As Cochin Shipyard continues to break records in the green territory, investors are left pondering the looming question-how much is too much for this soaring stock?
Cochin Shipyard once again hit a new high at Rs 2,924 on Friday, up by nearly 7.5 per cent. Interestingly, the rally witnessed in the multibagger defence stock comes at a time when the broader market was experiencing a correction after consecutive bull run.
While BSE Sensex surpassed the 80k psychological level, NSE nifty touched the 24,400 mark.
On a year-to-date basis, Cochin Shipyard has delivered a robust 316 per cent return on the National Stock Exchange. Despite these massive gains, the stock's lofty PE ratio of 95—the highest in the industry—raises eyebrows, especially when compared to peers like Mazagon Dock Shipbuilders and Garden Reach.
Industry-wise, the overall outlook of defence sector seems buoyed by positive winds, as the shipping ministry is set to launch a new shipbuilding and repair policy under the 100-day action plan of Maritime India Vision 2030, according to a PTI report.
As Cochin Shipyard continues to break records in the green territory, investors are left pondering the looming question, how much is too much for this soaring stock?
Can Cochin Shipyard Remain Afloat Despite Being Overweight?
The company saw a 61 per cent surge in its consolidated revenue figure from Rs 2571.57 crore in FY23 to Rs 4140.63 crore in FY24, as per their investor presentation. Whereas, PAT (Profit after tax) stood at Rs 1070.94 crore, up by nearly 155 per cent from Rs 418.44 recorded in FY23.
Notably, the company was able to decrease its net debt massively from Rs 132 crore to just Rs 23 crore in the last financial year.
As per a report by ICICI Direct, the ship manufacturer also has a strong pipeline in both defence and commercial shipbuilding space, including repair and exports. Around Rs 9,000 crore worth of shipbuilding contracts are expected to be tendered in the medium term, with an additional Rs 84,000 crore in the request for proposal (RFP) stage.
In the defence segment, the Indian Navy's future warship procurement plans present massive opportunities for Cochin Shipyard, including a potential Rs 40,000 crore order for another aircraft carrier.
Is there some steam left in the stock?
The defence sector has altogether witnessed a bull run. While Mazagon Dock has seen a staggering 146 per cent surge year-to-date, Garden Reach Shipbuilders & Engineers have delivered a strong 209 per cent return on the National Stock Exchange.
However, despite their robust market caps many defence companies have lower free-float, which could impact liquidity.
In a recent announcement, Defence Minister Rajnath Singh highlighted India’s unprecedented growth in defence production. "India has registered the highest ever growth in the value of defence production in 2023-24. The value of production has reached to Rs. 1,26,887 crore in 2023-24 which is 16.8 per cent higher than the value of production of previous financial year," Singh said in a social media post.
"The current valuation of Cochin Shipyard is high, indicating that the stock might be overvalued at present levels," Dr. Ravi Singh, SVP - Retail Research, Religare Broking Ltd said.