Shares of Garden Reach Shipbuilders & Engineers have climbed up over 90% in the past six months, and analysts at ICICI Securities think that the stock already trades at its premium valuation.

The Garden Reach Shipbuilders & Engineers Analyst: Amit Dixit-led analyst team at ICICI Securities maintained the “sell” rating on the stock with a target price of 440. The price indicates an over 40% downside from the stock’s last closing price of ₹793.75.

The Garden Reach Shipbuilders & Engineers Thesis: The analysts noted that the company had a strong performance in the first quarter of the fiscal year 2023-24 (April 2023-June 2023) thanks to progress in the P-17A frigates project, a significant naval project. In Q1FY24, GRSE’s revenue increased by 30.4% compared to the same period last year. Additionally, their EBITDA rose by 37.6% year-over-year.

The brokerage firm also said that the company’s order book stood at ₹24,550 crore, indicating a healthy pipeline of projects. Looking ahead, GRSE has plans to deliver a next-generation ferry and six patrol boats to Bangladesh during FY24. Despite this positive outlook, it expects its current project execution to reach its peak by FY25.

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Analysts cautioned that despite the promising compound annual growth rate (CAGR) of 60% up to FY25, the future potential for the stock might be limited. This is because the projected earnings per share (EPS) for FY25 seems unsustainable. Even considering the best-case scenario, including potential orders for next-gen corvettes and steady offshore patrol vessel execution, analysts don’t foresee significant earnings growth beyond FY25.

As the stock trades at 15 times the projected earnings per share for FY25, analysts think that it might be the highest point it reaches. The firm thinks that the upside at the current valuation is capped.

Price Action: Garden Reach Shipbuilder’s share price was up 4.08% to trade at ₹826.10 on Wednesday afternoon.

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Editor’s Note: Artificial intelligence was used as a secondary aid in the writing of this story.