Pick of the Week- GRSE - 200125
Executive Summary
Title: Pick of the Week Target: Garden Reach Shipbuilders & Engineers Ltd. Recommendation: Buy in Rs 1492-1522 band and add on dips in Rs 1350-1378 band
Recommendation
Methodology: P/E multiple based on FY27E EPS (Base Case: 29x, Bull Case: 31.5x)
Key Metrics
Outstanding Order Book
24,221.37 crore
Sept 30, 2024
Market Cap
17268.1 crore
Jan 17, 2025
Total Operating Income
1153 crore
Q2FY25
APAT
98 crore
Q2FY25
Diluted EPS
8.5 Rs
Q2FY25
Cash and Cash Equivalent
3,356 crore
Sept 30, 2024
Visualizations
Solid = reported · dashed = forecast
Solid = reported · dashed = forecast
Solid = reported · dashed = forecast
Company Overview
GRSE is a Ministry of Defence controlled shipbuilding company specializing in warships for the Indian Navy and Coast Guard, with 74.5% government ownership.
"Garden Reach Shipbuilders & Engineers Ltd (GRSE) is a ship building company in India, under the administrative control of the Ministry of Defence... GOI is holding 74.50% stake in the company."
Order Book and Pipeline
The company has a robust order book of Rs 24,221.37 crore and has bid for next-generation corvettes valued between Rs 35,000 to 40,000 crore.
"GRSE outstanding order book position stood at Rs 24,221.37 crore as on Sept 30, 2024... GRSE has submitted bids for next-generation corvettes of Rs 35000 to 40000 cr."
Strategic Focus
GRSE is expanding into ship repair and international markets (SAARC, ASEAN, Africa, Latin America) to improve margins and diversify revenue.
"GRSE revenue from Ship Repair activities surged to Rs 92.9 crore in FY24 from Rs 34 crore in FY23... The company is also actively looking for exports in new markets, like SAARC, ASEAN, African and Latin American countries"
Key Risks
- CompetitionIncreasing competition from private and other PSU players.Source: "GRSE could see increasing competition from private players and other PSU players."
- Project ExecutionDelays in execution or repairs during guarantee periods could lead to cost overruns and liquidated damages.Source: "Any delay in project execution and the repair of ship during the guarantee period could impact its profitability due to the cost overruns and liquidated damages"
- Raw Material VolatilitySpikes in prices of steel, energy, and other raw materials can impact profitability.Source: "Higher raw materials (Steel, Steel Alloys, Paint, Diesel and gas) prices could impact its profitability going forward."
- Government DependencyHeavy reliance on government projects and budgets; potential for revenue visibility drop post FY27-FY28.Source: "GRSE largely depends on government projects and Budgets... post FY27-FY28, the revenue visibility for GRSE could fall unless the spate of orders received continue."