Garden Reach Shipbuilders - Execution Picking Up; Strong Growth Ahead: ICICI Direct Initiates Coverage

ICICI Direct Report

Garden Reach Shipbuilders and Engineers Ltd., one of India's leading defence public sector undertaking shipyards, primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard.

The company has delivered 107 warships to the Indian Navy, Indian Coast Guard and friendly countries till date. The shipyard has built and supplied more than 780 vessels for maritime security.

Garden Reach’s revenue recognition is set to increase during FY22-25E in its major contracts. Moreover, pick-up in execution will be supported by increasing indigenisation of platforms/sub-systems.

Key triggers for future price performance:

• Defence budget for indigenous procurement is likely to increase considerably for FY24E with share of imports further coming down. For FY23, Rs 84,598 crore (68% of total procurement budget) has been kept for purchasing locally produced weapons and systems.

• With an already strong order backlog of Rs 22930 crore as of September 2022 (~10 times trailing twelve months revenues), Garden Reach is well placed to benefit from Indian Navy’s big procurement plan for the next three to four years.

• Next generation corvettes are the largest contract opportunity in the pipeline for Garden Reach ( Rs 36000 crore), the request for proposal of which is expected by 2023 end. Garden Reach is expected to be the level-one with contract of Rs 22500 crore.

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