Mazagon Dock Shipbuilders reported better than expected margins and profitability

News:

Revenue from operations for the quarter increased by 8.4% YoY to Rs 1702.4 crore (vs. I-direct estimate of Rs 1884.1 crore). However, the revenue declined by 23.7% on sequential basis as the execution during the quarter remained slower than expected. H1FY23 revenue growth stood at 41.2% YoY; mainly led by strong execution seen during Q1FY23

·         Gross margin stood at 30.3% during the quarter which contracted by 407 bps YoY as the total raw material cost has increased 15.1% YoY

·         EBITDA margin improved by 149 bps YoY to 6.9%; better than our estimate of 5.5%. This was primarily on account of lower than expected others cost which declined by 23.1% YoY. However, the margins contracted by 87 bps on sequential basis

·         EBITDA increased by 38.3% YoY to Rs 117.8 crore (vs. I-direct estimate of Rs 103.6 crore) led by growth in revenues with improvement in EBITDA margins. H1FY23 EBITDA is up by 87.5% YoY led by strong revenue growth during the period with margins improvement (H1FY23 EBITDA margin improved by 183 bps YoY)

·         Other income increased by 81.6% YoY to Rs 163.6 crore (higher than our estimate). PAT increased by 58.4% YoY to Rs 213.9 crore (as against our estimate of Rs 136.3 crore) led by strong growth in EBITDA and other income. H1FY23 PAT is up by 85.4% YoY

View:

 The company’s order book stood at Rs 43,343 crore as of August 2022 (6.4x TTM revenues), of which Rs 19,795 crore of backlog is in Project-17A (Nilgiri class frigates), Rs 18,897 crore in Project-15B (Visakhapatnam class Destroyers), Rs 4,400 crore in Project-75 (Kalvari class submarines). We believe that execution has picked up considerably in these three major projects (led by increasing procurement of raw material and components from domestic sources post notification of positive indigenisation lists) which would drive the revenue growth over the next 2-3 years. Moreover, there is a strong pipeline of projects under consideration for Indian Navy (with an estimated cost of Rs 1.8 lakh crore) like next generation destroyers, next generation frigates, conventional submarines and next generation corvettes. This provides strong opportunity for Mazagon Dock as many of these projects are likely to be placed with the company. 

Impact:

Positive