Mazagon Dock: Buy Rating Retained Despite EPS Cut; Strong Order Pipeline to Drive Growth

Why EPS Estimates Were Revised

Antique Stock Broking cited elevated provisioning as the primary reason for the earnings revision. The June quarter marked the second consecutive period where higher-than-expected provisions hurt profitability, leading to a 53% year-on-year decline in standalone EBITDA, even as revenue rose 11.4% YoY.

The brokerage, however, believes that this phase of margin volatility is nearing its end. Starting from the September quarter, Antique anticipates a sharp tapering in provisions, along with possible write-backs related to:

• Liquidated damages

• Warranty costs

• Other provisioning items

Despite the downgrade for FY26, the brokerage remains largely unchanged on FY27 earnings and has updated its valuation methodology from 50x FY27 to 47x 1HFY28 core earnings, maintaining the price target at ₹3,858.

Order Pipeline: The Key Growth Driver

Mazagon Dock’s strength lies in its deep specialization in submarine building—a critical segment in India’s defence capability expansion.

Antique highlighted three major potential order inflows that could significantly elevate MDL’s order book:

1. Scorpene Submarines (Follow-on Order)

• Likely to be awarded on a nominated basis

• Seen as the primary near-term catalyst

• Could more than double the current order book

2. P75I Project

• Estimated value: ₹70,000 crore

• Involves building next-generation submarines

• Seen as a transformative contract for India’s naval capacity

3. P17B Warship Project

• Also pegged at around ₹70,000 crore

• Aims to modernize and expand India’s surface combat fleet

While these orders are highly promising, Antique also noted the possibility of delays in awarding them, which remains a risk factor in the near term.

Strategic Outlook and Valuation

Antique emphasized that MDL’s unmatched track record in delivering complex submarine programs, combined with the government's policy focus on building indigenous naval capacity, creates a strong investment thesis.

Despite a cautious revision to short-term earnings, the brokerage maintains a constructive stance on margins and long-term growth, projecting robust earnings recovery from FY27 onward.

The revised valuation of 47x 1HFY28 core earnings reflects continued confidence in the company’s strategic positioning, and the unchanged target price suggests limited downside from current levels.

Conclusion: Long-Term Story Intact

Mazagon Dock Shipbuilders remains a fundamentally strong defence PSU with a high-entry-barrier business model, a clear line-of-sight to large defence contracts, and a solid revenue visibility for the coming years.

While margin pressure in the short term cannot be overlooked, Antique Stock Broking’s maintained 'Buy' rating reflects confidence in MDL’s strategic moat and its ability to navigate short-term turbulence through operational strength and policy tailwinds.