Widely read:
Long-term equity investors have always shied away from PSUs. And this disdain is justified. Years of sluggish decision-making, bureaucratic delays, and inefficiencies have reaffirmed that PSUs should be a no-go for long-term investors.
However, in recent months, PSUs in the defence space have been challenging this prejudice with their phenomenal performance.
In the past three months, Mazagon Dock Shipbuilders (manufactures submarines and multiple products), Cochin Shipyard (builds and repairs ships), and Garden Reach Shipbuilders & Engineers (constructs warships), three leading defence PSUs, have delivered a whopping 170.1, 78.5, and 103.7 per cent return, respectively.
These gravity-defying returns have left investors scratching their heads and looking for answers.
As always, there are multiple factors pushing the stock prices up.
Healthy order book
The Indian shipbuilding industry's order book is expected to receive a significant boost on account of the Indian Navy and Coast Guard's ambitious ship acquisition plans. Moreover, all three PSUs have a solid order book currently.
Mazagon Dock Shipbuilders has bagged two orders from CONCOR for manufacturing 2500 Shipping Containers. They have also initiated the design and development of indigenous submarines.
Cochin Shipyard has signed a contract to build India's largest dredger, which will open up a new business vertical. The management is confident of securing similar orders going forward. In addition, it has also forayed into the European short-sea shipping segment and has won a contract to build eight HS Eco Freighter 7000 DWT Vessels.
And Garden Reach Shipbuilders & Engineers is not lagging behind either and has a strong order book of 16 warships for the Indian Armed Forces.
Decreasing imports, increasing exports and an 'Atmanirbhar Bharat'
The government has been pushing towards indigenisation and has put restrictions on the import of 209 defence accessories in the past couple of years. This has led to a decrease in imports and has created an opportunity for domestic manufacturers to set their foot strong. As per Garden Reach Shipbuilders & Engineers' FY22 annual report, the Ministry of Defence plans to increase the export of defence products to 3.59 billion USD by the end of 2024-25. In addition, the recent policy initiatives taken by the Government of India for promoting 'Atmanirbhar Bharat' paint a promising future for these shipbuilding companies.
Strong financials
All three defence PSUs have posted excellent numbers for the first quarter of this financial year, with both the top line and bottom line growing at an exorbitant pace.
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