Cochin Shipyard (CSL) posted dismal Q2FY21 numbers as travel restrictions led to unavailability of service engineers for trials. Overall margins were diluted on account of below par execution leading to negative operating leverage. Revenue for the quarter was at Rs. 657.4 crore, down 32% YoY. Shipbuilding (SB) revenue fell 28.5% YoY to Rs. 563.5 crore while shiprepair (SR) segment contracted 14.3% YoY to Rs. 93.8 crore in the quarter. On a segmental profitability front, SB reported EBIT of Rs. 122.5 crore whereas SR clocked an EBIT of Rs. 25.68 crore. SB, SR segments contributed 85.7%, 14.3% to the topline, respectively. Although gross margins expanded ~335 bps largely on account of lower sub-contracting charges, negative operating leverage led EBIDTA margin to contract ~200 bps YoY. Hence, EBIDTA declined 39% YoY to Rs. 125.8 crore, down 39% YoY. Ensuing PAT was at Rs. 108.4 crore, down 48% YoY (vs. I-direct estimate of Rs. 144.5 crore). For H1FY21, CSL generated CFO of Rs. 1399.5 crore. High CFO generation was largely due to improved working capital.
Valuation & Outlook
CSL continues to be one of the top-tier shipyards in the country with ample capacity, capability & the orderbook to support it. Recent tie-up with Fincantieri would help CSL gain technological inputs, design support & collaboration in high end/new gen defence vessels. Further, a solid order book of Rs. 13862 crore, healthy cash balance of Rs. 1400 crore (ex-advances) and robust order pipeline provides growth visibility for the company. A growing company, with high dividend pay-out & debt free b/s makes CSL an attractive bet trading at 7.4x FY22E EPS. We maintain our BUY rating on the stock. We value CSL at 9x FY22E EPS and revise our target price to Rs. 435.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_CochinShipyard_Q2FY21.pdf
Shares of Cochin Shipyard Ltd was last trading in BSE at Rs.355.85 as compared to the previous close of Rs. 358.5. The total number of shares traded during the day was 24708 in over 1051 trades.
The stock hit an intraday high of Rs. 363.4 and intraday low of 352.7. The net turnover during the day was Rs. 8859210.