Best Ship-Building Stocks to Invest In India

Increased Focus on Maritime Security

Defence Minister Rajnath Singh, during his visit to the Eastern Naval Command in Visakhapatnam, emphasized India’s focus on bolstering maritime security and enhancing the Navy’s presence in the Indian Ocean Region. This visit highlighted the Indian Navy’s growing strength, driven by expanding shipyards and an increase in aircraft carriers, which aims to secure the nation’s maritime borders and promote peace in the region. Singh outlined India’s ambitious goal of achieving Rs 50,000 crore in defence exports over the next five years, reflecting a strategic push towards strengthening naval capabilities.

The Navy’s role in ensuring free navigation, a rule-based world order, and regional stability aligns with Prime Minister Modi’s vision of Security and Growth for All in the Region (SAGAR). Singh commended the Navy’s operational readiness and humanitarian efforts, such as the rescue of 23 Pakistani nationals from Somali pirates, underscoring the Navy’s importance in India’s national security and international stature. This focus on maritime strength and security serves as a backdrop for the robust growth seen in India’s shipbuilding stocks.

Market Capitalization and Stock Performance

India’s three major shipbuilders, Mazagon Dock Shipbuilders Ltd., Cochin Shipyard Ltd., and Garden Reach Shipbuilders Ltd., are trading at record highs, gaining for three to five sessions at a stretch as of Tuesday. Together, these companies have added nearly Rs 1.54 lakh crore to their market capitalization in the past three years. Knowledge Marine’s market cap grew by 38 times compared to its market cap three years ago, followed by Mazagon Dock Shipbuilders Ltd., which increased 19 times, and Cochin Shipyard Ltd. and Garden Reach Shipbuilders Ltd., which grew 11.5 times.

Order Book and Investor Optimism

Currently, Mazagon Dock is sitting on an order book of over Rs 38,000 crore, while Garden Reach has an order book of over Rs 22,000 crore. Cochin Shipyard also boasts a similar quantum with an order book of Rs 22,000 crore. At current prices, almost all companies except VMS and Laxmipati Engineering are trading at a price-to-earnings (P/E) multiple higher than their three-year average. This indicates that investors are willing to pay a premium for future growth prospects. Cochin Shipyard is trading at a 6.1 times price-to-earnings ratio compared to its three-year historical P/E, followed by Garden Reach Shipbuilders & Engineers (GRSE) at 2.89 times, Mazagon Docks at 2.7 times, and Haryana Shipping at 2.25 times.

Price to Sales Ratios

Price-to-sales ratios vary considerably across the shipbuilding stocks. The top four stocks have high ratios, suggesting their valuations might be more based on future expectations than current sales. Conversely, VMS Industries and Inducto Steel have lower P/S ratios, indicating they may be undervalued based on their sales.

Sales and Profit Growth

Sales growth for most companies, except Haryana Shipping and Garware Marine, has been positive over the past three years, with Knowledge Marine leading the pack at 70.03%. Profit growth has also been robust across the board, with VMS Industries leading at 80% and Knowledge Marine at 71.44%.

Operating Profit Margin and Returns

Year-over-year OPM (Operating Profit Margin) growth data suggests that only the top three companies have been successful in maintaining operating margins on a yearly basis. Mazagon Dock has seen a 32.74% sales growth and a 47.07% profit growth over the past three years, with a 45.75% OPM growth year over year, and a return of 229.09% over the past year. Cochin Shipyard has experienced an 8.95% sales growth and a 10.05% profit growth, with a remarkable 104.78% OPM growth year over year, leading to a substantial return of 683.59% over the past year. Garden Reach Shipbuilders & Engineers (GRSE) has had a 46.58% sales growth and a 30.86% profit growth, with a 9.21% OPM growth year over year, resulting in a return of 260.04% over the past year.

Conclusion: Stocks to Watch

The Indian shipbuilding industry is experiencing a positive growth phase, as reflected in the rising market capitalizations of the listed companies. Investor sentiment is optimistic, with P/E ratios exceeding historical averages, indicating a willingness to pay a premium for future growth prospects. Sales growth across most companies indicates an expanding industry, but profit growth is uneven across companies.

Mazagon Dock, Cochin Shipyard, and Garden Reach Shipbuilders are the top contenders for watchlist, given their significant order books, robust sales, and profit growth. Knowledge Marine also shows promise with substantial market cap growth and high sales growth. Investors should keep a close watch on these stocks, considering their financial performance and market potential. While VMS Industries and Inducto Steel appear undervalued based on their price-to-sales ratios, further analysis is required to ascertain their long-term potential. Overall, the Indian shipbuilding sector presents lucrative investment opportunities backed by strong government support and increasing defense exports.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.