Mazagon Dock Shipbuilders Rallies 7% After Getting Order To Build Hybrid Power Vessels

Shares of State-run Mazagon Dock Shipbuilders Ltd. (MDL) gained 7 per cent to Rs 2,219.55 on the BSE in Tuesday’s intra-day trade after the company said it signed Letter of Intent (LOI) with an European client for construction of 6 firms and 4 optional units of 7500 DWT (Deadweight Tonnage) MultiPurpose Hybrid Power Vessels. The prices for which would be firmed up at the time of Signing of Contract, MDL said.

The company on Monday (October 9) said it has signed a letter of intent (LoI) with a European client. The LoI outlines plans for the construction of six firm units and four optional units of 7,500 DWT multi-purpose hybrid power vessels.

The prices of these vessels will be finalised at the time of signing the official contract, according to a stock exchange filing.

ICICI Securities estimate contract size of Rs 700-800 crore for 6 vessels. Order backlog is estimated to be at around Rs 37500 crore (4.8x TTM revenues). MDL had been exploring export opportunities in the defence or commercial shipbuilding segment and with this contract, the brokerage firm believe that more opportunities would emerge for the company in future.

As per the industry reports, Europe is showing strong traction in the commercial shipbuilding segment as 2000-2500 old vessels are expected to be replaced with electric/hybrid vessels in the next 10 years. The brokerage firm believe that this presents a huge opportunity for Indian shipyards in the coming period.

In September, the company signed a master ship repair agreement (MSRA) with the US government represented by NAVSUP Fleet Logistics Center (FLC) Yokosuka.

This is a non-financial agreement and there are only two shipyards in the country, including the company who have signed MSRA. The agreement is expected to open up voyage repairs of US Navy Ships at MDL.

As of the June quarter, the government still holds over 84 per cent stake in the shipbuilding company. Based on the current market price, the excess government stake in the company is valued at nearly Rs 4,000 crore.

Recently, the state-run shipbuilder raised its revenue growth guidance for the financial year 2024. The company now expects revenue growth of 12-15 per cent for the current financial year, compared to the 10-12 per cent it guided for earlier.

The company’s order book has been declining over the last five years, starting from over Rs 55,000 crore in financial year 2019 to Rs 39,000 crore currently.

Mazagon Dock had recently signed a master ship repair agreement with the US government. The non-financial agreement is expected to open up voyage repairs of US Navy Ships at Mazagon Dock.

Meanwhile, in past six months, the stock price of MDL has zoomed 220 per cent, as against 10 per cent gain in the benchmark index.

MDL being a defence PSU, primarily engaged in construction of warships and submarines for Indian Navy, once delivered, MDL have no control over its products i.e. warships and submarines. The company is principally engaged in building and repairing of ships, submarines, various types of vessels and related engineering products for its customers.

MDL is exploring the possibility for setting up a green field shipyard at its Nhava Yard in a phased manner with short term and long term developments plan. Short term development will enable MDL to facilitate the immediate use of the existing infrastructure for shipbuilding and ship repair business whereas long term development will facilitate the construction of large size vessels and submarines including major refit and repairs.

To undertake the construction of advanced and next generation vessels, MDL intends to build a New Floating Dry Dock of 12000T capacity.