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Target: ₹440
CMP: ₹803.25
Garden Reach Shipbuilders’ (GRSE) Q1FY24 performance was boosted by P-17A frigates project entering the peak revenue booking phase.
Key points: revenue was up 30.4 per cent YoY while EBITDA rose 37.6 per cent YoY; orderbook as at June 2023-end was at ₹24,550 crore, implying orderbook/revenue at 8.96x; an order worth ₹250 crore for Naval guns from Indian Navy was received; and company subcontracted part of its orderbook to L&T for speedy execution.
Going ahead, management expects revenue to peak out by FY25, but expects orders related to next-gen corvettes by end-FY26.
We expect the EPS support from ‘other income’ waning as revenue is progressively booked for frigates though we expect operating EBITDA margin to improve to 9.5 per cent by FY25. Even after assuming GRSE at L1 in the ₹36,400 crore next-gen corvettes and factoring-in execution of the recently won next-gen offshore patrol vessels, we fail to see earnings growth beyond FY25.
We have also raised our terminal value growth rate to 4 per cent (earlier: 2 per cent) to factor-in the peak execution of next-gen frigates. Nevertheless, we don’t see an upside in the stock price from current levels.
Our revised target price works out to ₹440 (earlier: ₹370).
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