Key takeaways of the call

Order backlog as end of March 31, 2019 was Rs 8286.19 crore. The indigenous aircraft carriers order backlog (not include the cost plus part of the order) is about Rs 256.32 crore and the order is 91% completed.

Two RFQs one from Navy and one from Coast Guard is already out and the company is working on. More RFQs are expected between July-Dec 2019.

Phase III contract of Indigenous Aircraft Carriers is in advanced stage of conclusion.

The company sees/have Ship Repair order visibility of Rs 260 crore and of which about Rs 180-200 crore from defence and balance from commercial.

Expect 12-14% growth in topline is expected for FY20 and the margin will be in consistent with normal margin for both shipbuilding and ship repair business.

Revenue contribution from IAC contract in Q4FY19 was Rs 569.5 crore and of which cost plus part accounts Rs 262 crore and fixed portion about Rs 197 569.5 crore.

The two capex projects i.e. New Dry Dock and Shiprepair yard (ISRF) is moving well. The construction work is largely progressing well according to the schedule. The new Drydock project taken up at an estimated cost of Rs 1799 crore is targeted for completion by June 2021. Currently this project is right on schedule. But the ISRF project, taken up at a cost of Rs 970 crore is expected to get completed by August 2020 against the original target completion of Oct/Nov 2019. Currently about 60% of piling work is completed. Commissioning of this facility will facilitate increase in repair throughput by around 70%. Capex incurred on new dock and ship repair project so far is Rs 570 crore including Rs 273 crore towards ISRF and Rs 297 crore towards new dry dock.

INS Aditya & INS Airavat –Indian Navy : Rs29.18 crore Refit of INS Aditya & INS Airavat owned by Indian Navy involved additional refit job beyond the Contractual Value. The additional refit was approved by the Contract Operating Authority (CoA), however the amount has been held up due to lack of budget allocation and long approval process involved at the Navy's end to rectify the budget allocation. Following the principle of conservative accounting, provisions of Rs29.18 crore was created in the books of account. However, the Company is actively pursuing with the Indian Navy for the approval and release of the amount.

Provision of IAC withholding tax refund: Rs 26.15 crore The supply of Working Design Documents (WDD) from an overseas vendor was subjected to withholding tax and Customs duty. The withholding tax was paid treating the supply as technical service while the Customs Duty was simultaneously demanded by the Customs authority, which had to be paid by CSL in the interest of the project. Subsequently, the Company then based on the advice of the tax consultants is in the process of filing a refund application for the withholding tax paid. However, as the same is matter which may encounter time delays, the Company on a conservative principle has made a provision for the same in the accounts.

The company incurred a loss of Rs 13 crore on its refit work on the ONGC vessel MODU Sagar Bhushan. The loss was essentially due the unfortunate accident on the vessel while on refit in the yard during Feb 18. The accident led to delays as the vessel which contractually attracts LD imposition by the client to the tune of Rs 11 crore. Additionally expenditure involved in rectifying the damages has also been factored in. Major part of the expenditure in rectifying the damages was incurred in earlier quarters. The insurance claim of estimated approx. amount of Rs 12.00 crore lodged by the company on account of the accident loss is under scrutiny by the insurance company. The Revenue from the insurance claim is likely to be recognised in FY 20 as per the accounting policy of the Company. The company is also pursuing with ONGC for a waiver of the LD. The Company had bagged a few refit orders under very tight margin for consciousØ strategic marketing reasons. Out of this the company expects certain reduction during invoice settlement for some projects such as Sagar Dhwani and Nireekshak, for which provisions for loss of Rs 19 crore has been included while accounting. The company expects to minimise this upon final settlement of the invoice. . The operation of repair business at Mumbai Port facility was started only in January 2019.Ø As the operation is still in nascent stage the company had to incur a loss of Rs 5 Crore on account of the fixed cost associated with this facility. However, the company expects good business and results from this facility once the business and operations matures. In spite of the above, the Ship Repair segment continues to give the Company 29%Ø returns for FY19 as a whole.

Ship Repair operations commenced at Cochin Mumbai Ship Repair Unit (CMSRU) at Mumbai Port Trust on Jan 18,2019. Nine ships repaired in the facility as on date.

Hooghly Cochin Shipyard (HCSL), a new JV between CSL & Hooghly Dock & Port Engineers, is setting up a shipbuilding/ ship repair unit at Nazirgunge and Salkia in Kolkata at an estimated Project Cost of Rs 162 crore. Construction contract awarded on 10 Jan 2019 with ground breaking ceremony conducted on Feb 16, 2019. The unit is expected to be operational by 2020. This facility targets construction and repairs of the Inland Water and Coastal Vessels – will cater to emerging demands of the NW-1, NW-2 and NW-5 sector.

Ship Repair operations to commence at CKSRU (at KoPT) shortly. Agreement entered into with Kolkata Port Trust on Mar 28, 2019. Infrastructure improvement activities & other Statutory Arrangements are under process.

CSL has signed a MoU with Andaman & Nicobar (A&N) Administration for setting up its unit at Port Blair in September 2018. The agreement with A&N is in the administrative phase and is expected to be cleared in the current FY. By entering into this arrangement with A&N Administration, CSL shall be developing an integrated ship repair ecosystem at A&N islands that includes modernisation of facilities, maintenance of Administration owned vessels and skill development for the islanders.

Expect ship repair to contribute about Rs 1200 crore of revenue 1-2 year down the line.