Defence PSU Stock Update: Kotak Advises Selling Cochin Shipyard, Citing Margin Concerns

Kotak Institutional Equities has reiterated its ‘Sell’ recommendation for Cochin Shipyard, a defense public sector unit (PSU), citing concerns over normalizing margins and an uncertain project pipeline. The brokerage noted that Cochin Shipyard’s Q2 performance met expectations, but higher depreciation and amortization (D&A) costs and lower margins weighed on results.

“Ship repair margins were at 30%, signaling margin normalization as the impact from the one-time INS Vikrant project has subsided,” Kotak reported. “With no major defense orders in the pipeline and continued uncertainty around the IAC-2 project, the stock faces a key risk for significant future orders in the near term.”

Kotak revised its fair value estimate to Rs 800 as it adjusted earnings estimates for September 2026. As of Friday, Cochin Shipyard’s stock traded 4.98% lower at Rs 1,448. Despite delivering a 113% gain in 2024 and a 177% return over the past year, Kotak’s target suggests a 45% potential downside from current levels.

The brokerage highlighted that progress on the IAC-2 project is a crucial catalyst for Cochin Shipyard’s future. The absence of any updates over the last year suggests potential delays.

“Beyond IAC-2, no significant defense contracts have been secured, with year-to-date order wins driven primarily by commercial shipping projects. The near-term pipeline remains limited at Rs 7,800 crore, while medium-term projections have been cut to Rs 30,000 crore from Rs 50,000 crore,” Kotak noted.

Kotak emphasized that within the Indian Navy’s total Rs 3 lakh crore pipeline, the Rs 20,000 crore landing platform dock project is currently the only significant opportunity for Cochin Shipyard.

Cochin Shipyard’s H1FY25 margins stood at 20.9%, just slightly above its full-year guidance of 17-19%, indicating further normalization in the upcoming quarters as one-off ship repair projects are completed.

Additionally, with the commissioning of its new ship repair and dry dock facility, Cochin Shipyard expects a rise in depreciation costs in H2FY25, which Kotak believes could limit profit growth for FY2025.