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Last Updated : Mar 01, 2019 12:18 PM IST | Source: Moneycontrol.com

Weekly Tactical Pick: Garden Reach Shipbuilders & Engineers

At the current market price, the stock is offering a dividend yield of close to 5 percent. Besides dividend, GRSE is attractively valued at 10 times its FY19 estimated earnings

Jitendra Kumar Gupta @jitendra1929
 
 
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Moneycontrol Research Team

As a tactical pick, we are recommending Garden Reach Shipbuilders & Engineers (GRSE).

Shipbuilding typically has a very long execution cycle and when it comes to defence shipbuilding it can be even much longer in light of technical changes. Because of the same, GRSE, the naval shipbuilder, has accumulated an order book of close to Rs 20,000 crore, or about 15 times annual sales.

Back on the growth path

Thankfully, 10 of these high value delayed assignments are due for delivery. This is also a reason that December quarter sales saw a spurt of 116 percent on a year-on-year basis and quarter-on-quarter basis. Nevertheless, this is just starting and there is lot more to come in the coming quarters as some of these projects get executed and approved by the Defence Ministry. The market is gradually taking note of these improvements, which will fully reflect in coming quarters.

Earnings trigger

With improving scale, the company would also report strong growth in earnings as operating margin improves.

Besides, a large amount of funds, which are stuck for the said projects, would now get released. This will improve its cash flows and cash in hand. This will augur well both in terms of treasury income and dividends in the coming years. During the December quarter, the company earned other income of close to Rs 41.5 crore, which is over 4 percent of its current market capitalisation of Rs 1,004 crore.

At the current market price, the stock is offering a dividend yield of close to 5 percent. Besides dividend, GRSE is attractively valued at 10 times its FY19 estimated earnings.

For more research articles, visit our Moneycontrol Research page

Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here
First Published on Mar 1, 2019 12:18 pm
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