Cochin Shipyard Ltd (CSL) saw its shares decline by over 5% to Rs 1,224 on Wednesday, following a significant price target cut by Antique Stock Broking. The brokerage revised its target from Rs 1,671 to Rs 1,407, while maintaining a 'Hold' rating on the defence stock. This adjustment comes in response to the company's weak operational performance in the September quarter and overall H1FY27 results.
Antique's Rationale for Downgrade
Antique Stock Broking highlighted CSL's weak profitability, particularly an EBIT loss within its Shipbuilding division, as a primary factor weighing on overall margins. Despite revenue growth largely aligning with estimates, the company reported a sharp miss at the Ebitda and profit levels. The consolidated Ebitda margin fell by 250 basis points year-on-year to 4.1%, significantly below Antique's projections. Profit After Tax (PAT) experienced an even steeper decline, falling 50% year-on-year.
While the Ship Repair division demonstrated robust performance with 30% year-on-year revenue growth and a healthy 31% EBIT margin, its strong showing was insufficient to offset the muted 3% year-on-year revenue growth and profitability issues in the Shipbuilding segment. Consequently, Antique has lowered its earnings estimates for CSL by 13.7% for FY27, 12.1% for FY28, and 12.5% for FY29.
Valuations and Future Outlook
Antique noted that CSL's valuations, at 32 times and 27 times its estimated FY28 and FY29 earnings respectively, remain at a premium compared to its listed defence shipbuilding peers. This elevated valuation is seen as limiting near-term upside for the stock.
Despite the current challenges, Cochin Shipyard maintains a healthy order book estimated at Rs 21,900 crore, which provides medium-term revenue visibility. Key ongoing orders include ASW Corvettes, with remaining deliveries expected by H1FY29, and NG-Missile Vessels. Antique anticipates that the construction of Next Generation Missile Vessels (NGMV) will gain momentum from FY28-30, driving future revenue growth. Furthermore, CSL is the lowest bidder (L-1) for the Navy’s Next Generation Survey Vessel programme, valued at approximately Rs 5,000 crore, which is expected to further bolster its order book.