This Small Cap Miniratna Stock Grew More Than 90% In 3 Months, Buy For 17% Gains: ICICI Direct

Leading brokerage firm ICICI Direct in its recent report has placed a "Buy" call to Cochin Shipyard Limited (CSL), a Miniratna Category -1 company, for a target price of Rs 745 per share. The brokerage claims a potential upside of up to 17% if the stock is purchased at the current market price, considering the given target price. It is a small-cap company with a market capitalization of Rs 8,397.54 crore. It is a Ship Building & Allied Services Sector company under the Ministry of Ports, Shipping, & Waterways, Government of India.

Cochin Shipyard (CSL) was incorporated in 1972 as a Government of India company, with the first phase of facilities coming online in 1982. CSL is the largest shipbuilding and maintenance facility in India. The yard has facilities to build vessels up to 1.1 lakh tonnes and repair vessels up to 1.25 lakh tonnes annually. CSL has secured shipbuilding orders from internationally renowned companies from Europe and the Middle East in the recent past.

Stock Outlook & Returns

The stock last traded at Rs 638.40 apiece after touching its fresh 52 week high at Rs 654.60 per share. It surged 8.81% today as compared to its previous close of Rs 586.70 apiece. The stock's 52 week low is Rs 280.75, recorded on 8 March 2022.  
The stock grew 5.62% in the past 5 days, whereas, in the past 1 month it grew 25.73%. The stock over the past 3 months grew 91.42%. It has given 70.65% in the past 1 year. In 3 and 5 years, it has given a maximum 56.84% and 13.3% positive returns. 

Q2FY23 Results

Lower than expected performance in the ship-building segment.  Revenue for the quarter was at Rs 683.2 crore, down 1.9% YoY on account of muted execution in ship-building segment. Revenue was up 55% QoQ.  Absolute EBIDTA came in at | 135.3 crore, down 17.7% YoY on higher RM and others cost. EBITDA margin declined 382 bps YoY mainly due to contraction in margin in the ship-building segment. PAT was at Rs 112.8 crore, down 14.1% YoY but up 167.4% QoQ.

Buy for a target price of Rs 745 per share

Execution is expected to improve significantly over FY24-25E, which would drive revenues. Margins are also expected to improve led by operating leverage benefits. "We maintain our BUY rating on the stock. We value CSL at Rs 745 i.e. 15x PE (FY25E)," ICICI Direct has said. 

Key triggers for future price performance

Order backlog is estimated at ~Rs 21000 crore (~8x TTM revenues). Majority of the large contracts in the order book are expected to witness meaningful execution from FY24E onwards. Healthy order book and strong pipeline of projects in the coming two to three years from Indian Navy and other international customers. Capacity expansion for ship-repair activities to help get more orders in this segment, which is also a higher margin business. 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.