1:2 Split, 70% Dividend YTD: ICICI Direct Gives Buy On Cochin Shipyard; Miniratna Stock Up 280% In 1 Year

Miniratna shipping company, Cochin Shipyard's share price are likely to sail upward in FY25. Cochin is a multi-bagger with gains of up to 280% in a year on BSE. Brokerage ICICI Direct is the latest to recommend buying this PSU stock due to strong capabilities in ship-building, order backlog, and robust inflow opportunities.

YTD, Cochin shares have been on the bulls-side, while it carried a 1:2 stock split and 70% dividend payout so far in the current year.

Cochin turned ex-split on January 10, 2024, for a ratio of 1:2. It means that the face value of Cochin Shipyard which at Rs 10 was halved to Rs 5 each. This led to an increase in a number of shares and improved liquidity in Cochin.

Further, although, as per Trendlyne data, Cochin has delivered up to 15 dividends since August 2008, the stock turned ex-dividend for 70% payout in so far in 2024.

Last month, Cochin turned ex-dividend for 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. 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.

On the current market price, Cochin's dividend yield is around 1%.

Coming to share price, Cochin ended FY24 at Rs 871.75 apiece with a market cap of Rs 22,934.07 crore on BSE. In FY24 fiscal, Cochin's stock has skyrocketed by over 266% from March 31, 2023 levels. On the last trading day of FY23, the stock was merely around Rs 237 levels.

Meanwhile, in FY24, Cochin touched a 52-week high and low of Rs 944.65 and Rs 208.05 apiece.

And on the back of a robust growth outlook, brokerage ICICI Direct has set the highest target price on Cochin to Rs 1,055 per share.

In its research note, ICICI Direct said, "We expect CSL to witness significant YoY growth in revenues & profitability over FY24-26E, led by execution pick-up in both the segments and increasing share of margin accretive ship-repair segment. We estimate revenue and PAT to grow at ~23% & ~36% CAGR respectively over FY23-26E as against the de-growth seen over FY20-23."

Further, the brokerage added, "Valuations look attractive considering the multiple growth drivers. We value CSL at ₹ 1055 i.e. 36x FY26E P/E."

On its investment rationale, ICICI Direct highlighted two key pointers for Cochin Shipyard:

Strong capabilities in ship-building & ship repair; execution pick-up of strong order-backlog to drive growth:

With advanced state-of-the-art infrastructure (capacity of up-to 110000 DWT in ship-building and up to 125000 DWT in ship-repair), CSL is adept at executing diversified projects in both these segments. With the commissioning of a new dry dock facility and International Ship Repair Facility (ISRF), the company's capabilities have increased significantly.

Also, the brokerage pointed out that an order backlog of ~₹ 22300 crores as of Dec-23 (7x TTM revenues) with a pick-up in execution, gives strong revenue growth visibility. Large-scale contracts for the Indian Navy (like anti-submarine corvettes, next-gen missile vessels, post-commission works of Indigenous Aircraft Carrier) are expected to witness meaningful execution over FY25-26E. Moreover, execution of commercial vessel contracts (20% of order book) is also expected to pick up considerably over FY24-26E.

2. Order inflows opportunity remains robust:

About ₹ 9000 crore worth of shipbuilding contracts are in the pipeline where tenders are expected to be floated in the medium term. Apart from these, ₹ 84000 crore worth of contracts are in the RFP stage as per the management.

In the defence segment, ICICI Direct's note said, "we believe that India Navy's future plan of warships procurement presents a strong prospects for CSL. Discussions on another aircraft carrier are also in advanced stages and offers additional order opportunity of ₹ 40000 crore. In commercial segment,
electric vessels opportunity emerges from Europe as 2500 vessels are scheduled to be replaced with green vessels. In ship-repair segment too, company sees sizable opportunity in both defence & commercial industries."

During Q3FY23, on a consolidated basis, the company earned a net profit of Rs 244.38 crore, higher than Rs 110.40 crore in Q3 of FY23 and Rs 181.62 crore in Q2FY24. Meanwhile, revenue from operations stood at Rs 1,056.39 crore in the third quarter of the current fiscal, as against revenue of Rs 641.65 crore in Q3FY23 and Rs 1,011.71 crore in Q2FY24.

Holding a Miniratna status, Cochin Shipyard has emerged as a forerunner in the Indian Shipbuilding & Ship repair industry. This yard can build and repair the largest vessels in India.

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.