Shares of major shipbuilding companies, including Mazagon Dock Shipbuilders (MDL), Garden Reach Shipbuilders & Engineers (GRSE), and Cochin Shipyard, surged up to 7% in intra-day trading today.
The rally was fueled by reports that the Defence Ministry’s Defence Acquisition Council (DAC) would likely meet today, September 3, 2024, to discuss the approval of mega projects worth approximately Rs 1.2 trillion.
Key Projects on the Table
The proposed projects under discussion include seven new-generation frigates (P-17B) valued at around Rs 70,000 crore and 1,700 future-ready combat vehicles (FRCV) worth approximately Rs 50,000 crore. These projects represent a significant boost to India’s defense capabilities and are expected to provide a substantial uplift to the country’s shipbuilding sector.
Stock Performance
Among the individual stocks, Mazagon Dock Shipbuilders saw the most significant gain, surging 7% to Rs 4,489.05. GRSE followed with a 6% rise to Rs 1,948.55, and Cochin Shipyard climbed 4% to Rs 1,930. Despite today’s rally, these stocks are currently trading 23% to 35% below their respective record highs reached in July 2024.
So far in the calendar year 2024, the market prices of these companies have soared up to 181%, significantly outpacing the BSE Sensex, which has risen by 14% over the same period.
Tender Participation and Indigenisation Goals
MDL, GRSE, Larsen & Toubro (L&T), and Goa Shipyard are expected to participate in the tender for the seven P-17B frigates, with the deal likely to be split between two shipyards, similar to the existing P-17A frigates contract. The new-generation frigates are anticipated to have an indigenisation level of over 75%, further supporting the government’s push for ‘Atmanirbharta’ (self-reliance).
For the FRCVs, companies like Bharat Forge and L&T are expected to bid. The FRCVs, with an indigenisation level of more than 50%, are slated to gradually replace the Indian Army’s aging T-72 tanks, according to a research note by ICICI Securities.
Positive Outlook for Defence Shipbuilding
GRSE, in its FY24 annual report, expressed optimism about the future of the defense shipbuilding segment, citing recent government policy initiatives aimed at fostering and supporting self-reliance in the sector. The report highlighted the promising outlook for warship building, driven by the ambitious acquisition plans of the Indian Navy and Indian Coast Guard.
The company also noted that several Requests for Proposals (RFPs) for various shipbuilding projects had been issued by the Defence Ministry over the past year, with more expected to be released soon. Additionally, the Defence Ministry’s plan to increase the export of defense products to $3.59 billion by the end of FY 2024-25 is seen as a positive development for the entire shipbuilding ecosystem in India.