The Garden Reach Shipbuilders share price is in focus today. The share price is up 2% today and gained a massive 90% over 6 months. However, many brokerages have raised concerns about near-term growth potential for this key defence sector stock. Elara Capital has reiterated Sell recommendation and has lowered the target price to Rs 2,140 per share from Rs 2,260/share.
Garden Reach Shipbuilders has outperformed Nifty by 110% in the past 6 months. However, Elara Capital sees the execution timeline as fairly stretched, and the lack of a near-term trigger is one of the key catalysts for the Sell call. However, Elara Capital has raised its FY27 EPS estimates by 17% and FY28 EPS outlook by 39%. This is based on higher other income from advance money received from new order wins.
Elara Capital on Garden Reach Shipbuilders: Bulk of orders likely to be completed in FY29
The Q1FY26 top line rose 30% YoY, driven by ramp-up in execution of large orders, such as the P-17 Alpha. However, the current execution includes two P-17A ships, which are more than 50% constructed. However, one large survey vessels (LSV), seven anti-submarine shallow watercraft (ASW-SWC) ships, four next-generation offshore patrol vessels (NGOPV), and projects for Central & State governments & export orders are set to be completed by FY29. “GRSE expects to sustain the FY25 revenue run rate during FY26-27, as its current order book is nearing its peak execution stage,” Elara Capital highlighted.
Elara Capital on Garden Reach Shipbuilders: Order book pipeline strong but distant
Though the inflow pipeline is robust for Garden Reach Shipbuilders, Elara Capital is worried about the distant timeline. The order book is around Rs 21,700 crore, down 4% QoQ, due to faster-than-expected execution in Q1FY26. This is likely to be depleted by FY28. “However, the robust shipbuilding order pipeline, including large orders are set to be awarded in FY26,” they added. These include P-17 Bravo Frigates (8 units for Rs 70,000 crore), Next Generation Corvettes ([NGC]; 8 units of Rs 40,000 crore).
That apart the company also has an order pipeline for 18 next-generation fast patrol vessels worth Rs 30 bn, five next-generation survey vessels worth Rs 3,500 crore, 31 waterjet fast attack craft worth Rs 3,000 crore, 12 mine countermeasure vessels for Rs 32,000 crore and several small projects of Rs 1,500-3,000 crore. But most are set to be awarded in the next 1-2 years.
Elara Capital on Garden Reach Shipbuilders: Margins improve on operating leverage
Garden Reach Shipbuilders has seen an improvement in gross margins by 1,030 bps YoY to 42.8% in Q1. This led to the EBITDA margin improving by 290 bps YoY to 8.5% and uptick in operating leverage based on an execution cycle. The company expects provision reversal worth Rs 330 crore in the next 1.5 years. Half of this is likely in H2FY26 and the balance in FY27, due to the execution completion of large projects, such as the P17A and the ASW-SWC. This according to Elara Capital, is another key trigger for their recommendation on the stock.