What's caused Mazagon Dock Shipbuilders stock to surge 300% in a year?

Shipbuilding companies play a pivotal role in the global maritime industry, constructing vessels that facilitate international trade, transportation, and naval defence.

These companies are at the forefront of engineering and technological innovation, designing and building a wide range of ships including cargo carriers, tankers, container ships, passenger ships, and specialised vessels such as icebreakers and offshore platforms.

In India, shipbuilding companies have come a long way in terms of technology innovation. Currently, they cater to about 20% of the market for commercial vessels worldwide.

In the past few days, shipbuilding companies have caught the attention of investors and shares of Cochin Shipyard, Garden Reach Shipbuilders and Mazagon Dock Shipbuilders have all jumped. In fact, shares of Mazagon Dock surged more than 10% in a single day.

What’s causing this? Let’s find out.

Q4 result boosts stock

Shares of Mazagon Dock jumped more than 10% on Thursday after the company reported robust results for the March quarter and the financial year 2024.

The company reported a consolidated net profit of ₹6.6 billion for the quarter, double its net profit of ₹3.3 billion a year ago. The net profit margin was 21.36% up from 15.69%.

The company reported a consolidated revenue of ₹31 billion, up from ₹21 billion in the year-ago period for year-on-year growth of 49.3%.

The company's net worth shot up to ₹62.4 billion in the quarter as against ₹47.6 billion a year ago.

For the full year, net profit rose 73.1% to ₹19.4 billion, from ₹11.2 billion the previous year, while sales rose 20.9% to ₹95 billion from ₹78.3 billion in FY23.

The board of directors also declared a final dividend of ₹12.1 per share for the year.

Mazagon Dock Shipbuilders is diversifying its business by increasing its presence in underwater marine, heavy engineering equipment and offshore platforms.

It also plans to develop a greenfield shipyard at Navi Mumbai with a ship lift, wet basin, workshops, and ship repair facilities.

Strong financials versus competitors

Mazagon Dock Shipbuilders has stronger financials than its competitors, which continues to support its growth.

MDL's revenue has grown at a compounded annual growth rate (CAGR) of 17% in the past three years, while net profit has grown at a CAGR of 37%. Cochin Shipyard, on the other hand, has seen negative growth in both revenue and net profit.

While both companies have relatively low operating-profit margins, MDL's operating and net profit margins have tripled and doubled respectively in the past eight years.

This is reflected in the company's return ratios as well. MDL's return on equity (RoE) has increased from 14% in 2021 to 24.3% in 2023 and return on capital employed (RoCE) from 18.9% to 32.8%.

Cochin Shipyard, however, has seen its ratios dwindle.

How the stock has performed recently

In the past five days, shares of the company are up 4.7%. The stock is up 40% in the past month and around 63% in the past six months. It touched a 52-week high of ₹3,478 on 30 May 2024 and a 52-week low of ₹797.2 on 1 June 2023.

At the current price, the company trades at a price to earnings multiple of 44.1x.

What Mazagon Dock Shipbuilders does

Mazagon Dock manufactures warships, submarines, cargo and passenger ships for the defence sector. It also repairs ships for its clients.

It primarily manufactures for the defence sector and has built 802 vessels including 28 warships, ranging from advanced destroyers to missile boats and seven submarines.

It has also entered a new segment – manufacturing cargo containers – and has bagged an order for 2,500 containers from Container Corporation of India Limited.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com