What is the purpose of the OFS in this case?

The government is using the OFS mechanism to reduce its stake in Mazagon Dock Shipbuilders and meet its fiscal disinvestment targets. This also helps increase public shareholding.

Who can participate in the OFS?

Both institutional and retail investors can participate. The first day is reserved for non-retail (institutional) investors, while retail investors get access on the second day.

Is the OFS price always lower than the market price?

Not always, but in many cases, including this one, a discount is offered to attract investors and ensure adequate subscription.

Will the OFS affect MDL’s stock price?

The short-term impact may include volatility due to increased supply. However, long-term performance depends on business fundamentals and broader market sentiment.

Is MDL raising any new capital through this OFS?

No, the company is not issuing new shares or raising funds. The OFS involves only the government offloading part of its existing stake.

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An 8% Discount on This Defence Stock? The Story Behind Mazagon Dock’s Share Sale

Archana Chettiar
April 4, 2025

The Indian government’s latest divestment move has placed Mazagon Dock Shipbuilders Limited (MDL) in the spotlight. On April 3, 2025, it was announced that the Centre would sell up to 4.83% stake in the defense PSU through an Offer for Sale (OFS). As part of its broader divestment agenda, this step is intended to enhance liquidity and promote wider public ownership in public sector undertakings (PSUs). This development is relevant to market observers and those tracking the defense and PSU sectors. (Source: www.reuters.com)

Source: (www.tradingview.com)

Mazagon Dock Shipbuilders Limited (MDL)

MDL is one of India’s leading defense shipyards, operating under the Ministry of Defence. It is involved in building warships and submarines for the Indian Navy, as well as offshore platforms and vessels for oil exploration. Established in 1934 and nationalized in 1960, MDL has contributed to key naval programs, including Project 15B and Project 75.

Since its public listing in 2020, MDL has attracted interest from various market participants owing to its operational scale and a consistent inflow of defense-related projects.

The Offer for Sale (OFS): What Are the Details?

What is an OFS?
An Offer for Sale (OFS) allows existing shareholders of a listed company, often promoters or governments, to sell their stake through the stock exchange platform. It is a transparent mechanism for offloading shares without issuing new equity. Unlike an IPO, proceeds from an OFS go to the seller, not the company.

Mazagon Dock Shipbuilders OFS
The government has announced plans to sell 11.4 million shares (2.83%) with an option to sell an additional 2%, totaling 4.83%. The floor price is ₹2,525 per share, an 8% discount to the closing price on April 3, 2025. The OFS opened for non-retail investors on April 4 and retail investors on April 7. The government’s holding would reduce from 84.83% to 80% if fully subscribed. (Source:www.livemint.com)

Stock Performance in Recent Years

MDL’s stock has shown significant appreciation in recent years:

1-Month Return: +27%
6-Month Return: +34%
1-Year Return: +145%
3-Year Return: +2,076%

Factors contributing to this performance include defense sector tailwinds, steady order execution, and strong investor sentiment around indigenization in defense manufacturing. Past performance may not guarantee future results, but these metrics provide context for MDL’s recent valuation trends. (Source:www.livemint.com)

Financial Strengths and Fundamentals

MDL reports a clean balance sheet with minimal debt and consistent revenue growth. As of FY24, its market capitalization stood at ₹1,02,947 crore, with a current share price of ₹2,552. The stock has experienced volatility, reaching a 52-week high of ₹2,930 and a low of ₹1,045. It trades at a price-to-earnings (P/E) ratio of 37.4, and its book value is ₹181 per share. The dividend yield is 0.53%, and the face value of the stock is ₹5.00.

In terms of historical performance, the company has recorded returns of 149% over the past year and 171% over the past three years. Its profit growth over three years has been approximately 47%, while sales have grown at a CAGR of 32.7% over the same timeframe. Revenue for FY24 was ₹11,361 crore, compared to ₹9,467 crore in the previous year and ₹7,827 crore the year before.

Operational metrics indicate an EBITDA margin of around 21% and a net profit margin of 14–15%. The company’s return on capital employed (ROCE) is 44.2%, and the return on equity (ROE) is 35.2%. MDL’s order book is estimated at over ₹38,000 crores, largely comprising defense-related contracts. These figures offer insight into the financial structure and capacity of the organization. (Source: https://www.screener.in/)

Rationale Behind the Stake Sale

The stake sale is part of the government’s broader disinvestment strategy, aimed at meeting the required minimum public shareholding norms set by SEBI, mobilizing funds for public expenditure, and encouraging wider retail and institutional ownership in PSUs.

The disinvestment target for FY25 is ₹50,000 crore, and the Mazagon Dock OFS contributes to this fiscal plan. (Source:www.livemint.com)

Market Reactions and Observations

Initial market response to the OFS announcement included a dip in the stock price, which is common in such events due to the anticipated increase in free float. Some brokerage firms have commented on MDL’s long-term role in the defense sector and have noted its strong financials and execution track record. However, these views represent external opinions and should be interpreted with caution.

Considerations for Market Participants

Before participating in an OFS, investors often consider:

The gap between the floor price and the current market price
The company’s historical performance and sector trends
Broader market conditions and liquidity
Risks such as execution delays or policy shifts

While the discounted floor price may appear attractive, short-term price movements post-OFS can vary based on demand and supply dynamics.

Conclusion

The government’s decision to divest a stake in Mazagon Dock Shipbuilders aligns with its broader PSU reform and fiscal management goals. The company’s recent performance and involvement in strategic defense projects position it as a significant player.

This event may be noteworthy for analysts tracking government disinvestment moves or studying market reactions to PSU stake sales. As with any market development, participants must assess based on individual investment criteria and risk preferences.

Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & the certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

What is the purpose of the OFS in this case?
The government is using the OFS mechanism to reduce its stake in Mazagon Dock Shipbuilders and meet its fiscal disinvestment targets. This also helps increase public shareholding.
Who can participate in the OFS?
Both institutional and retail investors can participate. The first day is reserved for non-retail (institutional) investors, while retail investors get access on the second day.
Is the OFS price always lower than the market price?
Not always, but in many cases, including this one, a discount is offered to attract investors and ensure adequate subscription.
Will the OFS affect MDL’s stock price?
The short-term impact may include volatility due to increased supply. However, long-term performance depends on business fundamentals and broader market sentiment.
Is MDL raising any new capital through this OFS?
No, the company is not issuing new shares or raising funds. The OFS involves only the government offloading part of its existing stake.

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Archana Chettiar

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.