Mazagon Dock on Thursday inked a significant agreement with the United States government in a sign of changing landscape of Indian shipbuilding and defence industry. Mazagon Dock signed Master Ship Repair Agreement (MSRA) with the US Government’s NAVSUP Fleet Logistics Center (FLC) Yokosuka ahead of US President Joe Biden’s visit to India for the G20 Summit and bilateral meet with Prime Minister Narendra Modi on Friday.
The Mumbai-based company became the second company after Larsen & Toubro to sign MSRA.
The agreement is expected to open-up voyage repairs of US Navy Ships at Mazagon Docks yards in the country making it a gamechanger development Indian shipbuilding industry.
India’s vast coastline, government’s focus on Make in India especially for defence and shipbuilding industry and global geo-political shift from China are all the contributing factors that are proving to be gamechanger in the country.
“Everyone wants to move out of China and India with its vast coastline is strategically well placed to cater to global shipbuilding demands,” AK Prabhakar, head of research at IDBI Capital told Republic.
Deven Choksey of KR Choksey Securities told Republic that there is huge upscaling possible for shipping industry in the country as India’s defence budget is miniscule vis-à-vis with defence budgets available in rest of the world.
“I think there is huge upscaling potential that is possible, and I have always believed that Indian shipbuilding and maintenance companies have got phenomenal amount of potential and until now they were languishing. Now with the opening of this sector with government’s active intervention it can be considered as gamechanger and this could be considered as beginning of new opportunities,” Choksey said.
He however cautioned that bureaucratic roadblocks could hinder the development in this sector.
“Only reason that one will have to be little careful is that the government companies normally do not take these opportunities big time in their favour and fact that people keep coming, going and changing every now and then and if that is taken care of in my viewpoint, I think this is a big opportunity for India,” Choksey said.
Expensive valuations
Markets gave a big thumbs up to the development as shares of Mazagon Dock, which have already surged 500 per cent within a year, rose as much as 19 per cent to hit record high of Rs 2,483. Shares of Cochin Shipyard rose as much as 9.75 to hit an all-time high of Rs 1,258 and Garden Reach Shipbuilders advanced 7.43 per cent to hit record high of Rs 973.95.
The shares of shipbuilders in India have provided stupendous returns within a year on the back of government’s impetus to make India self-reliant in defence manufacturing and making India as one of the global hubs in defence manufacturing.
Mazagon Dock has rallied a whopping 515 per cent or 6 times, Cochin Shipyard has climbed 240 per cent and Garden Reach Shipbuilders has jumped 222 per cent.
Choksey and Prabhakar both pointed at expensive valuations these stocks are trading and said that the shipping contracts are long term in nature and revenue cannot be expected from day one.
“Valuations cannot scale up in the manner in which the stock prices have gone up because these projects do not produce revenue on day one as they are long term projects,” Choksey added.
