Shares of Cochin Shipyard Ltd (CSL) fell sharply by 6.90% to settle at Rs 1,200 on Wednesday, despite the company securing a substantial Rs 500 crore contract from the Ministry of Defence (MoD). The market reaction was primarily driven by the company's disappointing financial performance in the September quarter (Q2 FY27), which saw key metrics fall well below analyst expectations.
Weak Q2 Earnings Drag Down Performance
Cochin Shipyard's EBITDA margin declined by 250 basis points year-on-year (YoY) to just 4.1%, a figure significantly below Antique Stock Broking's estimates. This margin miss was predominantly attributed to the Shipbuilding division, which reported a muted revenue growth of only 3% YoY. The weak performance in this core division led to a 31% YoY drop in the company's overall EBITDA.
Adding to the concerns, profit after tax (PAT) also saw a significant decline, falling 50% YoY and missing brokerage estimates. While the Shipbuilding segment struggled, the Ship Repair division offered a silver lining, with revenue rising 30% YoY and reporting a healthy EBIT margin of 31%.
Rs 500 Crore MoD Order Overshadowed
The defence public sector undertaking (PSU) had announced an order worth approximately Rs 500 crore from the Ministry of Defence. This contract involves the normal refit cum re-powering of an Indian Naval vessel, with an estimated execution period of around two years. However, the positive news of this significant government contract was largely overshadowed by the weaker-than-expected quarterly results.
Analyst Views on Cochin Shipyard
Following the Q2 results, Antique Stock Broking adjusted its target price for Cochin Shipyard downwards to Rs 1,407 from Rs 1,671, citing weak execution and elevated valuations. The brokerage maintained its 'Hold' rating on the stock.
In contrast, Choice Institutional Equities adopted a more optimistic stance regarding the company's medium-term prospects. While acknowledging potential near-term volatility due to uneven project execution and pressure on shipbuilding margins, Choice believes Cochin Shipyard is well-positioned for future growth. The firm upgraded its rating on the stock to 'BUY' from 'ADD' following the recent price correction, assigning a target price of Rs 1,565. Choice highlighted that improved shipbuilding execution and profitability remain key factors to monitor.