ICICI Securities sees sharp downside for Mazagon Dock stock once again; will the brokerage be right this time?

Mazagon Dock Shipbuilders stock is up 90 percent year-to-date.

Extending the streak of maintaining a 'sell' recommendation on Mazagon Dock Shipbuilders, brokerage firm ICICI Securities also anticipates a sharp downside of around 77 percent for the stock. Amid ongoing concerns about the stock's valuations, ICICI Securities is one of the few brokerages consistently issuing highly bearish forecasts for the defence firm, only to see the stock defy its predictions every single time.

It will be intriguing to see if ICICI Securities finally hits the mark with its latest prediction, especially as voices calling out the lofty valuations of the stock grow louder.

In its recent note on Mazagon Dock Shipbuilders, ICICI Securities set a price target of Rs 1,165 for the stock, which implies a potential correction of around 77 percent from its August 16 valuations. Since then, the stock has fallen prey to sharp profit booking as it tanked around 14 percent in two sessions. At 12.15 pm, shares of Mazagon Dock Shipbuilders were trading 8.4 percent lower at Rs 4,326 on the NSE.

However, what's interesting is that this isn't the first time when ICICI Securities has retained its 'sell' call on Mazagon Dock while forecasting a sharp downside. The brokerage anticipated a 73 percent downside in the scrip in May 2024 when it was trading near Rs 3,300 levels, recommending investors to sell Mazagon Dock. The twist in the story? The stock has surged around 50 percent since then.

The same story unfolded in November last year as well, when the stock price of Mazagon Dock was Rs 2,000 and ICICI Securities predicted it to drop 60 percent. For context, the stock has skyrocketed over 140 percent from those levels.

Another prediction that went wrong was rolled out in July of 2023 when Mazagon Dock was trading around Rs 1,500 and ICICI Securities had forecast it to slide 60 percent to Rs 600. The stock took a completely different course ever since and is now trading more than three times the price, within the span of just a little more than a year.

The biggest contention that makes ICICI Securities bearish over Mazagon Dock is its overstretched valuations. While those concerns are valid and frequently echoed by market experts, Deepak Shenoy, Founder and CEO of CapitalMind Wealth PMS, advises caution against blinding following brokerage reports. He feels that opportunities can be lost if one believes in reports just as is.

"My favourite thing is: don't predict, respond. We've scaled down our holding in the stock only recently, but rode it all the way with a very deep trailing stop, even though it appears that the valuation is stretched. Have learnt the hard way to not sell on imaginations of valuation alone," he said in a post on social media platform X (formerly Twitter.)

Aside from that, ICICI Securities also paints a bright picture when it comes to the shipbuilding company's growth prospects. It anticipates high margins for Mazagon Dock to continue through FY27, driven by major deliveries scheduled over the next 2-3 years.

"However, as Mazagon Dock begins executing new orders, revenue recognition will likely become milestone-based, which could lead to a reduction in EBITDA margins to 12-15 percent," ICICI Securities wrote.

Despite this expected tapering, the brokerage feels margins are likely to remain higher than those from the FY17-FY23 period, thanks to the cost efficiencies and internal competencies the company has developed over time.