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Mazagon Dock Shipbuilders Ltd – Naval Defense Play

Company Name – Mazagon Dock Shipbuilders Ltd (MDSL)

Current Share Price – INR 240 (June 23, 2022)

Market Cap – INR 4,831 cr


[Updated for Q4FY22/FY22 results]

1. What is interesting about the stock?

“A good Navy is not a provocation to war. It is the surest guaranty of peace.”

--- President Theodore Roosevelt

Since the man could navigate the seas, he has had an unquenching desire to own them, and the ability to project strength across oceans is a defining feature of any world power. With seas on 3 sides (including an ocean named after it) and a long coastline of 7,500 km, India needs to have a strong naval presence – the Indian Navy and the Coast Guard are the essential forces defending the country.

Visits to the Navy frontline warships at Colaba, Mumbai on their open days have allowed my kids and me to be overwhelmed by the majestic power of these vessels that take on the waves and the stories that they have been part of. And this Company has been at the forefront of this action. Taken over by the Government in 1960, the dockyard has been serving the Indian Navy for the last 6 decades, repairing, modernizing, and building destroyers, missile boats, and submarines. The Company has also fabricated and delivered jackets, main decks of wellhead platforms, process platforms, jack-up rigs, etc. for offshore oil drilling.

Mazagon Dock Shipbuilders Ltd (MDSL), Mumbai, is a leading shipbuilding yard in India. Its history dates back to 1774 when a small dry dock was constructed in Mazagon. Over the years, MDSL has earned a reputation for quality work and established a tradition of skilled and resourceful service to the shipping world, especially the Indian Navy and Coast Guard. It was incorporated as a private limited company in 1934.

After its takeover by the government in 1960, MDSL grew rapidly to become the premier war-shipbuilding yard in India, producing warships for the Navy and offshore structures for Bombay High. It has grown from a single unit, small ship repair company, into a multi-unit and multi-product company, with a significant rise in production, use of modern technology, and sophistication of products.

MDSL is engaged in shipbuilding and ship repairing. The Company operates through two business segments, namely shipbuilding and submarines. The shipbuilding segment builds naval ships and commercial vessels, which include Nilgiri, Corvettes, missile boats, Godavari class frigates, patrol vessels, destroyers, Leander class frigates, trilling suction hopper dredgers, general cargo vessels, offshore supply vessels, special trade passenger cum cargo vessels, 45T Bollard Pull Voithtug and BOP vessels. The submarine segment builds submarines, which include INS Shalki, INS Shankul, and Scorpene submarines. From the time it was taken over by the government of India in 1960, MDL has built 796 vessels, including 25 captive warships and 5 conventional submarines.

MDSL (along with its associate company, Goa Shipyard Limited (47.2% shareholding)) has an order book of INR 46,000 crores (around 8x of FY22 revenue) as of March 31, 2022, predominantly from the Indian Navy. This includes 3 destroyers and 4 frigates. Two more submarines are also under construction. In addition, MSDL is carrying out medium refit and life certification of submarine INS Shishukumar.

The Indian Navy currently has a capacity of 137 fleets and is aiming to have a 200-ship fleet by 2027 as per a maritime capability perspective plan. So, MDSL is well-positioned to win new orders over the next 10 years out of an INR 2.1 lakh crore opportunity projected by the Indian Navy.

The Global ship repair industry is expected to grow more than 3 times from the current USD 12 billion to reach 40 billion dollars by 2028. Adding to that, the revenue contribution of MDSL’s ship repair division has increased more than 4 times from FY19 with a strong focus on reviving its ship repair operations which will result in augmentation of its revenues and profitability.

Why invest in MDSL?

The key investment arguments summarized would be:

  • Large order book from the Indian Navy of INR 46000 crores to be executed over the next 5-7 years. It is also in contention for another INR 2.1 lakh crores of orders being given out by the Ministry of Defense over the next decade

  • MDSL has completed the modernization project of INR 900 cr in which the Government of India GoI funded INR 800 cr, this project will enable integrated modular construction going ahead, thereby substantially reducing the build period for upcoming projects. Due to this project, the capacity of outfitting warships increased by 25% and submarine capacity has increased by almost 83%. Additional Infrastructure will provide a competitive edge in gaining new projects, therefore creating additional revenue.

  • The strategic location of the port on the global maritime route connecting Europe, West Asia, and the South Pacific Rim

2. Key Historical Financials

3. What is my view on company valuation?

The Company did an IPO in September 2020 and was well-received with over 156 times oversubscription. It gave listing gains of ~20% and has generally stayed above its offer price in its brief trading history.

It is currently trading at a P/E TTM ratio of ~8x. The business is stable with a strong order book from the Indian Navy and defense spending is likely to go up, the Company will see growth in the medium term. Further expansion of the client list can help the Company’s business prospects and de-risk it from its over-dependence on the Indian Navy. Cochin Shipyard is a competitor and currently trades at a P/E TTM ratio of 7x. Stock looks interesting in long term and should be evaluated further by investors along with Cochin Shipyard.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  1. Indian Navy uses 4 shipbuilding dockyards, namely Hindustan Shipyard, Garden Reach Shipbuilders, and Cochin Shipyard. In case any of these shipbuilders enhances its capacity and technological tie-ups, the pipeline for MDSL might get impacted adversely, thereby affecting the long-term growth of the Company

  2. In the past, defense projects have had significant delays of 4-5 years in delivery. In case, there is a change in the strategic imperative for the Navy, this sort of delay in future projects might impact business for MDSL and can also lead to liquidated damages.

  3. Risk of Project Termination: The MoD contracts including the submarine refit contracts are subject to the satisfaction of certain milestones and are subject to termination. Its inability to fund such contracts at the time of inception or any termination of any of its contracts with the MoD could hurt its financial condition and results of operations.


About the Author

I have over 15 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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