On Friday, shares of Mazagon Dock Shipbuilders Ltd opened at ₹2,375 on the BSE, down 49.77% from the previous close of ₹4,728.80. While this sharp decline surprised many investors, the apparent drop is attributed to the company’s stock split, which reduced the face value of each share from ₹10 to ₹5.
The stock split aims to make shares more affordable, encourage participation from smaller investors, and increase liquidity in the market. Adjusted for the split, Mazagon Dock shares were actually trading 0.45% higher, reflecting a positive trend.
What is a Stock Split?
A stock split divides the face value of shares into smaller units, increasing the number of outstanding shares while proportionally reducing their price. This corporate action does not change the company’s market capitalization or individual ownership percentage but makes shares more accessible to investors.
Why Did Mazagon Dock Opt for a Stock Split?
The stock split complies with DIPAM guidelines on capital restructuring and serves several purposes:
- Increased Affordability: Makes shares more accessible to retail investors.
- Enhanced Liquidity: Boosts trading activity by increasing the number of available shares.
Mazagon Dock Shipbuilders: A Defense Industry Leader
Mazagon Dock Shipbuilders is among India’s leading shipyards, providing critical services to the Indian Navy and Coast Guard. Since its establishment in 1960, the company has built:
- 28 warships: Including advanced destroyers and missile boats.
- 7 submarines: For various defense applications.
- A range of vessels, including cargo ships, passenger ships, and dredgers, for diverse customers.
Major Projects and Future Plans
Mazagon Dock is poised for significant project deliveries and expansions:
Upcoming Deliveries by December 31, 2024:
- The 6th Scorpene submarine under Project 75.
- The final 15B destroyer.
- The first 17A frigate.
While there have been minor delays, the company is optimistic about completing these projects largely on schedule.
Scorpene Submarines and Project 75I:
- Nominated for three additional Scorpene submarines, with revenue recognition based on a percentage-of-completion model over six years.
- Partnered with a German designer to bid for Project 75I, showcasing its growing capabilities.
Facility Expansion Plans:
To meet increasing demand, Mazagon Dock is significantly expanding its facilities:
- Acquired 15 acres adjacent to its existing yard.
- Acquired an additional 40-acre parcel near JNPT for shipbuilding and repair.
These expansions, supported by a planned ₹5,000 crore capex, will enable the company to handle larger vessels and double its capacity over the next four to five years.
Financial Position and Market Sentiment
Mazagon Dock maintains a robust financial position:
- Cash Reserves: Approximately ₹4,000 crore, earmarked for capacity expansion.
- Profit Margins: Normalized PBT margins for the industry range between 12-15%, with recent higher margins attributed to cost efficiencies and project completions.
- Dividend Policy: Limited payouts expected in the short term as funds are redirected toward expansion projects.
Brokerage Views and Future Outlook
- Arihant Capital Markets: Praised the company’s cost efficiencies, strong cash reserves, and potential for future growth through strategic expansions.
- Strategic Importance: Mazagon Dock’s role in India’s defense ecosystem, including its partnerships and ambitious expansion plans, positions it as a key player in the sector.
Investor Takeaway
The 50% drop in Mazagon Dock’s share price on some trading apps is purely a technical adjustment due to the stock split. In reality, the stock continues to trade positively, reflecting its strong fundamentals and promising future.
As India’s defense needs grow, Mazagon Dock Shipbuilders is well-positioned to capitalize on increasing demand for advanced naval vessels and shipbuilding capabilities. With its ambitious expansion plans and consistent project deliveries, the company remains a significant player in the defense and shipbuilding sectors.
Disclaimer: The information provided is for informational purposes only and does not constitute financial advice. Investors should consult financial advisors before making investment decisions.
Click here to know more.