Buy Cochin Shipyard; target of Rs 370: ICICI Direct

ICICI Direct's research report on Cochin Shipyard

Cochin Shipyard (CSL) reported a strong performance in Q4FY20 led by improvement in margins and transmission of the same to the bottomline. Shipbuilding (SB) revenues grew 7.7% YoY to Rs 712.6 crore while shiprepair (SR) segment contracted 17.3% YoY to Rs 104 crore during the quarter. Overall, revenues increased 3.7% YoY to Rs 816.7 crore. On a segmental profitability front, SB reported EBIT margins of 29.9% whereas SR clocked margins of 27.8%. SB, SR segments contributed 87.2%, 12.8% to the topline, respectively. EBITDA margin was at 20% during the quarter. Gross margins were at 42.1% vs. 35.2% YoY (lower input costs). Employee expenses increased 26% YoY. Absolute EBITDA grew 48.3% YoY to Rs 163 crore. Other fell 30.8% YoY to Rs 45 crore. Depreciation expenses rose 39.5% YoY while finance costs came at Rs 11.1 crore, up 2.1x on account of adoption of Ind-AS 116 lease. Accordingly, PAT grew 42.3% YoY to Rs 138.8 crore.

Outlook

CSL continues to have a solid order book of Rs 14631 crore. However, a delay in execution due lockdown would have an impact in H1FY21E earnings. Thus, we build in 4.1%, -9.9%, -8.1% revenue, EBIDTA and PAT CAGR for FY20-22E, respectively. SB revenues are expected to grow at 6.9% CAGR while shiprepair is expected to grow at 2.1% CAGR in FY20-22E. We expect overall margins to get diluted in FY21E on account of impact on operations due to shutdown and lower other income. On the whole, we maintain BUY rating on the stock and value CSL at 9x FY22E earnings to arrive at a target price of Rs 370.

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