WEAK EXECUTION IMPACTS REVENUES - COCHIN SHIPYARD LATEST QUARTERLY RESULT

Cochin Shipyard – Q3FY23 First Cut

(CMP: Rs 479: MCap: Rs 6300 crore)

Q3FY23 Earnings Summary

Revenue came in at Rs 641.7 crore (down 32.7% YoY); lower than our estimate of Rs 962.4 crore. Both the segments, shipbuilding and ship-repair, have witnessed weak execution and reported decline in revenues by 36.7% YoY and 19.6% respectively during the quarter. Sequentially, the total revenue is down by 6.1% (ship building revenue is down 12.5% QoQ while ship-repair revenue increased 15.8% QoQ)

Gross margin stood at 47%; improved substantially from 29.6% in Q3FY23 as total raw material cost has declined 49.4% YoY. Sequentially, the margin is up by 744 bps. EBIDTA margin stands at 23.2%; up 835 bps YoY (vs our estimate of 17.3%). Sequentially EBITDA margin is up by 339 bps. EBITDA came in at Rs 148.8 crore (vs estimate of Rs 166.9 crore); increased 5.2% as better margins negated the impact of decline in revenues

EBIT from ship-building segment stood at Rs 112.5 crore (down 14.5% YoY) while ship-repair segment EBIT increased sharply by 117.3% YoY to Rs 59 crore

PAT came in at Rs 110.4 crore (down 14.7% YoY) as other income is down by 63.2% YoY.

View: Execution during the quarter was below expectations, mainly in shipbuilding segment (72% of total revenue). The major projects under execution are anti-submarine warfare (ASW-SWC), hopper dredger and export contract of multi-purpose vessels. However, margins came better led by lower raw material costs. Order backlog stood at ~Rs 21000 crore (~7x TTM revenues) gives strong revenue visibility. The majority of the large contracts in order-book is expected to witness meaningful execution from FY24E onwards (like 6 NG Missile Vessels, ASW corvettes, export order of vessels. Moreover, ship-repair segment, which is picking up, would see more good opportunity in the future post the expansion of facilities at Mumbai, Kolkata and Port-Blair. Overall outlook remains positive on CSL as it has a strong earnings visibility for the coming years considering healthy order backlog and strong opportunities in shipbuilding (in both domestic & exports) and ship repair segments.

Impact: Negative