According to reports, 17 warships and nine submarines are awaiting approval. This is in addition to the 61 warships and submarines under construction in India. This expected fleet expansion is significant as India aims to strengthen its naval capacity to 175 ships by 2035.
This expansion comes at a time when India wants to counter China’s growing naval presence in the Indian Ocean. Of this, a request for proposal worth Rs 700 billion for building seven next-generation frigates and two multi-purpose ships is likely to be issued soon.
In addition, Project 75-I, for the development of six modern submarines, and Project 75 (add-on), for the construction of three Scorpene-class submarines, estimated to cost ₹700 billion and ₹360 billion, respectively, are in advanced stages of cost negotiations.
Another project to develop eight next-generation corvettes, costing ₹360 billion, is in the pipeline. Once approved, the total cost of these projects is estimated to be around ₹2.4 trillion. This move can greatly benefit three defence companies. Let’s take a look…
#1 Mazagon Dock Shipbuilders
Mazagon Dock, a public sector undertaking, is India’s largest submarine manufacturer. It is India’s only shipyard company that has built destroyers, conventional submarines, and corvettes for the Indian Navy. It can build 11 submarines and 10 warships.
With its long-term expertise, Mazagon will be the key beneficiary of the fleet expansion. Historically, it has delivered seven destroyers, averaging one every 18 months between 2014 and 2025. The company is known for building three stealth frigates —INS Nilgiri, INS Surat, and INS Vagsheer —which were commissioned on January 15, 2025.
Strong Execution Drives FY25 Performance
From a financial perspective, revenue grew only 21% year-on-year (YoY) to ₹114 billion in FY25. This growth was driven by the completion of specific projects, which led to an increase in revenue realisation and profitability.
As a result, net profit grew 24.6% to ₹24 billion, as operating margins expanded 300 basis points (bps) to 17%. This margin (17%) stands above the global shipbuilding industry average of around 15%.
But Growth to Moderate
As of March 31, 2025, Mazagon’s order book stood at ₹322.6 billion. This suggests strong revenue potential for about 3 years. However, despite this, Mazagon now forecasts slower revenue growth of 8-10% annually in the near term.
This is due to delays in finalising and executing new large orders such as the P-75 and P-75 (I) submarine contracts. The company’s margins may also revert to 15% as some high-margin contracts near completion.
Order Book Visibility Remains Strong, Pending Key Submarine Deals
But, if contracts for additional P-75 submarines and P-75(I) submarines are signed, the order book is expected to grow to exceed ₹1.25 trillion. The submarine orders are expected to be signed soon. The P-75 project is expected to contribute 10% of revenue from FY28.
The P-75 (I) project is currently in the early stages of commercial negotiations. Mazagon has also collaborated with ThyssenKrupp (TKMS) for this project, which will involve 60% indigenous content and technology transfer. The company expects that this will enable it to secure TKMS global export orders once the necessary know-how is gained.
Furthermore, if the company secures other large shipbuilding contracts, the order book is expected to exceed ₹2 trillion within the next two years. To meet this demand, the company is doubling its capacity with an investment of around ₹40 billion.
Diversification Beyond Defence
The company is also diversifying its customer base. It has signed a ₹65 billion contract with ONGC in the offshore sector. Apart from this, Mazagon has also signed a ₹7.2 billion commercial shipbuilding contract with a European customer.
Mazagon is also scaling up its ship repair business. It has signed a Master Ship Repair Agreement (MSRA) with the US government to repair US Navy ships. To strengthen its vertical, it plans a new shipyard at Nhava in Navi Mumbai.
But Valuations Appear Stretched
However, valuations seem high. Mazagon trades at a price-to-equity (P/E) multiple of 55x, well above the 5-year median of 18x. However, relatively, it trades at a discount to Garden Reach (65x) and Cochin Shipyard (64x).
#2 Garden Reach Shipbuilder
Garden Reach Shipbuilders primarily constructs warships for the Indian Navy and the Indian Coast Guard. It also builds commercial ships and undertakes engineering and engine production activities.
Notably, it was the first Indian shipyard to export warships. The company can build frigate-sized warships, but its strength lies in building smaller vessels for the Navy and Coast Guard.
Robust FY25 Performance Backed by Project Execution
In FY25, its revenue increased 41% YoY to ₹50.8 billion, with steady margins of about 15%. Net profit jumped 48% to ₹5.3 billion. A strong order book, timely execution, and a mature execution phase in key projects contributed to the strong overall performance.
As of March 31, 2025, its order book stood at ₹226.8 billion, nearly unchanged from the previous year’s ₹226.5 billion, indicating a slowdown in new orders. Still, this provides revenue visibility for the next 5-years.
Next-Gen Corvette Order Lifts Medium-Term Visibility
However, the company estimates that FY26 could be its peak revenue year. Revenue from the P-17 Alpha project, which has an outstanding order book of ₹114 billion, is expected to be recognized 40% in FY26 and the remaining 60% in FY27. It expects the margin to stay at the current level.
Thereafter, revenues may remain flat unless a major project is won, for which revenue recognition would begin after two years. To this end, it has secured the Indian Navy’s next-generation corvette project, worth ₹250 billion, in May 2025.
This order has further strengthened its order book, thereby boosting revenue potential. Additionally, orders worth over ₹1 trillion are currently in various stages of processing. Moreover, it has also strengthened its ship repairing business and has taken over four dry docks from the Syama Prasad Mookerjee Port in Kolkata.
Capacity Expansion Underway, But Valuations Appear Rich
To meet the demand, it is also expanding its capacity, from 20 to 24 vessels to 24 to 28 vessels by FY25. This expansion aims to address capacity constraints, reduce delivery times, facilitate easier bidding for large orders, and enhance productivity.
However, Garden Reach’s valuations are also elevated. It trades at a P/E of 65x, well above its 5-year median of 24x. Relatively, it trades at a premium to Mazagon (55x) and at par with Cochin (64x).
#3 Cochin Shipyard
Cochin Shipyard is a leading shipbuilding and ship repair company. The company builds and repairs ships, including indigenous aircraft carriers, bulk carriers, next-generation missile vessels, anti-submarine warfare shallow-watercraft, and platform supply vessels used by the Indian Navy.
It is known for building and refitting some of India’s largest ships, including the country’s first indigenous aircraft carrier, INS Vikrant. It has partnerships with industry giants, including Rolls-Royce Marine (Norway), IHC Holland BV (Netherlands), and Robert Allan (Canada).
Ship Repair Fuels Growth, But Shipbuilding Remains Soft
Cochin Shipyards operates in two segments: Shipbuilding and Ship Repair. Shipbuilding remains the primary revenue driver, accounting for 57% of total revenue in FY25. The remaining (36%) comes from ship repair.
In contrast, the ship repair segment generates a higher profit before tax (PBT) margin of 39%, more than twice the 16% margin in shipbuilding. Faster execution time, lower capital requirements, and higher margins on parts support higher margins.
Cochin Shipyard’s revenue grew 26% YoY to ₹48.2 billion in FY25. This growth was driven by an 85% rise in ship repair revenues to ₹18.6 billion. With strong growth in ship repair, segment PBT also grew 101% to ₹7.3 billion.
Meanwhile, shipbuilding revenue grew just 5% YoY to ₹29.6 billion, with PBT declining 22% to ₹4.6 billion. As a result, despite strong growth in the repair segment, net profit grew only 6% to ₹8.3 billion.
Cochin Shipyard’s order book stands at ₹225 billion, over four times its FY25 revenue, providing revenue visibility for the next five years. Future order book inflow depends on the Indigenous Aircraft Carrier-2, on which there is a lack of consensus.
Global Opportunity Beckons
However, the company is well-positioned to lead India’s ship repair opportunity. The global ship repair market is projected to grow more than threefold to $40 billion by 2030, from its current value of $12 billion.
To tap into this opportunity, Cochin could benefit from offering repair services to the Indian Navy and allied forces, such as the US Navy’s 5th and 7th Fleets, in the Indian Ocean and Arabian Sea.
The company has already signed a Master Shipyard Repairs Agreement with the US Navy, which enables US ships to dock and undergo maintenance refits. It partnered with Drydocks World to explore joint repair opportunities and signed an MoU with Maersk to develop the ship repair portfolio.
But Valuations Leave Little Room
However, valuations appear stretched. It trades at a P/E of 64x, well above the 5-year median of 11x. Relatively, it is trading at a premium to Mazagon Dock (55x) and at par with Garden Reach (65x).
Conclusion
India’s naval expansion plans, backed by a ₹2.4 trillion project pipeline, offer strong tailwinds for domestic shipbuilders. Mazagon Dock, Garden Reach, and Cochin Shipyard are well-positioned to benefit from this multi-year opportunity, given their strong execution track record and strategic positioning. However, with valuations already elevated, investors may need to balance growth potential with pricing risk.
Disclaimer:
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data was not available have we used an alternate but widely used and accepted source of information.
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About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
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