Why Multibagger shipbuilding stocks, Mazagon Docks, Cochin Shipyards, Garden Reach rally up to 21% this week; see here why, should apply or not

In recent months, defense stocks, including Mazagon Dock Shipbuilders and Cochin Shipyard, have witnessed a significant rise. This trend has caught the attention of investors and market analysts alike. Understanding the factors behind this surge is essential for anyone interested in the defense sector's investment opportunities.

Shares of shipping firms like Cochin Shipyard, Mazagon Dock Rose up to 17 percent on July 4. They were among the PSU stocks that have seen a sharp rally as investors expect Budget 2024.

Today Shares of Mazagon Dock Shipbuilders surged over 16% and surpassed ₹1 lakh crore in market cap for the first time in a bull market.

The other stocks that followed the 52-week high were Cochin Shipyard, and Garden Reach Shipbuilders & Engineers. Shares of BEML, Bharat Electronics, were all trading higher during Thursday's session

Veteran investor Raamdeo Agrawal believes that despite the recent upmove, PSUs are still trading in single-digit PE multiples.

The stocks also gained on account of strong Q1 2025 earnings expectations. Antique Stock Broking in its June quarter earnings preview note said the combined sales of eight defence companies including Mazagon Dock, Cochin Shipyard, Bharat Dynamics, BEML, Hindustan Aeronautics, Bharat Electronics, PTC Industries and Garden Reach Shipbuilders & Engineers Ltd may jump 27% YoY.

The rise is expected, given the improvement in supply chain and swifter execution, supported by all-time high order book of multiple companies.

The defence sector is currently enjoying a favorable environment, marked by government focus on defence indigenisation under the 'Make in India' initiative and the Modi government is working hard to ensure the Indian defence sector gets a bigger push in the upcoming budget, encouraging manufacturers to raise production, gradually reduce imports, and also target raising exports.

Cochin Shipyard shares jumped over 8% to hit a fresh record high of Rs 2,643.00 on NSE. The stock has clocked astronomical returns of over 820% in the last 12 months. Garden Reach Shipbuilders & Engineers shares rose over 4%t to hit a high of Rs 2,574.95.

Government Initiatives and Policies

One of the primary reasons behind the rise in defense stocks is the proactive measures taken by the government. The Indian government has been emphasizing self-reliance in defense production under the 'Make in India' initiative. Policies aimed at boosting indigenous manufacturing and reducing dependency on imports have provided a substantial boost to companies like Mazagon Dock Shipbuilders and Cochin Shipyard.

Moreover, the government's increased defense budget allocation has further strengthened the outlook for these companies. Contracts for new ships, submarines, and other defense equipment have been awarded, ensuring a steady flow of orders and revenue for these shipbuilders.

Strong Order Books

Both Mazagon Dock Shipbuilders and Cochin Shipyard have robust order books, which indicate a healthy future revenue stream. Mazagon Dock Shipbuilders, for instance, has been entrusted with the construction of advanced submarines and warships for the Indian Navy. Similarly, Cochin Shipyard has secured contracts for building vessels not only for the Indian Navy but also for international clients.

This strong order pipeline assures investors of sustained business growth, thereby boosting the stock prices of these companies. The confidence in the long-term prospects of these shipbuilders is reflected in their rising market valuations.