HAL, Cochin Shipyard shares: Ambareesh Baliga flags elevated valuations, execution risks

Market expert Ambareesh Baliga cautioned that despite the recent correction in the defence pack, valuations remain on the higher side and execution risks persist.

“Valuations are still fairly expensive. Although we have seen a correction in the defence space, valuations continue to remain elevated. Whenever new contracts are signed, you immediately see some sort of upmove — it is clearly sentiment-linked. However, when you look at performance, we could see some execution issues in the defence space,” Baliga told Business Today on Tuesday.

“We have already seen that happening in HAL (Hindustan Aeronautics Ltd), and I think it could play out across other companies as well, as most of them are sitting on huge order books for the next seven to eight years. A company like Cochin Shipyard Ltd, if I’m not wrong, has visibility for nearly 11 years. The question is, where is the capacity to add more orders? More importantly, execution risk is still not fully discounted by the markets,” he also said.

Shares of Cochin Shipyard rose sharply today after the state-run shipbuilder emerged as the lowest bidder (L1) for a multi-thousand-crore project from the Indian Navy.

In a post-market exchange filing on Monday, the company stated that it has been declared L1 in the tender floated by the Ministry of Defence for the construction of five Next Generation Survey Vessels (NGSVs).

According to the filing, the company estimates the total value of the order at around Rs 5,000 crore.

The filing highlighted that the final announcement of the contract will be subject to the satisfactory completion of necessary formalities in this regard, which the company said it would update in due course.