Garden Reach Shipbuilders execution stays strong as NGC contract awaits order book replenishment

Investment View and Valuation

ICICI Direct Research retained its HOLD rating on Garden Reach Shipbuilders and Engineers (GRSE) with a target price of Rs 2,850, compared with a CMP of Rs 2,600. The target values the stock at 35 times FY28E earnings per share.

The broker believes GRSE continues to execute its naval and commercial shipbuilding programmes well, but is awaiting meaningful order-book replenishment. It trimmed its FY27E and FY28E estimates because order inflows have been lower than expected. Timely placement of large contracts, particularly the Next Generation Corvette (NGC) order, remains the key trigger for long-term growth.

Q1 FY27 Financial Performance

GRSE reported operating income of Rs 1,814.6 crore in Q1 FY27, increasing 38.5 per cent year on year but declining 14.4 per cent sequentially. Performance was supported by execution across key shipbuilding programmes.

EBITDA declined sequentially from Rs 355.3 crore in Q4 FY26. The EBITDA margin moderated year on year because of the quarterly execution mix. ICICI Direct described execution as in line with management guidance and margins as muted but also in line with guidance.

Order Book and Execution Outlook

Management guided for continued healthy execution in FY27E despite the lower backlog, attributing the decline in the order book to faster deliveries rather than weak demand. GRSE's order book stood at Rs 13,596 crore as of June 2026, equivalent to 1.8 times trailing-twelve-month revenue. The backlog was almost half the FY23 level of Rs 25,111 crore, reflecting lower order inflows over the intervening period.

The order book comprises 11 projects and 44 marine platforms, with approximately 95 per cent related to shipbuilding. Major programmes include Survey Vessel Large, Anti-Submarine Shallow Watercraft, Next Generation Offshore Patrol Vessels, Ocean Research Vessel, Acoustic Research Ship, Coastal Research Vessel, ferries, multi-purpose vessels and dredgers.

Project milestones support FY27E revenue visibility. The final P-17A frigate was about 85 per cent complete and is expected to be delivered by November 2026. Four remaining Anti-Submarine Shallow Watercraft are scheduled for delivery during FY27E. The first Next Generation Offshore Patrol Vessel has been launched, the second was scheduled for July 2026, and the remaining two are expected to be launched in FY27E. Deliveries of these vessels are expected from H2 FY28E through H2 FY29E.

Construction of the Ocean Research Vessel, Acoustic Research Ship and Coastal Research Vessel was progressing alongside the Bangladesh dredger and German Multi-Purpose Vessel export projects.

NGC Contract and Growth Opportunities

Management said GRSE remains L1 for the NGC programme and expects the contract to be signed by September 2026. GRSE's share of the programme is valued at about Rs 33,000 crore. NGC revenue is expected to begin in FY28E through design and engineering activities and then increase over the eight-year execution cycle.

Management identified more than Rs 80,000 crore of live naval opportunities, including P-17B frigates, Fast Interceptor Crafts, follow-on FACs, NGOPVs and interceptor boats. Mine Counter Measure Vessels and Landing Platform Dock projects, together worth about Rs 71,000 crore, were expected to reach the tendering stage during CY26.

Commercial opportunities include MR tankers, VLGCs, container ships and offshore vessels. GRSE has already secured letters of intent for ONGC Platform Support Vessels and a Green Tug project.

Capacity Expansion and Technology

GRSE is increasing capacity from 28 to 32 platforms within its existing facilities by CY26. It is also pursuing greenfield facilities in West Bengal and Gujarat for larger commercial vessels, repairs and green ship recycling.

Management highlighted GRSE's indigenous unmanned surface and underwater vessel capabilities. It also said indigenisation on recent naval projects exceeds 80 per cent by value.

Broker Estimates

Key Risks

• Dependence on government contracts.
• High working-capital requirements.
• Availability of key raw materials.