investing in the stock. The stock may be suitable for long-term investors who are looking for exposure to the defence sector and are willing to take some risks. The stock may not be suitable for short-term or speculative investors who are looking for quick returns or are risk-averse.
Disclaimer:
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