Mazagon Dock stock hits lifetime high on bagging 'Navratna' status

Shares of state-owned public sector unit (PSU) Mazagon Dock Shipbuilders Ltd hit a lifetime high today after the company received a 'Navratna' status from the government. Shares of shipbuilding & allied services company opened a gap up at ₹4,125 on the BSE, in line with the broader market, and surged to all-time high at ₹4,269.75, which is 7% up from yesterday's close.

At 1.18 PM, as many as 5.03 lakh shares were changing hands at counter against the two-week average of 2.92 lakh. The rally in the Mazagon stock share has pushed its m-cap up to ₹83,810.26 crore. In an exchange filing on Tuesday evening, Mazagon said the Department of Public Enterprises (DPE) on June 25, 2024, has approved the proposal for the grant of "Navratna" status to Mazagon Dock.

Before this, the Indian Renewable Energy Development Agency Ltd (IREDA) was granted the 'Navratna status' by the government on April 26, 2024. Both of these PSUs join other companies like Oil India, Bharat Electronics, Container Corporation of India, IRCON, RVNL, NMDC, RCF, NALCO, HAL, and Shipping Corporation of India, among others, which have been granted the "Navratna" status.

Navratna status and benefits

The central public sector enterprises, which are Miniratna I, Schedule ‘A’, and have obtained ‘excellent’ or ‘very good’ MOU ratings in three of the last five years and have a composite score of 60 or above in performance indicators like net profit, cost of services, PBDIT to capital employed, PBIT to turnover, earning per share, and inter-sectoral performance, are eligible for the Navratna status.

The 'Miniratna Category-I CPSEs' are those which have made a profit in the last three years continuously, pre-tax profit is ₹30 crore or more in at least one of the three years and have a positive net worth. The grant of “Navratna” status leads to an enhanced delegation of powers, more operational freedom and financial autonomy, which gives a huge impetus to PSUs' progress.

Revenue, stock performance & analyst view

Mazagon Dock's revenue in Q4 FY24 (January-March) was recorded at ₹3,103.65 crore, while its full-year revenue surged to ₹9,466.58 crore. The company's Q4 profit came in at ₹654.33 crore, while the full-year profit stood at ₹1,845.43 crore. The earnings per share or EPS came in at ₹32.44 and ₹91.50 for Q4 and full year, respectively.

It reported Q4FY24 EBITDA of ₹520 crore, up 1.5x YoY, while EBITDA margin was recorded at 16.9% vs 10.1% in Q4 FY23) on refund of LD charges worth ₹140 crore, operating leverage advantage, lower subcontracting and other expenses.

Mazagon Dock Shipbuilders has been a blockbuster share, rising more than double (231%) in the past year. Its YTD (year-to-date) gains stand at 81.72% and six-month gains are 81.81%. The PSU share has seen 32.70% and 2.95% rise in the past month and week, respectively.

Amid the company's better-than-expected Q4FY24 performance, brokerage ICICI Direct in its last month's report said the company's margins are likely to remain at elevated levels in FY25. "The company has planned capex of INR 25-30bn over the next 3-4 years to develop infrastructure facility. In FY25, the company plans to deliver: a) the fourth destroyer by Q3FY25, b) the first frigate (P17A program) by end-CY24 and c) the last submarine. Further, management is expecting FY25 to be the peak revenue booking year of the current order book."

Considering this, the brokerage had a 'sell' call on the stock, with a target price of ₹900, with key risks being higher margin than expected, higher than expected order value, and repeat orders of frigates, which we have not accounted for.