70% Dividend Payout: Miniratna Defence Stock Cochin Shipyard Falls 10% On Ex-Dividend Date; Buy OR Sell?

A popular defence stock holding Miniratna status, Cochin Shipyard was in deep red on the day it turned ex-dividend. On Monday, Cochin's share price nosedived as much as over 10% by hitting an intraday low of Rs 791.10 apiece on BSE. The company fixed February 12th as the record date to determine eligible shareholders for its upcoming dividend payout of 70%.

Cochin Shipyard Share Price:

The stock price ended at Rs 805.65 apiece, down by 8.73% on BSE with a market cap of Rs 21,195.10 crore. The midcap fell by 10.4% on Monday.

Nonetheless, Cochin is still a multi-bagger. Its stock price is still trading higher by 292% from its 52-week low.

Cochin Shipyard Dividend:

Cochin has declared a second interim dividend of Rs 3.5 per share having a face value of Rs 5 each fully paid-up (70%) for the financial year 2023-24. For the same, Cochin fixed Monday, February 12, 2024, as the Record Date for determining eligible shareholders. The record date was also its ex-dividend date.

Earlier, Cochin turned ex-dividend on November 20, 2023, for the first interim dividend of 80% amounting to Rs 8 per share for FY24. In FY23, the company paid dividends up to 170% amounting to Rs 17 per share.

Should You Buy Cochin Shipyard Share Price?

In its latest research note, Kotak Institutional Equities said, "CSL hosted its 9MFY24 earnings call; the key takeaways are: (1) No guidance on IAC-2, which is a sharp contrast to the 2QFY24 commentary, (2) muted revenue guidance of 12-15% for FY2025, partially offset higher normalized margins of 18-19% (versus 15-16% earlier) beyond FY2024, driven by a mix shift toward ship repairs and (4) near-term prospects down to Rs90 bn, with no major ship-building order wins, indicating muted ordering in FY2025."

Kotak's note highlighted that on the call, management refrained from providing any further update on the prospective IAC-2 order. This is in stark contrast to the 2QFY24 earnings call, in which CSL's management indicated that the repeat IAC order is very close to being considered by the Defense Acquisition Council.

Further, the brokerage mentioned that the company reiterated its FY2024 revenue guidance of ~Rs5-37bn; however, it indicated very modest guidance of 12-15% for FY2025 versus our initial expectation of 25%, implying moderate execution of the existing order backlog over the near term. This was offset by an upward revision to normalized margins beyond FY2024 at ~18-19% versus prior guidance of ~15-16%.

Also, it said, the upward revision in guidance was primarily driven by the increasing mix of shortcycle ship repair revenue over the medium term (CAGR of 22% in ship repair revenue expected in the next 4-5 years). Recently, CSL won two ship repair contracts worth Rs8 bn and expects such contracts to continue over the medium term. With the new ship repair facility inaugurated in January 2024, the company has additional capacity to undertake ship repair contracts.

The brokerage also believes that near-term order prospects are challenging for Cochin.

It said, "CSL's pipeline at end-3QFY24 is now down to Rs90 bn from defence and nondefense customers. This is significantly below Rs160/130 bn at end 1QFY24/2QFY24. The company has lost three recent contracts (Fast Patrol Vessels, Ocean Research Vessel and NG Offshore Patrol Vessels) to other shipyards. All indicating muted near-term ordering over the next 12 months. The medium-term pipeline remains steady at Rs840 bn."

On the valuation, Kotak's note said, "We lower our revenue estimates by 10%/21% for FY2025/26, driven by management commentary on modest near-term execution. We raise our margin estimates by 250 bps owing to revised management commentary. As a result, we revise our FY2025/26 estimates by 3%/(-)7%. No change to our FY2024 estimates. Our FV decreases to Rs540 from Rs560."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.