This paper presents a reliable method for target vessel identification in passive sonar by exploiting the underlying periodicity of propeller noise signal, using the principles of cyclostationarity. In conventional signal processing methods, random signals are treated as statistically stationary and the parameters of the underlying physical mechanism that generates the signal would not vary in time. However, for most manmade signals, some parameters vary periodically with time and this requires that random signals be modeled as cyclostationary. In the field of sonar, the propeller noise signal generated by underwater vessels is cyclostationary. As a ship propagates in the sea, noise generated during the collapse of cavitation-induced bubbles are modulated by the rotating propeller shaft and this results in characteristic amplitude modulated random noise signal, which can be detected using passive sonar. Processing these signals, the number of blades and the shaft frequency of the propeller can be identified. In this work, cyclostationary processing technique is introduced for processing propeller noise signal and it is observed to provide better noise immunity. A detailed comparison with the conventional DEMON processing is also presented.