Fundamental Analysis of Cochin Shipyard
Fundamental Analysis of Cochin Shipyard: National defense is an essential part of the security of any country. As geopolitical tensions and security threats rise around the world, increasing defense spending has become important.
Defense companies must improve expertise, technological advancements, and manufacturing to gain an advantage over competitors. In this article, we will focus on Cochin Shipyard, which operates the shipbuilding sector.
Fundamental Analysis of Cochin Shipyard
Company Overview:
cochin shipyard Established in 1972, it is supervised by the Department of Ports, Shipping and Waterways. A team of experts chose Cochin as the site for the first greenfield yard in the country. We specialize in shipbuilding, repairs and repairs for various types of ships and are market leaders. This includes extending vessel life and periodic upgrades.
The Shipbuilding Division produces a variety of products, including oil tankers, bulk carriers, electric passenger ships, passenger ships, tugboats, aircraft carriers, and anti-pollution ships. Meanwhile, the Ship Repair Division maintains and services a variety of ships, including oil tankers, bulk carriers, aircraft carriers, defense ships, merchant ships, and special ships.
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As of March 31, 2023, 21 large ships, 35 marine ships, 93 small and medium-sized ships, and 31 defense ships have been built and delivered. Their manufacturing capabilities are located across India such as Cochin, Kolkata, Mumbai, Udupi, Port Blair and Howrah.
They have been involved in major reputed projects such as India’s first indigenous project. aircraft carrierINS Vikrant was commissioned in September 2022.
Segment Analysis:
Cochin Shipyard generates revenue from operations in the following segments: Shipbuilding (69.72%, -28.62% YoY), Ship Repair (22.22%, -15.81% YoY), and Other (8.06%, -21.23% YoY) in FY23. As per the most recent Q3FY24 report card, the current order book was around Rs 21,500 crores and ship repair orders were around Rs 800 crores.
Industry Analysis:
The defense industry has undergone significant changes in recent years. Over the next five to seven years, the Indian government aims to allocate around $130 billion to strengthen fleet capabilities across all armed forces.
The Department of Defense aims to generate $25 million in revenue from defense and aerospace manufacturing by 2025, with total exports of approximately $5 billion.
Changes along the FDI route have been completed with up to 74% now being allowed through the automatic route, up from 54% earlier. This allows foreign companies to establish manufacturing facilities and own and control the business.
Exports have increased by 334% in the last five years and India is exporting to over 75 countries through joint efforts. These initiatives will help the country adopt technology sharing and foster its development for greater use in the sector.
Likewise, major defense projects help stimulate domestic manufacturing, create jobs, and add real value to our national security. The plan will help India achieve self-sufficiency while reducing its dependence on other countries for the purchase of aircraft and warships.
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Fundamental Analysis of Cochin Shipyard – Finance
Revenue and Net Profit:
Cochin Shipyard reported operating revenue of Rs. 2,364.55 crore in FY23, down 25.89% from Rs. 3,190.95 crore in FY22. Net profit decreased by 45.96% to 10 billion won. 304.71 crore in FY23 from Rs. 563.96 crore in FY22. There was an unconventional item worth 50,000 won. 61.81 crores in FY23 is the previous period errors recognized in the current year.
Financial performance in FY23 was lower than the previous year due to various factors. These include missing several important orders, difficulties in completing the first major naval refit, and expiration of the renewed MoU with UTL warships in March 2023.
profit:
FY23 operating profit margin was 20.31% from 25.51% in FY22, while NPM decreased from 16.33% in FY22 to 11.85% in FY23. Over a five-year period, OPM ranged from 20 to 30% and NPM ranged from 11 to 20%.
The decline in margins was partly due to increased subcontracting and other direct costs, which jumped to 18.39% from 12.87% in FY22, and increased staff costs as a percentage of revenue, which rose to 14.13% from 9.74% in FY23. FY22.
Yield:
The company’s RoE in FY23 decreased to 5.89% from 13.39% in FY22. RoCE in FY23 decreased by 7.96% from 17.08% in FY22. The decline in returns is due to a decline in net profit.
The decline in net profit in FY23 may have impacted RoE, while the increase in reserves over five years may have contributed to the decline in RoE. The decline in RoCE can be attributed to lower net income and higher equity base and leverage.
Debt Analysis:
The company’s debt-to-equity ratio is 0.13, which has maintained a low debt-to-equity ratio for several years. Interest coverage ratio decreased from 15.41 times in FY22 to 9.24 times in FY23. Although interest expenses have decreased, the downward trend in net profit since FY20, which was the best performance in five years, has impacted the ratio.
Fundamental Analysis of Cochin Shipyard – Key Indicators
The key indicators of Cochin Shipyard are:
Fundamental Analysis of Cochin Shipyard – Future Plans
- By FY25, the company is targeting revenue growth of 12-15%. The expected margin in the shipbuilding sector is expected to be around 18-19%.
- The Ministry of Defense has awarded a Rs 488.25 crore contract for equipment maintenance work on INS Vikrant, which is expected to be completed by the first quarter of FY25.
- Cochin Shipyard has received an order from a European customer to design and build one hybrid. service operating vessel(SOV) is valued at approximately Rs 500 crores and is expected to be delivered in January 2024, 2026.
- The company has received new orders from MoD for the third quarter of 2024 totaling Rs. Mid-life upgrades and recommissioning of Navy platforms, expected to be completed within 24 months, will cost $313.42 million.
- 1,799 crores for a new dry dock worth Rs. The $970 million International Ship Repair Facility (ISRF) is some of the major ongoing and upcoming projects. A multi-purpose vessel for European customers and supporting the European offshore wind energy market.
- New shipbuilding projects will be able to begin once the new dry dock is fully operational by mid-2024, following the installation of a 600-tonne gantry crane.
- Subsidiary Hooghly Cochin Shipyard Limited (HCSL) is expected to fulfill more orders for small vessels for inland waterways.
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conclusion
As we approach the end, let’s take a quick look at the fundamental analysis of Cochin Shipyard. Cochin Shipyard is performing well and prospects look promising with growing interest in the defense sector. The Indian government’s active participation in defense manufacturing in India is expected to gain greater traction.
As a company’s earnings improve over time, shareholder value increases significantly. We’d like to hear your thoughts about the company’s potential. Please share your thoughts in the comments section below.
Written by Santosh
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