Cochin Shipyard reported steady Q2 earnings but faces concerns over weakening margins and a lack of new defence orders, according to Kotak Institutional Equities.

What Happened: The brokerage has maintained its “sell” rating on Cochin Shipyard, lowering its target price to ₹800 per share, citing limited growth prospects and a need for better clarity on future projects.

The public sector company saw its net profit increase 1.1% to ₹193.06 crore for the September quarter. The company’s revenue came in at ₹1,096.98 crore, a 15% increase from the previous quarter.

Analysts expected net profit to come in at ₹199 crore, with a revenue of ₹1,002 crore and an EBITDA of ₹220 crore.

The revenue growth was driven by strong performance in both its shipbuilding and ship repair businesses. Shipbuilding saw a 16% rise, while ship repair was up 12% compared to last year.

See Also: Why GE Shipping Share Price Is Down Over 6%, Making It Today’s Biggest Loser

Kotak’s Take: However, the company's operating profit margins fell to 17.9%, below expectations of 20%, Kotak said. It added that this decline marks a return to normal levels following the end of a one-time boost from a major contract involving the INS Vikrant. Net profit also came in lower than the brokerage expected, impacted by higher depreciation costs related to new projects.

Despite the lower margins, Cochin Shipyard remains on track to achieve its annual revenue growth target of 20%-25%, the brokerage said. However, Kotak expects further margin declines in the coming quarters as the company adjusts to a more typical level of profitability without the benefit of one-time orders.

A major issue for Cochin Shipyard is the uncertainty surrounding new defence contracts, according to the research firm. The much-anticipated order for a second indigenous aircraft carrier (IAC-2) has seen little progress, and there have been no significant defence deals in the past year, it said.

As a result, it revised the company's order pipeline downwards to ₹7,800 crore in the near term and ₹30,000 crore over the medium term, a drop from the previous estimate of ₹50,000 crore, Kotak added. It said the only notable project in the pipeline is a landing platform dock worth ₹20,000 crore.

Kotak also adjusted its earnings estimates for Cochin Shipyard slightly, lowering projections for FY25 and raising them modestly for FY26 and FY27.

Price Action: Cochin Shipyard’s share price was down 5% at ₹1,447.65 around noon on Friday. The stock has gone up 112.44% so far this year.

Read Next: Why Analysts Are Bullish On Zudio-Owner Trent Even As Tata Stock Plunges 3% After Q2 Results Missed Estimates