Mazagon Dock Shipbuilders surges 7% after getting order to build hybrid power vessels

Shares of state-run Mazagon Dock Shipbuilders Ltd (MDL) rose 7 per cent to Rs 2,219.55 on the BSE in Tuesday’s intra-day trade after the company said it has signed a letter of intent (LOI) with a European customer to build six ) is signed. And 4 optional units of 7500 DWT (Deadweight Tonnage) Multi-Purpose Hybrid Power Vessels. MDL said prices will be decided at the time of signing the contract.

The company on Monday (October 9) said it has signed a letter of intent (LOI) with a European customer. The LoI outlines a plan to build six firm units and four optional units of 7,500 DWT multi-purpose hybrid power ships.

According to the stock exchange filing, the prices of these vessels will be finalized at the time of signing the official contract.

ICICI Securities estimates the contract size for 6 ships to be Rs 700-800 crore. Order backlog is estimated to be around Rs 37500 crore (4.8x TTM revenue). MDL was looking for export opportunities in the defense or commercial shipbuilding sector and with this contract, the brokerage firm believes that more opportunities will emerge for the company in the future.

According to industry reports, Europe is showing strong traction in the commercial shipbuilding sector as 2000-2500 old ships are expected to be replaced by electric/hybrid ships in the next 10 years. The brokerage firm believes that this presents a huge opportunity for Indian shipyards in the times to come.

In September, the company signed a Master Ship Repair Agreement (MSRA) with the U.S. Government, represented by NAVSUP Fleet Logistics Center (FLC) Yokosuka.

It is a non-financial agreement and there are only two shipyards in the country, including the company, that have signed the MSRA. This agreement is expected to open the way for voyage repairs of US Navy ships in the MDL.

As of the June quarter, the government still holds more than 84 percent stake in the shipbuilding company. Based on current market prices, the additional government stake in the company is valued at around Rs 4,000 crore.

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

The company’s order book has been declining over the last five years, starting from Rs 55,000 crore in fiscal 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 pave the way for voyage repairs of US Navy ships at Mazagon Dock.

Meanwhile, MDL’s share price has risen 220 per cent in the last six months, while the benchmark index has gained 10 per cent.

MDL is a Defense PSU, primarily engaged in manufacturing warships and submarines for the Indian Navy, once supplied, MDL has no control over its products i.e. warships and submarines. The company is primarily engaged in the construction and repair of ships, submarines, vessels of various types and related engineering products for its customers.

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