Mazagon Dock Shipbuilders: Multibagger stock drops 17% in August so far—Is it right time to buy?

After a remarkable multibagger rally over the past year, shares of Mazagon Dock Shipbuilders declined sharply by over 17 percent in August, largely driven by concerns over its high valuations and sell recommendations from brokerages.

The drop follows four consecutive months of gains, with the stock soaring 22.5 percent in July, 34.5 percent in June, 35.5 percent in May, and 26 percent in April. Prior to the rally, the stock had seen a period of correction, falling 10.6 percent in March and 9 percent in February, while January saw a minimal increase of 0.4 percent.

Year-to-date in 2024, the defence stock had climbed 89.5 percent, delivering a multibagger return of 134 percent over the past year.

The stock reached a record high of ₹5,859.95 in July but has since fallen 26 percent to its current level of ₹4,322. Despite the recent correction, the stock still surged over 148 percent from its 52-week low of ₹1,742, recorded in October last year.

With such a substantial rally behind it, the key question is whether the current correction will persist. Technical and fundamental experts weigh in on whether this is the right time to consider buying the stock.

Technical View

Hashim Yacoobali, Director of South Gujarat Shares and Sharebrokers, noted that after witnessing a sharp rally from ₹1,795 to ₹5,830, the stock faced supply pressure at higher levels. After four consecutive months, the stock managed to break the previous month's low, while on weekly charts, it was unable to cross the previous week's high, which clearly suggests the stock is witnessing time correction.

On daily charts, the stock managed to break short-term moving averages and medium-term moving averages located at 3,777. Hashim said he expects time correction likely to end for Mazagon Dock Shipbuilders in the vicinity of ₹3,777 – ₹3,234. Long–medium-term investors can look forward to a long opportunity in the vicinity of ₹3,777 – ₹3,234 zone, he added.

Aditya Gaggar, Director of Progressive Shares, pointed out that after a spectacular rally that reached a high of ₹5,860 in July, the counter has witnessed corrective moves of almost 30 percent and virtually completed all the movements to be considered as a valid advanced harmonic pattern known as the Bullish Bat Pattern. As per the pattern, the targets are ₹4,760 and ₹5,180.

Fundamental View

ICICI Securities: The brokerage has maintained its ‘sell’ recommendation on Mazagon Dock Shipbuilders, forecasting a sharp downside of 73 percent. In a recent report, the brokerage firm set a price target of ₹1,165 for the stock, suggesting a significant potential correction from its current valuation. Despite considering possible future orders, including P75 (three additional submarines), P75I, and next-generation destroyers, ICICI Securities views the current stock price as overvalued. The firm anticipates that earnings per share (EPS) will likely remain within the range of ₹95-120 from FY28-32E while noting risks related to order execution and timeline delays.

The brokerage highlighted that Mazagon Dock Shipbuilders has seen improved margins recently, driven by the ahead-of-schedule delivery of vessels, which led to lower-than-budgeted costs. ICICI Securities expects these elevated margins to continue until FY27E, supported by major deliveries planned over the next two to three years. However, the firm cautions that once the company begins executing new orders, its revenue recognition is expected to shift to a milestone-based model, which could cause EBITDA margins to decrease to between 12 percent and 15 percent.

Nirmal Bang: Nirmal Bang Institutional Equities also issued a ‘sell’ recommendation on Mazagon Dock, citing the stock's expensive valuation. The firm had previously downgraded the entire defence sector to ‘sell,’ arguing that the current valuations were extremely high relative to sector fundamentals. Nirmal Bang set a target price of ₹4,468 (3.3 percent upside) for Mazagon Dock, which, despite valuing the stock at 25 times June 2025 EPS, still suggests just an over 3 percent upside from the current market price. The firm believes that even with significant sectoral and company-specific tailwinds, the stock's current price does not justify its valuation. 

Both ICICI Securities and Nirmal Bang agree that Mazagon Dock Shipbuilders is overvalued and foresee significant downside potential, maintaining a ‘sell’ recommendation despite setting different target prices.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.