Mumbai - On Thursday, Mazagon Dock entered into a significant agreement with the United States government, signifying a changing landscape in the Indian shipbuilding and defense industry.

Mazagon Dock inked a Master Ship Repair Agreement (MSRA) with the NAVSUP Fleet Logistics Center (FLC) Yokosuka of the US Government, just ahead of US President Joe Biden's visit to India for the G20 Summit and a bilateral meeting with Prime Minister Narendra Modi on Friday.

This Mumbai-based company became the second firm, following Larsen & Toubro, to enter into an MSRA.

This agreement is poised to facilitate voyage repairs of US Navy Ships at Mazagon Dockyards in India, marking a transformative development in the Indian shipbuilding industry.

Several factors contribute to this transformative shift in the country, including India's extensive coastline, the government's emphasis on the "Make in India" initiative, particularly in the defense and shipbuilding sectors, and the changing global geopolitical dynamics away from China.

"Many are looking to diversify away from China, and India, with its extensive coastline, is strategically positioned to meet global shipbuilding demands," remarked AK Prabhakar, Head of Research at IDBI Capital.

Deven Choksey of KR Choksey Securities added that there is considerable room for growth in the shipping industry in India, especially since India's defense budget is relatively small compared to those of other countries.

Choksey stated, "I believe there is significant potential for upscaling, and I have always believed that Indian shipbuilding and maintenance companies have tremendous potential. Until now, they were stagnant. However, with the government actively intervening in this sector, it can be considered a game-changer and the start of new opportunities."

However, he cautioned that bureaucratic hurdles could impede progress in this sector.

"The only reason for caution is that government companies typically do not capitalize on such opportunities to a great extent, and the fact that personnel changes occur frequently. If these issues are addressed, I think this is a major opportunity for India," Choksey noted.

Investors reacted positively to this development, with shares of Mazagon Dock surging by as much as 19 percent to reach a record high of Rs 2,483. Cochin Shipyard shares rose by as much as 9.75 percent to hit an all-time high of Rs 1,258, and Garden Reach Shipbuilders advanced by 7.43 percent to achieve a record high of Rs 973.95.

These Indian shipbuilders have witnessed remarkable returns within a year, driven by the government's efforts to bolster India's self-reliance in defense manufacturing and position the country as a global hub in this sector.

Mazagon Dock's shares have soared by a remarkable 515 percent or 6 times, Cochin Shipyard has climbed by 240 percent, and Garden Reach Shipbuilders has surged by 222 percent.

Choksey and Prabhakar both noted that these stocks are trading at relatively high valuations and cautioned that shipping contracts are typically long-term in nature, with revenue not expected to materialize immediately.

"Valuations cannot scale up in the manner in which the stock prices have gone up because these projects do not produce revenue on day one, as they are long-term projects," Choksey emphasized.