Buy Cochin Shipyard; target of Rs 440: ICICI Direct

ICICI Direct's research report on Cochin Shipyard

Cochin Shipyard (CSL) reported steady Q1FY20 numbers. Shipbuilding (SB) revenues grew 32.5% YoY while shiprepair (SR) segment contracted 34.7% YoY during the quarter. Overall, revenue increased 11.6% YoY to Rs 735.4 crore. On a segmental profitability front, SB reported EBIT margins of 16.9% whereas SR clocked margins of 30.9%. SB, SR segments contributed 81.9%, 18.1% to the topline, respectively. EBITDA margins came in at 19.3% vs. 17.5% YoY. Gross margins came in at 39.2% vs. 38.3% YoY (raw material costs rose 10.5% YoY). Employee expenses increased 6.7% YoY. Absolute EBITDA grew 23% YoY to Rs 141.7 crore. Other income rose 18% YoY to Rs 67.9 crore aided by a one off of Rs 13 crore from INS Vikramaditya repair. Depreciation expenses rose 43.9% YoY while finance costs came in at Rs 11.1 crore, up 2.45x on account of adoption of AS 116 lease. Accordingly, PAT grew 13.1% YoY to Rs 120.3 crore.

Outlook

We expect overall margins to get diluted in FY20E-21E due to higher contribution from the SB side. Thus, we estimate revenue, EBITDA and PAT CAGR of 16.5%, 12.1% and 5.1%, respectively, in FY19-21E. On the whole, we maintain our BUY recommendation on the stock and value CSL at 11x FY21E earnings for a target price of Rs 440/share.

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