Geojit Financial Services has issued a BUY recommendation for Cochin Shipyard Ltd (CSL), with a target price of Rs 1,557, offering a potential 20% upside from its current market price of Rs 1,299. The company’s robust Rs 22,000 crore order backlog ensures steady revenue visibility for the next 2–3 years. Recent expansions in dry dock and ship repair facilities further enhance operational capacity, positioning CSL for future growth. Although margin pressures have persisted, its diversification into green energy platforms and international shipbuilding orders underscores its long-term growth potential.

Q2FY25 Financial Highlights

1. Revenue Growth:

CSL reported a 15% YoY growth in revenue, reaching Rs 1,097 crore.
The shipbuilding division grew by 16% YoY, while ship repair revenues expanded by 12% YoY.
2. Flat EBITDA:

EBITDA remained largely unchanged at Rs 196 crore, with margins contracting by 260 basis points (bps) to 18% due to rising input costs and lower shipbuilding profitability.
3. Profitability:

Profit after tax (PAT) stood at Rs 193 crore, reflecting a slight YoY increase of 1.1%, as operational efficiencies offset higher costs.

Order Book and Execution Strategy

1. Robust Order Backlog:

CSL’s current order backlog of Rs 22,000 crore is approximately 5x FY25E projected sales, ensuring steady execution over the medium term.
A healthy order pipeline of Rs 7,820 crore strengthens its future revenue prospects.
2. Capacity Expansion:

Recent completion of the dry dock expansion (Rs 1,790 crore) and International Ship Repair Facility (ISRF) (Rs 970 crore) has doubled CSL’s operational capacity.
These facilities enable construction and repair of larger vessels, such as LNG carriers and next-generation aircraft carriers.
3. Green Energy Initiatives:

CSL is actively pursuing projects in green shipbuilding and hybrid platforms, aligning with global sustainability trends.
The company has also secured international orders, enhancing its global footprint.

Outlook and Valuation

1. Positive Growth Trajectory:

CSL is projected to achieve 17% CAGR in earnings over FY24–FY26, driven by its strong order book and capacity expansions.
Revenues are expected to grow by 20.8% in FY25E and 21% in FY26E, reaching Rs 5,330 crore.
2. Margins Stabilizing:

EBITDA margins, currently at 22.6% for FY25E, are anticipated to stabilize with operational efficiencies and higher-value projects.
3. Attractive Valuation:

CSL trades at a forward P/E of 30.9x FY26E, lower than its historical averages, reflecting significant upside potential.
Geojit values the stock at 37x FY26E earnings, translating into a target price of Rs 1,557.

Risks and Challenges

1. Margin Volatility:

Higher input costs and delays in premium projects could pressure margins.
2. Uncertainty in New Projects:

Timelines for high-value projects, such as the new aircraft carrier, remain uncertain.
3. Competitive Intensity:

Rising competition from private shipyards and international players may affect market share.