Newsletter
Mazagon Dock just posted its first quarter results for FY26. But despite a healthy rise in revenue year-on-year, investors weren’t thrilled — the stock fell over 5% in early trade. In fact, it’s down nearly 18% over the past month, even though it’s still up 19% for the year. What triggered this selloff? A steep 53% drop in standalone EBITDA and a second straight quarter of elevated provisioning seem to have weighed on market sentiment.
Analysts point to MDL’s long-term strength — its unmatched role in India’s submarine production, strong cash reserves, and a defence order book that’s only getting thicker. But in the short term, margin pressure and lack of detailed guidance have given investors a reason to pause.
Mazagon Dock Shipbuilders has been at the heart of India’s naval ambitions for over 250 years. From building its first frigate in 1972 to becoming the only Indian shipyard to deliver destroyers, submarines, and stealth frigates, MDL has come a long way. In 2020, it got listed on the bourses with one of the most oversubscribed IPOs in defence PSUs.
In FY25, it reached a key milestone — being awarded ‘Navratna’ status, commissioning three naval combatants on a single day, and delivering the final Scorpene-class submarine. It also broke into the export market with six hybrid-powered vessels. This quarter’s results offer a closer look at how it’s navigating a high-visibility order book with short-term delivery challenges.
How this quarter stacks up
After a record FY25, MDL entered FY26 on cautious footing. While YoY numbers are stable, sequential profits took a hit from high provisions.
Inside the business this quarter
Execution continued across warships, submarines, and offshore orders but provisioning for cost overruns in two contracts (Coast Guard’s FPVs and an export order to Denmark) dented operating profit. These provisions, amounting to over ₹500 crore in FY25, reflect anticipated losses due to input cost escalation post-bidding. Q1 didn’t bring fresh hits, but provisions stayed elevated.
CMD Capt. Jagmohan noted this will be reviewed every quarter and reversals are possible as project economics evolve. Revenue dipped sequentially, a normal Q1 pattern, but remained up 11% YoY, a sign that core operations haven’t stalled.
Margins, earnings, and the capital cushion
Q1’s net profit looks better than Q4 at first glance, but that’s mostly because of tax credit benefits. The real margin story lies in the operating layer: EBITDA margins dropped to 15% from 35% a quarter ago, reflecting provisioning and execution mix changes.
CMD confirmed that the high 26–27% margins of FY24-FY25 were unsustainable; mostly driven by late-stage, high-margin orders (like Project 15 Bravo). Going forward, MDL expects margins to normalize toward 15% PBT and ~15–17% EBITDA; more in line with global shipbuilding norms.
What’s unchanged? The cash war chest. MDL sits on ₹11,000–12,000 crore in cash, with ₹6,000 crore as margin money and the rest in working advances. With no debt and consistent dividends (₹832.98 Cr in FY25), financial risk remains low.
The next big bets
The real buzz lies in the upcoming defence deals. MDL is in line to receive a direct nomination for three additional Scorpene submarines (₹30,000–40,000 crore), with signing expected within months. This could double its ₹32,000 crore order book. Beyond that, the ₹70,000 crore P75I submarine project, ₹70,000 crore P17B stealth frigate deal, and ₹44,000 crore MCMV project are all in the pipeline.
If even half of this materializes, MDL’s order book could swell to ₹1.25 lakh crore within two years. To gear up, it has expanded submarine construction capacity from 6 to 11 units and plans a ₹4,000 crore capex to double total yard capacity. The Submarine Section Assembly (SSA) facility is already operational, and land has been secured from Mumbai Port for smaller vessels.
MDL is also eyeing global tie-ups; most notably with ThyssenKrupp for P75I, which brings in high transfer of technology and potential export servicing rights for similar submarines used by navies worldwide.
Challenges for the next few quarters
- Elevated provisioning may persist until Denmark and FPV contracts are closer to delivery
- Lack of new order signings (P75, P75I) could delay revenue visibility
- Margin volatility due to early-phase execution and fixed-price contracts
- High subcontracting costs from outsourced builds due to yard constraints
- Export delivery delays could impact credibility and optional orders
What to track before the next earnings call
The big one to watch is the Scorpene additional submarines order, expected to be awarded in the coming months. If that lands, it could trigger a major re-rating for MDL. Also watch for progress on P75I, where commercial negotiations have started.
Revenue growth is expected to moderate to 8–10% CAGR, down from over 20% as new orders move through design and procurement phases. About ₹24,000 crore from the current order book is expected to be executed over the next two years.
The upcoming delivery of the second and third P17A frigates and submarine refit work (MRLC, AIP plug) will be the next operational milestones. Meanwhile, export execution, especially the Denmark order, remains under the scanner.
The road ahead
This wasn’t a blockbuster quarter, but it’s part of a bigger story. Mazagon Dock is transitioning from legacy high-margin projects to new-generation builds with more muted economics. Provisions are a temporary pain, not a structural flaw.
India’s defence manufacturing push is only getting stronger and MDL sits at the confluence of submarine tech, naval buildouts, and export ambitions. If the company wins even one of the mega-projects in the pipeline, it could redefine what PSU defence execution looks like.
For now, it's steady hands on deck and clear skies ahead if the orders come through.
FAQs
Why did Mazagon Dock shares fall after Q1 FY26 results?
Despite a strong year-on-year rise in revenue, Mazagon Dock shares dropped due to a 53% fall in standalone EBITDA and continued high provisioning. The lack of fresh order updates also weighed on short-term sentiment.
What was Mazagon Dock’s revenue in Q1 FY26?
Mazagon Dock reported ₹2,625.59 crore in revenue from operations for Q1 FY26, marking an 11% rise year-on-year but a 17.3% drop sequentially due to seasonality.
Why did Mazagon Dock's EBITDA margin decline sharply in Q1 FY26?
EBITDA margin dropped to 11.46% from around 34.7% in the previous quarter due to provisioning for older fixed-cost contracts and a shift in execution mix.
What are the provisioning concerns at Mazagon Dock?
Mazagon Dock made elevated provisions in FY25 for two contracts—Coast Guard’s FPVs and an export order to Denmark—due to input cost overruns. These provisions continued in Q1 FY26 and may stay elevated in the near term.
What is the significance of Mazagon Dock’s cash reserves?
Mazagon Dock has cash reserves of ₹11,000–12,000 crore, with low debt and consistent dividend payouts. This strong balance sheet gives it flexibility to execute large defence projects.
Which major defence projects could boost Mazagon Dock’s order book?
Key upcoming orders include three more Scorpene submarines (₹30,000–40,000 crore), the P75I submarine project, Project 17B stealth frigates, and the MCMV programme. Together, these could push the order book past ₹1.25 lakh crore.
Is Mazagon Dock expecting revenue growth in FY26?
Yes, but at a slower pace. Revenue CAGR is expected to moderate to 8–10% as execution begins on early-phase projects that are still in design or procurement stages.
What milestones should investors watch in the coming quarters?
Key triggers include the Scorpene repeat order signing, progress on the P75I submarine deal, delivery of the next two P17A frigates, and smoother execution of export orders.
How did Mazagon Dock perform in terms of net profit in Q1 FY26?
Mazagon Dock posted a net profit of ₹452.15 crore in Q1 FY26, up 39% from Q4 FY25, mainly due to lower tax expenses.
What is Mazagon Dock’s long-term outlook despite Q1 margin pressures?
Mazagon Dock remains a critical player in India’s naval defence manufacturing. With a healthy order book pipeline, no debt, strong cash position, and global expansion plans, it is well-positioned for long-term growth.
