Sell This Defence PSU Stock That Gives Rs 6/Share Dividend, Surges 17.84% In A Day

The stock price of Mazagon Dock Shipbuilders Ltd has surged by a whopping 17.84% to close at Rs 986.55 per share in Monday's trading session. However, ICICI Securities has a "sell" rating on the stock with a target price of Rs 600.

The suggestion of a sell rating is on account of the company's declining order book status, despite the company recommending a final dividend of Rs 6.86 per share in addition to Rs 9.10 per share paid earlier for the financial year FY2023.

Mazagon Dock Shipbuilders is a small cap company operating in the defence sector and is a public sector undertaking managed by the Ministry of Defence. It is a shipyard situated in Mazagaon, Mumbai.

It manufactures warships and submarines for the Indian Navy and offshore platforms and associated support vessels for offshore oil drilling. It also builds tankers, cargo bulk carriers, passenger ships, and ferries. The market capitalization of Rs 19,897.73 crore.

ICICI Securities' reasons for the "sell" rating include:

• The company's order book is declining, with new orders in FY23 expected to be lower than in FY22. The order book at March 23 end was Rs 385 billion, likely to get executed by FY27.

• The company is facing delays in executing orders, due to factors such as delays in land acquisition and approvals.

• The long gestation period implies free, cashflow is likely to decline FY25E onwards with the unwinding of contract liability, resulting in cash depletion.

• The company's margins are under pressure, due to rising input costs.

• Overall, ICICI Securities believes that Mazagon Dock Shipbuilders is a risky investment and that investors should avoid the stock.

Valuation & Rating

"Mazagon Dock Shipbuilders' lack of order visibility offsets its near-term robust revenue estimate. As a result, we perceive unfavourable risk-reward at CMP. We maintain SELL on Mazagon Dock Shipbuilders Ltd stock with an unchanged target price of Rs 600 (based on DCF methodology)," ICICI Securities said in its research note.

Scrip Price Movement

In the last one year, the share price has grown exponentially by 258.68% and since listing in October 2020, it has soared 444%. The 52-week high is at Rs 1,004.60 per share and the 52-week low is at Rs 229.65 per share.

Disclaimer

The stock has been picked up from the brokerage report of ICICI Securities. Greynium Information Technologies, the author or the brokerage firm will not 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.