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00:00 You're watching Q1 with BQ and my guest today is from Mazagon Dock Ship Builders.
00:06 The company came out with a good set of numbers with the pad growing by nearly 39% to 314
00:13 crores.
00:14 And joining me is Mr. Sanjeev Singhal.
00:16 He's the Chairman and Managing Director of the company.
00:18 Mr. Singhal, thank you very much for joining us on BQ Prime.
00:22 To begin with, sir, can you take us through how the operations have been in this quarter?
00:29 Yes, as far as the operations are concerned, we are satisfied with the operations.
00:34 We have been consistently achieving similar kind of revenues for past couple of quarters
00:39 and the performance has been quite consistent.
00:42 Considering the shipbuilding industry and the complexities involved, including the logistics
00:48 issues with respect to Russia and Ukraine, consistently performing at a similar level,
00:54 this gives a good amount of satisfaction.
00:57 As far as 2021-23 is concerned, we had registered an increase growth of almost 35-36%, which
01:03 was a phenomenal growth by any standard.
01:06 And continuing the momentum, we expect that in the current year also we'll continue to
01:11 grow.
01:12 Maybe not at the same pace, but maybe around 10% plus growth would be there.
01:18 The PAT is comparatively better on account of primarily on account of other income, increase
01:24 in other income on CPLY basis.
01:28 And going forward also, we believe that similar kind of other income accruals would be there.
01:35 Apart from this, I had indicated earlier also, maybe on this channel or some other channels,
01:42 that during the fourth quarter of 2022-23, we have received a LD refund, liquid damages
01:48 refund, which is a penalty which is charged by the customer on account of delayed delivery.
01:53 And with respect to one of the submarines, now as far as the liquid damages penalty is
01:58 concerned, Navy has already recovered penalty with respect to all the six submarines, which
02:05 are five we have already delivered and six one is progressing.
02:10 So corresponding to other submarines also, we are hopeful these requests have been put
02:14 up and the cases are currently under examination.
02:17 So we are hopeful that these LDs progressively will be refunded to us.
02:21 So this also would be having a positive impact on the profitability of the company going
02:25 ahead in different quarters.
02:28 Sir, just to get an understanding, how do you account for this late reversals of this
02:38 liquidity delays which comes to you actually?
02:43 Does it come to the other income for you?
02:45 Yeah, no, at the time of liquid damages, this impacts our revenue.
02:52 So when we receive a refund, this impacts both revenues as well as the profits.
02:56 Okay.
02:57 But it's a direct profit.
02:58 It's a direct profit, but it is get accounted as a revenue back to you on your books, right?
03:04 Yes, absolutely.
03:05 Where is the other income going to come from?
03:07 Because you said that other income will continue to be higher in this year?
03:11 Other income is primarily from the interest portion, whatever money has been parked in
03:15 the fixed deposits, they continue to earn interest.
03:18 So there has been an uptrend as far as the interest rates are concerned compared to the
03:21 previous year.
03:23 So we expect a similar kind of a trend to continue.
03:25 So this other income would continue to reign in a similar range.
03:29 Sir, you mentioned that you've been growing at 30 to 35%, but this year you're looking
03:34 at 10% plus in growth.
03:37 Why is that a muted growth projection?
03:39 Because if I'm not wrong, you still have nearly 39,000 crores of unexecuted orders.
03:45 So why this slow growth guidance coming in?
03:51 If you look traditionally, the industry growth average has been in the range of around 5
03:56 to 7%.
03:57 So 30-35% growth was an exceptional growth on account of certain high value equipments
04:03 going on board.
04:04 So maintaining that kind of a momentum on a consistent basis, that is not a very feasible
04:08 proposition.
04:09 But going ahead from such a high level with an additional 10%, I feel it's a very good
04:16 kind of a growth.
04:18 This could be a bit higher also, but a clear picture would emerge only by the end of second
04:24 quarter or maybe middle of third quarter.
04:26 Sir, this 39,000 of unexecuted orders, when do you expect them to be executed and converted
04:33 into revenues?
04:34 This 39,000 crores has a broad breakup of three major orders are there.
04:41 One is with respect to the P75 project, which is the submarine project, which comprises
04:45 of six submarines.
04:46 We have already delivered five.
04:48 And the last one we are targeting for delivery by March 24 or maybe early 24-25.
04:53 So this project would be complete by then, except for the base and depot spares as well
04:59 as guaranteed effects liquidation, which would continue for another one year.
05:04 The second project is 15 Bravo, which comprises of missile destroyers, four in numbers.
05:09 We have already delivered two and we are targeting one more delivery by the end of second quarter
05:14 or early third quarter.
05:17 And the fourth ship will be delivered sometime in 24-25.
05:21 So with this, the 15 Bravo will also be coming to a closure.
05:25 17 Alpha is stealth frigates, which again comprises of four number of stealth frigates.
05:30 And the first ship we are targeting for delivery in 24-25.
05:34 And progressively every year one ship would be delivered.
05:37 So that would take us to something around 28.
05:40 And subsequently the delivery of base and depot spares and the guaranteed effects.
05:44 So you can say something around 28-29 by which this current order book.
05:48 Apart from that, recently we have received a new order for MRLC of a submarine that was
05:54 received on 30th of June for 2700 crores.
05:58 And the execution period for this order would be approximately three years.
06:04 So this gives a fairly good guidance with respect to the execution of the current order
06:08 book.
06:09 In pipeline, I would say there would be other orders.
06:12 We have already submitted a bid for six number of AIP fitted submarines, which was submitted
06:19 on 1st of August.
06:21 And there are two bids received by the Indian Navy, one by Mazgaon Locked Shipbuilders Limited,
06:25 another by L&T.
06:28 So there will be a technical evaluation, then field evaluation trials.
06:31 So this will be taking some time, maybe around 18 months or so before the actual order is
06:36 placed on one of the bidders.
06:38 As we in India, we are the only one who have constructed submarines, seven in number still
06:44 did on two different platforms.
06:46 We consider that we are a very strong contender for this order.
06:50 Apart from this, if we look at the shipbuilding side, there are two different platforms.
06:54 One is the next generation destroyers, where the requirement is for eight number of next
07:00 generation destroyers in two phases, four number each.
07:05 This will be a while away, but at the same time, Mazgaon Locked Shipbuilders continues
07:09 to be a very strong contender for this.
07:11 Apart from this, similar to Project 17 Alpha Stealth Frigates, there is a discussion with
07:17 respect to follow on Project 17 Bravo for a similar number of frigates.
07:23 So these orders continue to be in pipeline, which would be progressing as time moves ahead.
07:29 Sir, just to get an understanding for the investors as well, these are all big projects
07:34 which take multi years to complete.
07:36 How do you recognize revenues for these projects?
07:40 For shipbuilding industry, the revenue recognition is based on the cost to completion method.
07:45 So basically at the end of each accounting period, we estimate the revenues are known.
07:51 By and large, the price is known at which price we will be finally delivering the ship.
07:55 And what is the cost to completion I am expecting and whatever costs have been incurred, these
07:59 are taken into consideration and the difference between the cost to completion and the revenue
08:03 booking that is considered as profit.
08:05 So of course, slightly we are on the conservative side while the project is moving, but as the
08:12 project advances, there is a better clarity with respect to costs and the revenues as
08:17 well.
08:18 Normally, it has been observed that at the time of delivery, whatever surpluses are there
08:23 or whatever conservative estimates are there, there is a comparatively higher revenue or
08:32 profit booking at the time of delivery.
08:34 So like in the past two years also when we delivered destroyers in both the time on both
08:39 the occasions, at the time of delivery, there was a higher profit booking.
08:43 We are expecting a similar kind of a profit booking for the third delivery also because
08:49 this delivery also is being targeted significantly ahead of schedule.
08:53 As far as the contract delivery is concerned, we have time up to February 24, but we are
08:58 targeting the delivery by September or October 23.
09:02 So whenever any platform is delivered ahead of schedule, it definitely has a positive
09:06 impact on the profitability of the overall project.
09:10 How do you handle raw material prices because those are very fluctuating prices and of late
09:16 we have seen prices also cooling down a bit.
09:19 While you would have bid for this project at some point in time when the prices would
09:23 have been higher, do you get the benefit of those raw material prices as well to you?
09:30 No, we are compensated as far as the foreign exchange variation is concerned, that is taken
09:36 care of.
09:37 As far as raw material prices are concerned or any equipment prices are concerned, the
09:40 price variation clause is not there.
09:42 But at the same time, we continue to hedge our requirements by placing the orders for
09:47 the equipment as well as raw materials fairly early as soon as we get an order with respect
09:53 to any large project.
09:54 So these orders are secured fairly early in the total life cycle.
09:59 So that way we are not impacted with respect to the pricing fluctuation.
10:03 Sir, give us a sense of the kind of capex that would be required because you are one
10:08 of the leading shipbuilders in the country and in many cases you would be the L1 as well.
10:15 Do you have enough capacity in place to manage that or do you need to build additional capacities?
10:22 If I talk of the current facilities, currently at Mumbai, we are a single unit company and
10:27 currently at the Mumbai shipyard, we have a capacity of building 11 submarines and 10
10:32 warships simultaneously.
10:33 So it's a total of 21 vessels.
10:36 Corresponding to 21 vessels right now in hand are 6 ships and 2 submarines.
10:41 So corresponding to that, we are having 8.
10:43 So we have sufficient capacity to cater to any new requirement.
10:47 However, we have recently placed an order for a floating dry dock of approximately 500
10:51 crores for the delivery period of around 27-28 months.
10:55 In addition, we have a piece of land of approximately 37 acres, which is approximately 10 nautical
11:02 miles away from the existing location across the creek.
11:06 And this piece of land is also being developed to take care of the repair and refits and
11:12 if required for new construction also.
11:14 So in a staggered manner, we will be developing this Nava.
11:19 This area is called the Nava area.
11:21 So Nava shipyard also we will be developing over a couple of years based on the visibility
11:26 of orders and the requirements.
11:28 So we do have plans with respect to CAPEX to further increase our capacity.
11:33 How much will you be investing in Nava shipyard?
11:38 Right now the total investment would be to the tune of 2500-3000 crores.
11:43 However, the immediate investment which I see during next 1-2 years would be in the
11:47 range of 300-500 crores.
11:50 Sir, recently the DEC had approved the building of Scorpion submarine in India with the French
12:02 technology.
12:03 The announcement was made.
12:05 Do you have any further update on that?
12:07 Whether that has come to you as they mentioned Mazagon would be building it for India?
12:12 Yeah, Mazagon shipbuilders will be building it for India.
12:17 But there are certain processes involved.
12:21 So basically Navy would be requesting for it because this would not be a like-to-like
12:25 platform.
12:26 Although it's a continuation of the same broad platform Scorpion submarines, but the equipment
12:31 would not be like-to-like.
12:32 So certain discussions need to be held and the pricing needs to be formed up.
12:36 So it would take a couple of months before the things are in place.
12:41 But the platforms will be coming to us.
12:42 Okay, and how big will be the value of this platform for you?
12:49 I think it would be slightly premature right now to comment on this as we would be under
12:55 negotiation and discussing the pricing as well as the equipment.
13:00 So right now the equipment fit and weapon fit is still being deliberated.
13:05 So when we come to it, these figures will be known.
13:09 Given the sense of your tie-up with Tizen Group Marine as well, you have entered into
13:15 that.
13:16 How will that be helpful for your entire submarine and other platforms?
13:21 Yeah, we have tied up with the TKMS Germany, that is with respect to a separate project
13:28 that is P75I where the requirement of Indian Navy is six number of submarines with AIP,
13:35 air independent propulsion system.
13:38 So this is a different project for which in along with TKMS, we have already submitted
13:43 the bid on 1st of August.
13:44 Like I discussed, these bids will be evaluated, our bid as well as L&T's bid.
13:49 These bids will be evaluated technically.
13:52 And then there would be an evaluation of the platforms which are available with the respective
13:58 collaborators.
13:59 So field evaluation trials.
14:01 So these trials and these technical evaluations post this, there will be discussions with
14:06 respect to pricing, etc.
14:08 And we expect that who is getting the order, this picture would be emerged maybe in a period
14:14 of around 12 to 18 months.
14:16 Sir, just to understand that bidding, how does the bidding take place while there is
14:21 a technical and financial bid evaluation that happens, does the bid transfers if both the
14:29 parties are eligible, does it go into 80-20 ratio like L1 getting 80% and L2 getting 20%
14:36 or is there any ratio in which it gets distributed?
14:40 As far as the current RFP is concerned, there is no division of order and this is so either
14:47 it is 0-6 or 6-0.
14:48 Either we get the entire lot of 6 submarines or L&T receives the entire lot of 6 submarines.
14:54 So this is the present RFP scenario.
14:58 My final question to you sir, one of the key things which the market has been talking about
15:04 is that there is a bumpiness in the revenue that comes in because of the kind of project
15:08 completion that happens.
15:09 Is there a way to normalize the revenues going forward or this will continue because of the
15:14 kind of projects and delivery timelines that comes in?
15:18 We have discussed earlier also as far as the lumpiness is concerned, considering the nature
15:24 of the industry, this lumpiness cannot be fully avoided.
15:28 However, considering that Muskox shipbuilders have been executing a couple of projects to
15:34gether, 17 Alpha of 4 brigades, 15 Bravo of 4 destroyers and 6 number of submarines
15:41 and the project 75 and MRLC.
15:44 So to a certain extent, there is a smoothening of this lumpiness as various projects would
15:49 be at different stages at any particular point of time.
15:54 And for the past at least 4 quarters, we have been delivering very consistently.
15:59 So going ahead also as far as 2023-2024 is concerned, I don't see much of a variation.
16:07 Yes certain growth would definitely be there but a very significant variation in water
16:14 may not be there.
16:15 Is it fair to say 2024-2025 will be the big year for you because many of the projects
16:18 get delivered in that area?
16:20 Yeah, 2024-2025 we are also expecting as far as the revenues are concerned with respect
16:26 to the current orders, it could be a big year 2024-2025.
16:31 Yes.
16:32 Mr. Singhal, it was a pleasure talking to you today.
16:34 Thank you very much for joining us on BQ Prime.
16:36 It's a pleasure.
16:38 Thank you.
16:39 Thank you very much.
16:47 [BLANK_AUDIO]
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