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LKP Securities
Target: ₹251
CMP: ₹204.70
Garden Reach Shipbuilders & Engineers (GRSE) reported a healthy set of numbers in Q3 with its top-line growing by 32 per cent q-o-q, though on a y-o-y basis, it fell by just 2.7 per cent. This was a strong bounce-back compared with the steep y-o-y fall in the top-line seen in Q2. The material costs, in line with the steep hike in metal costs, moved up to 47.1 per cent of the top-line vs 44 per cent q-o-q, but fell from 54.4 per cent y-o-y. Subcontracting costs continued with the trend of growing as the total employee costs increased to 21.1 per cent of sales from 20.4 per cent y-o-y.
The company has witnessed a great set of result in Q3FY21 as it operated at full strength as the Covid impact faded; as a result of this, the execution process of various projects gained momentum.
With various project deliveries lined up over the next 4-5 years, we foresee an exponential rise in financials of GRSE. This will be stemming from multiple project-overlapping. Additionally, margins will also gain momentum as seen in Q2 and Q3 in line with the revenue rise and cost savings.
The balance sheet contains enough cash to make up for any payment delays from the Centre, and the company may not require any debt to be raised in the medium term.
With an order book of 19x FY20 revenues, strong FCF and robust dividend yield, we continue to be upbeat about GRSE.
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