Cochin Shipyard Ltd (CSL) shares experienced their most significant drop in two years on Friday, with the stock tanking over 9%. The defence sector stock closed 9.40% lower at Rs 1381.50, causing the firm's market capitalization to fall to Rs 36,344 crore. This sharp decline indicates a bearish sentiment, with shares trading below their key moving averages.
The catalyst for the substantial fall was the company's announcement that it expects its Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) margins to moderate and stabilize at around 14%. This contrasts with the 17% recorded in the June quarter and 16% projected for FY26. Cochin Shipyard clarified that historically elevated margins were partly due to high-margin nominated orders and income from surplus cash holdings, factors now expected to normalize.
In response to the revised outlook, brokerage firm ICICI Direct Research downgraded Cochin Shipyard stock from 'Buy' to 'Hold'. The brokerage cited expectations of moderating company margins and assigned a price target of Rs 1,590 per share, suggesting a potential 14% upside. They project a revenue Compound Annual Growth Rate (CAGR) of 12% for CSL over FY26-28E, driven by steady execution, but an EBITDA CAGR of only 6% due to a higher proportion of lower-margin contracts, as guided by management.
Another brokerage, Antique, also maintained a 'Hold' rating on Cochin Shipyard stock, setting a target price of Rs 1671. Antique believes that the stock's current valuations already price in a more optimistic execution outlook than what recent quarterly performance suggests. They also noted that CSL trades at a significant premium compared to peers like Mazagon Dock Shipbuilders.
Despite the margin moderation, Cochin Shipyard anticipates its revenue to grow by approximately 12% in FY27, with potential acceleration to 15%. However, the company's blended margin guidance came in about 300 basis points lower than earlier estimates by firms like Kotak, further contributing to investor concern.