Key takeaways of the call

For 9mFY18, the revenue from ship repair (SR) was Rs 526.2 crore and from ship building (SB) was Rs 1228.32 crore. The company will be happy with little more ship repair revenue. For Q3FY18, the revenue contribution from SR was 33.7% and that of SB was about 66.3%.

Total Order Book as end of December 2017 was Rs 12950 crore and of which order book of SR was Rs 359 crore and balance is of SB order book. Of the SB order book about Rs 219 crore is that of DRDO order; Rs 1231 crore is Andaman & Nicobar passenger Vessel order and balance are aircraft carrier order. Pending Phase II air craft order book is Rs 887 crore. Phase III aircraft are is still under negotiation including work portion of Rs 3000 crore and material portion of about Rs 7270 crore. SB Order book includes the order of air craft carriers including phase III.

In addition, the SB division of the company is currently L1 for orders worth Rs 5780 crore. L1 orders comprise two orders, the first is from Ministry of Home Affairs for construction of 56 boats worth Rs 380 crore and the second is for supply of 8 nos of combat vessels from Indian Navy worth about Rs 5400 crore. Indian Navy Order is expected by mid of this quarter.

The company has signed a MoU with Mumbai Port Trust for 30 year lease of Indira Dry Dock. The dock will be used for ship repair and the company will be investing about Rs 60-80 crore. The MoU will be converted to agreement by March 2018 and the company will commence SR work by May 2018 at Indira Docks. In the first year of operation that works out for about 10 months, the company expects a revenue generation of Rs 50-60 crore out of this facility. In second and third year the company expect about Rs 125-130 crore and Rs 200-250 crore of revenue contribution from this facility. Rs 250 crore is the peak revenue the Mumbai dock could generate.

Similarly the company is in negotiation with A&N Administration for taking over of Ship Repair facility at AN. AN has an captive requirement with 80 vessels of which most of it come to Cochin ship yard currently for repair under existing MoU between the CSY and the A&N Administration. Takeover of A&N ship repair facility will facilitate repair of those vessels there itself and free the Cochin Ship Repair capacity significantly. Investment in A&N ship repair facility will be zero as this will be just an O&M contract.

Likewise at Kolkata the company is taking over the NSC Bose Dock, where the company will initially invest about Rs 10-15 crore.

Part of the Shipbuilding dock that was used for ship repair, will also not available for ship repair as ship building will be on full swing. Also with work on ISRF project on full swing, the small dock that turned in a revenue of about Rs 30-35 crore per annum at that location will also turns defunct and there will be revenue loss for almost about 6 months. So ship repair will see a revenue loss on account of this going forward. But Mumbai Dock will compensate for the loss of revenue for ship repair at Cochin ship repair facility.

On capacity expansion or capex spend the company is bit slowly so far this fiscal. The work on International Ship Repair Facility is going on full swing. However the work on dry dock witnessed some set back as the contractors require some more time. Now the four bidders have submitted the bids. The company expects to place the turn key contract by Feb 2018.

Ship repair biz is bursting on seam. Ship Repair Revenue of for 9mFY18 is almost equal to that of 9mFY17. And current fiscal does not have the benefit of any large order contribution as it was in last year, where INS Vikramaditya alone has contributed about Rs 240 crore. So the company is confident of turning in ship repair revenue of more than Rs 600 crore revenue in current fiscal despite revenue loss due to capacity constraints.

Well Stimulation Vessel order of ONGC – The tender by ONGC is for ship owners. And the company has participated indirectly by giving offer to a Dubai based Shipping company.

Polar Research Vessel – Currently only PQ process is under way. The company has gone along with 2 Norwegian company for PQ. Similarly High speed vessel is still in RFQ stage.

Higher SB Margin for the period is largely due to increased contribution of work portion in case of IAC order. IAC work portion is purely of labour cost and mark up or profit so the margin is very high in this segment. Contrarily the margin of material portion which is cost plus is just 12.5%. Overall IAC order will give a steady margin of 25%. Higher EBIT margin of SB will continue in next quarter as well.

IAC revenue for 9mFY18 is Rs 1043 crore and of which about Rs 674 crore is material portion and Rs 369 crore is work or non material fixed part.

Ship repair Margin will be about 23% with plus or minus of 1.5%.

Hooghly Dock & Port Engineers (HDPEL) JV – Signed lease agreement for 60 years and has appointed a consultant i.e. KITCO for preparation of DPR. The consultant is expected to submit his DPR report in next 2 months and the work on this project will commence thereafter.