ICICI Direct recommended is bullish on Cochin Shipyard has recommended buy rating on the stock with a target price of Rs 455 in its research report dated May 28, 2019.
ICICI Direct's research report on Cochin Shipyard
Cochin Shipyard (CSL) reported mixed Q4FY19 numbers. Shipbuilding, shiprepair revenues grew 31.4%, 29.7% respectively. However, shiprepair segment reported EBIT loss due to initial expenses at the newly established Mumbai port facility coupled losses incurred on the ONGC rig (Sagar Bhusan). Shipbuilding segment reported strong EBIT margins of 27.4% whereas the shiprepair segment reported margins of -5.6%. Shipbuilding and shiprepair segment contributed 84% and 16% to the topline, respectively. Overall, revenues increased 31.1% YoY to Rs 787.6 crore. We expected revenue of Rs 620.5 crore for the quarter. The company reported EBITDA margins of 14% vs. 19.2% YoY. Gross margins came in at 35.2% vs. 45.2% YoY (raw material costs increased 55.2% YoY). Employee expenses declined 17.5% YoY. Absolute EBITDA de-grew 4.4% YoY to Rs 110 crore. Other income increased 70.6% YoY to Rs 65 crore. Depreciation expenses declined 2.9% YoY. Accordingly, PAT grew 6.4% YoY to Rs 97.5 crore.
CSL has a healthy order book of Rs 8536 crore (adding ship repair orders of ~Rs 250 crore). It is also likely to receive order for phase III of IAC, which is likely to be ~Rs 10,270 crore (Rs 3000 crore as fixed price contract and Rs 7270 crore as cost-plus contract). This takes the total order backlog to Rs 18,806 crore. In FY20-21E, we expect CSL to book significant revenues on the SB side, due to execution of current order book plus lumpy execution from the ‘cost-plus’ portion of IAC phase III. Thus, SB and SR revenues are likely to grow at 25.9% and -3.2% CAGR respectively, in FY20-21E. We expect overall margins to get diluted in FY20E-21E due to higher contribution from SB side. Thus, we estimate revenue, EBITDA and PAT CAGR of 18.5%, 14% and 6.8%, respectively, in FY20-21E. We value CSL at 11x FY21E earnings to arrive at target price of Rs 455/share. We maintain BUY recommendation on the company.
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