Mazagaon Dock Shipbuilders- Atmanirbhar Defence Sector

Mazagaon Dock ShipbuildersAtmanirbhar Defence Sector

CMP- 188

Market Cap- 3,797 cr

Why Buy Mazagaon

  • A key player in nation’s defence in shipbuilding, incorporated in 1934- a Mini Ratna company undertaking construction & repair of warships, destroyers, missile boats & submarines for Indian Navy & commercial clients
  • Capacity– 40,000 dead weight tonnage
  • Strong Order book at 52,000 cr. OB to Sales solid at 10 times
  •  Key vessels currently being built by Mazagaon Dock
  • P17 Frigates
  • P17A Frigates
  • P15A Destroyers
  • Multipurpose Support Vessels
  • FinancialsExtremely strong cash & bank balance 7,200 cr vs market cap 3,797 cr. At cmp 188, Mazgaon Dock is available at 8x FY21.
  • Key Triggers
  • New Defence procurement policy 2020, is expected to accelerate indigenization, which is positive for the domestic defence industry.
  • Government’s focus on disinvestment in its key assets will aid re rating in entire PSU pack.
  • The company is exploring the possibilities of developing a greenfield shipyard at Nhava, Navi Mumbai with a shiplift, wet basin, workshops, stores and buildings and a ship repair facility spread over an area of 37 acres which MDSL believe will be suitable for construction and repair of warships and commercial ships with larger dimensions.  

Company Overview

Mazagaon dock (MDL) is one of the largest shipbuilding public enterprise, incorporated in 1934- a Mini Ratna company of GOI. MDL has an expertise in manufacturing warships & naval ships. MDL is one of the largest and oldest ship building companies of GOI which only makes warships & destroyers for the Indian forces.  It also has a platform to build Corvettes & submarines.    

MDL has a shipbuilding and submarine capacity of 40,000 DWT.

Complex Platform Building- Biggest Moat

MDL is the only Defence Shiplbuilding PSU that builds most complex platforms for GOI. It has highly complex platforms to build warships, destroyers, corvettes & submarines.

Some of its capabilities include

  • Project P17 is a multirole frigates with Indian Navy.
  • Project P 15A is a class of stealth guided destroyer constructed for Indian Navy.
  • Project P 15B The Visakhapatnam class (Project 15B) is a class of stealth guided missile destroyers currently under construction for the Indian Navy. The class comprises four ships – Visakhapatnam, Mormugao, Imphal and Porbandar and will be the largest destroyer to be operated by Indian Navy.
  • Project P 17A The Nilgiri-class frigate or Project 17A is follow-on of the Project 17 Shivalik-class frigate for the Indian Navy.
  • Project S46, S47 & Project P75 are diesel charged electric submarines for Indian Navy. The submarine is capable of offensive operations across the entire scope of Naval Warfare.

Order Book

A very impressive order book of 54,074 cr, with a bill to book ratio of a solid 11 x.

Favorable policies by GOI will aid growth in defense sector

India’s growing security threat from its border nation and the urgent need to strengthen its maritime security position, the government of India has taken some key initiatives to develop and promote the country’s shipbuilding industry, In December 2015, the Cabinet approved the new shipbuilding policy, which aims to provide.

  • Financial assistance to shipbuilders and grant infrastructure status for the industry.
  • Set aside Rs 40 billion to implement the scheme over 10 years.
  • Grants financial assistance to both state-owned and private shipbuilders on each ship they build.
  • The right of first refusal is given to Indian shipyards for government purchases.
  • Grants infrastructure status to shipbuilding and ship-repair industry, thereby entitling it to various government incentives and tax benefits. Indirect tax incentives 109.
  • Exemption from customs and central excise duties on all raw materials and parts, used in manufacture of ships/vessels/tugs and pusher crafts.

Key Risks

  • Single largest client which is Government of India gives it a lot of Concentration Risk.
  • MDL deals in large value orders from GOI & MOD, in case there is a delay in execution or dealy in payments from government agencies then MDL runs a huge risk of bloating working capital cycle.
  • COVID19 pandemic and financial stress that GOI might face can be a significant risk to MDL’s receivables & financial position.

Attractive Financials

  • MDL has a cash balance of 7,200 cr vs a Market Cap of 3,800 cr. Despite of having a bloated balance sheet due to very high Cash Balance, MDL still makes an impressive ROE of 15%. 
  • Debt to Equity is 0, MDL has zero debt and works on advance payments by GOI for executing orders.
  • MDL has a very strong cash to market cap of almost 200% which implies it gets paid majority of the money for its future execution of projects.
  • One of the largest shipbuilding companies of GOI is available at single digit multiple on trailing basis. We strongly believe Mazagaon Doc can do a PAT of 900 cr by FY23 vs current market cap of 3,800 cr, available at a very attractive valuations of 4x FY23.  
  • Zero Debt, Single largest shipbuilder for the Armed Forces, Highest Cash balance among its peers and a number of orders getting executed in the next 3 years, we believe MDL is on course to get significantly re rated going forward.

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