Cochin Shipyard Ltd - Q1FY21 Result Update - YES Securities

BUY (Target Rs429, Upside 27%)

Though Cochin Shipyard delivered weak Q1FY21 results owing to Covid-19 led disruptions, mgmt. seems confident of achieving flat top line growth with EBITDA margins of 19% in FY21E. It has healthy shipbuilding order book of Rs139bn (5.5x TTM sales). Order pipeline of ~Rs150bn includes, i) New Generation Missile Vessels, ii) Multi-purpose Vessels & iii) Offshore Patrol Vessels. Large ship-repair order of INS Vikramaditya (aircraft carrier) is expected to come either in FY22 or FY23. Est. FY21 sales mix, i) IAC: Rs20bn, ii) ASW SWC: Rs1.5bn, iii) Non-defence vessels: Rs6-7bn & iv) Ship-repairing: Rs5-5.5bn. CSL doesn't expect significant impact on margins of ASW SWC as risk of unfavorable currency would be mitigated through increase in localization.

CSL is targeting for ship-repairing revenues of Rs10bn+/ Rs25bn+ with sustainable margins of 25% by FY23E/ FY30E as new facilities (Mumbai, Kolkata and A&N) commence operations and commission of ISRF frees up capacity at the existing ship repair dock to undertake largescale ship repair work. Given healthy order backlog, CSL has shipbuilding revenue growth visibility till FY23 with planned execution of Rs65bn from IAC. It stands to benefit from indigenous defence manufacturing, which would result in faster clearances & timely executions of new projects. Government's focus on development of inland and coastal waterways infra is expected to spur demand of ships for CSL over the long term. Expect EBITDA growth of 18% in FY21E-23E, however higher depreciation & lower other income would lead to 7% EPS CAGR. We expect CSL to yield benefits in long term from ongoing investments of ~Rs28bn. Our estimates remain unchanged. Retain BUY with DCF based TP of Rs429 (Assumptions: Sales CAGR of 4.5% over FY20-FY30E, NOPAT margin: 9.3%, CoE: 12%, Invested capital turns: 2x).

Shares of Cochin Shipyard Ltd was last trading in BSE at Rs.338.25 as compared to the previous close of Rs. 338.25. The total number of shares traded during the day was 14091 in over 748 trades.

The stock hit an intraday high of Rs. 341.3 and intraday low of 335.6. The net turnover during the day was Rs. 4760936.

Source : Equity Bulls

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