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On Monday, JPMorgan adjusted its stance on Mazagon Dock Shipbuilders (NSE:MAZG) (MAZDOCKS:IN), downgrading the stock from Neutral to Underweight, despite raising the price target to INR3,027.00 from INR2,466.00. The revision follows a significant rally in the stock price over the recent months, which has outpaced broader market indices.
The financial firm noted that Mazagon Dock’s shares have surged approximately 63% in the past three months, while the NIFTY 50 Index has seen a rise of 12%. This sharp increase in the stock’s value has led JPMorgan to reassess the risk-reward balance, which they now view as unfavorable.
The downgrade was influenced by Mazagon Dock’s fourth-quarter financial results for the fiscal year 2025, which showed a substantial year-over-year decline. Earnings before interest, taxes, depreciation, and amortization (EBITDA) plummeted by 83%, and profit after tax (PAT) dropped by 51%, falling notably below JPMorgan’s estimates. The weaker performance was attributed to significant provisions made for coast guard and export contracts.
Despite recording strong EBITDA and profit before tax (PBT) margins of 18% and 27% respectively for the fiscal year 2025, the company’s management has indicated a normalization of PBT margins to around 15% over the medium term. JPMorgan analysts pointed out that while Mazagon Dock’s order inflow prospects appear robust, the current margins might not be sustainable, which could pose risks to future earnings growth.
The stock’s valuation, trading at 48 times and 40 times the estimated earnings for fiscal years 2026 and 2027, was another factor contributing to the downgrade. JPMorgan’s assessment suggests that the stock’s recent performance has elevated its market valuation to levels that may not be justified by the company’s long-term earnings potential.
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