Mazagon Dock Raises Guidance On Strong Order Book
Mazagon Dock Shipbuilders already have orders worth Rs 33,000 crore from the Indian Navy.
Mazagon Dock Shipbuilders Ltd. has upped revenue guidance citing its strong order book that has gained from India's focus on local manufacturing of arms and defence equipment.
The shipbuilder expects revenue of more Rs 7,000 crore in the ongoing fiscal ending March. The public sector enterprise has a current order book of around Rs 42,000 crore.
"Performance of both the quarters of the current fiscal has been very nice and some of the best we have ever done," Vice Admiral Narayan Prasad, chairman and managing director of Mazagon Dock Shipbuilders, told BQ Prime's Niraj Shah.
The shipbuilder's stock has surged more than threefold year-to-date, reaching just below Rs 900 levels. Mazagon Dock had issued shares at Rs 145 about a two years ago.
"This certainly indicates that the general investors have a lot of interest and confidence in this particular scrip and when they see what is happening now," Prasad said.
Additional contracts of about Rs 33,000 crore are expected over the next 1.5-2 years, which includes eight next-generation corvettes and six high-speed landing craft. "In 2024-25, we are looking at roughly Rs 11,000 crore and as we go on, it will only increase by about 10-20% every year."
It could gain orders from a pool of over Rs 1 lakh crore, for which they are considered among the favourites, Prasad said.
According to him, they have orders worth Rs 33,000 crore from the Indian Navy.
There's a requirement of five New Generation Destroyers for the Navy at about Rs 50,000 crore and six conventional submarines for about Rs 43,000 crore.
"So, you have an order book of roughly about Rs 1 lakh crore for which Mazagon is a strong contender; nobody has done it before."
Watch the full conversation here:
Edited excerpts from the interview:
May I start off with the uptick in the guidance. You have gone ahead and upped FY23 guidance by about 25 to 30%. Tell us what's gone into that and on the back of that, what would make you change the outlook for 2024 as well, winning large value orders or the run rate improving sharply?
On the horizon, our performance of both the quarters of the current fiscal has been a very nice one and some of the best MDL has ever done.
If you look at the current quarter gone by, we have just evaluated the standalone and the consolidated performance of Mazagon Dock Shipbuilders Limited, our revenue from operations was about Rs 3,933 crore, which is 41% higher than the previous similar half-yearly performance of Rs 2,784 crore.
Similarly, our PAT is about Rs 417 crore, which is almost about 87% higher compared to Rs 224 crore of the previous fiscal. So, we have been doing extremely well and similarly, the revenue from operations has gone up by 8%, the PBT has gone up by about 65% and likewise, the operating profit has gone by about 48%, Ebitda by about 59%.
So, the present order that Mazagon Dock Shipbuilders Limited is executing is roughly on the order of about Rs 42,000 crore, which is going to be executed in the next 3-3.5 years and essentially comprises construction of 4 in number 'guided-missile destroyers' which is called Project 15 Bravo, 4 in number of 'advanced stealth frigates,' which is called Project 17 Alpha, and six in number Scorpène submarines.
Now, out of all these programmes and this also includes a maintenance programme of a submarine of HDW origin, which MDL had built earlier in 90s.
That total thing comprised roughly about Rs 42,000 crore, and as I have told you, total executable over a period about 3-3.5 years.
You have talked about as to what is going to be a similar kind of horizon in the next fiscal. So, if you look at the entire thing for the year 2023, this is the year which is going by right now here. In my last couple of interviews, I have talked about the Rs 6,830 crore that I had projected earlier, that is at the end of the first quarter.
Now, we are making a pronouncement that this will go higher, and this will be an increase of 30% over the previous year and predicted about Rs 7,600 crore. Coming to 2023-24, we are roughly looking at, right now, it is going to be packed somewhere about Rs 8,074 crore.
In terms of funds availability for all the programmes, MDL has never found itself in uncontrolled deep waters. We always have funds and are overflowing with funds because in our entire programme, funds come first and the investment takes place later. So, that is the entire architecture of shipbuilding that is available with defence PSU shipyards.
Since you have asked this figure, 2021 was roughly about Rs 7,056.71 crore that we received, 2021-22 is about Rs 1,435.82 crore and majority of the amount, which is due to be received, we are getting well in time and all our funds availability is almost on the brink. So, there is no problem of any of the construction and we have enough fixed deposit to champion the entire cause of Mazagon Dock Shipbuilders Ltd.
With regards to what is the kind of order book which we have in a short distant horizon and what is there in the long distance horizon, ...if you look at the current programmes, which are all lined up, now these are right now of the order of about Rs 35,000 crore which essentially comprises of a couple of new generation corvettes and a lot many other programmes which are there.
So, these RFPs we are expecting from the Navy very soon, DSC approval has been accorded. So, this is roughly about Rs 33,000 crore. Add on some more vessels from the Coast Guard and all this gives you a visibility of about Rs 35,000 crore. This is going to be competitive bidding.
But what MDL is a very strong contender, is almost like a singular performing shipyard. There's a requirement of five in number, new generation destroyers by the Indian Navy and this is called a new generation destroyer, the largest and the most well equipped so far built in India for the Navy and let me share with you all the destroyers which have been built for the Indian Navy has been all built only by Mazagon Dock Shipbuilders Limited, so far price at about Rs 50,000 crore and six in number conventional submarines which is called an upgrade over Scorpene submarines called programme P75I.
Now these are highly advanced submarines with air independent propulsion system and Lithium batteries and that is a packed about Rs 43,000 crore. So, you have an order book of roughly about one lakh crores for which MDL is a very strong contender, nobody has done it before.
You mentioned that your current order book is about Rs 42,000 crore executable over three and a half years. Did I get that correct? Now with an assumption that some bit of it gets executed in FY23, which is the current year and I have heard you mentioned that you would do about Rs 8,074 crore is that the number you mentioned for FY23. So, that accounts for about Rs 10,000 crore of the Rs 42,000 crore order book and you will have two more years to execute the remaining Rs 32,000 crore. Are my numbers correct, Vice Admiral?
What you have actually touched upon is absolutely fine. Our 'Project 17 Alpha' which is basically addressing the stealth frigates, what is balance right down in that programme is roughly about Rs 17,795 crore out of the total I will say Rs 25,728 crore of the total value.
Now, these programmes are running slightly behind schedule, and this has got a propensity or the likelihood because whenever a programme is given to any shipyard including Mazagon Dock Shipbuilders Limited and a time and the cost which is attached to that.
So, while there will be no cost overruns, there are a large number of developmental R&D objects which are there, like main mounting guns which are there, they are all supposed to come from let's say US. Similarly, there are quite a few numbers of things which are yet to be configured and the responsibility rests with the Indian Navy.
Now, these aspects are all going to be projected back to the Cabinet Committee on Security, who redefines what is going to be 'officially allowed delays' which are there. So, when we try and install any system on board, case in point, is the highly versatile MF star radar, which addresses all of the gunning system.
Now this is still undergoing different kinds of testing and is being developed in collaboration with Israel and with ELTA and our own company BEL and it is going to be fitted in different versions on our platforms. For them to become mature, it takes a certain amount of time, and the government officially permits.
So that delay aspect is still under evaluation by the Naval headquarters which we have already submitted, and they will honour and give it to us without any LD application.
My question therefore is, if all the permissions are granted as it is, are we looking at a quantum jump in revenue and execution, post FY24. Let's assume that in FY24, you do about nearly Rs 8,100 crore of revenues, and you have an executable order book of nearly Rs 32,000 crore left to be executed over two years. Do these numbers sound correct to you?
In 2024-25 we are looking roughly at about let's say, I am making an estimate about Rs 11,000 crore and as we go on, it will only increase by about 10 to 20% every year.
Okay, my larger point is that if you do usually 10-15 to 20%, then the order book of Rs 42,000 crore does not get executed in three and a half years it will take slightly longer than that.
It will take slightly longer but what I mentioned, this order book also has got certain elements of a medium refit and life certification of a submarine, which has a shortened gestation period. This means completion is a 'refit programme' it is not a brand-new ship construction.
So, this will get executed much earlier and shipbuilding, there likely to have I can share with you, another about 1-1.5-2 years add on. I just talked to you about the official figure, but these are having a likelihood that another one or two years can be added towards the right-hand side for execution.
My question, Vice Admiral, is about the approach that investors are now making to defence company companies. You would have had to, or you would be sitting or meeting I presume, a fair degree of investors who want to make investments into the Indian defence companies which are listed, yours included. Are they now a lot more receptive to the guidance that managements are giving. Do you meet a lot of global investors as well, who want to go out and invest in to Indian defence landscape?
When we launched the IPO and at that time, it was in the midst of just about a recovery period of the Covid-19 the first phase, October 20 and a lot of, I would say, loss of lives in Mumbai and even in my Shipyards and all. But even at that point of time when the IPO’s final date was closed, it was listed at about Rs 145, it got listed about Rs 216.
Now from Oct. 20 to now, it has already touched one of the highest figures of Rs 840. Today there is a slight amount of fall somewhere about Rs 780 or Rs 790 it is there in the morning. I can only tell you that at that point of time, we oversubscribed 157x and that was the highest figure ever touched by any of the central public sector enterprises. If I have to believe what the chairman of the Bombay Stock Exchange told me during the ceremonial Gong ceremony, it is 9th or 10th highest ever in the history of IPOs in this country.
This certainly indicates that the general investors have a lot of interest and confidence in this particular scrip and when they see what is happening now, what is the maritime capability perspective plans of the Indian Navy and the Coast Guard who are our prime customer.
And having seen that there are no ships that the government wants to build abroad, and everything has to be built in India and of the current running programmes except two in number stealth frigates which are being built in Russia, every other ship is built only in India.
So, there's a very, very strong statement from the Government and the Ministry of Defence and having seen that and the maritime capability perspective. Every shipyard is quite buoyant, in terms of order book.
Most certainly, so which is now my question, do you get calls from large investors wanting to meet you in order to understand what could happen ahead?
I keep on addressing at each of the quarter and at regular intervals there. It is a very periodic kind of a thing which is there, and I had a lot of pleasant and some not very pleasant queries during my AGL and they were all taken, and they all were very appreciative for the entirety.
Now, what are the risks to this execution? What about the supply side because I know there is a lot of focus around Atmanirbhar, but a fair degree of companies have told me that even if they want to, they are not able to source everything from India because as of now the entire supply chain is not fully developed. So, what is your experience out there, Vice Admiral?
A very interesting question which you are brought in. If you are aware of the current thrust by the Government of India and particularly Ministry of Defence in Make in India and indigenisation efforts which are there.
Efforts towards indigenisation and promulgation by the Ministry of Defence of so-called positive indigenisation list one, two, three and four. So basically, what they have done, they have charted out that any capital and a small shipbuilding initiative in India, we should try and achieve within a couple of years only, that no item is required to be imported. A very, very clear-cut directive has been given.
Now it's a very tall order, but I can tell you it can be made to happen and that is how in the PIL three itself, which is the positive indigenisation list number three, Mazagon Shipbuilders Limited has already taken a very large number of items for the indigenous production and these are the some of the initiatives which have never been done in this country so far.
A case in point is controllable pitch propeller. These are the main propulsion aggregate for Project 17 Alpha, we had always imported. It was told to us, you give me a year beyond which there is going to be ban on import. It has to be all from an agency of production. But I am glad to share with you that we have identified a company, we are already executing a contract with them for producing the same product within the country. I have personally visited the premises and the infrastructure, and the capabilities are uncontrolled. I mean they can certainly do it here.
Similarly, the magazine firefighting system, producing a gas turbine generator which has never been done in this country so far, is being done with an Indian company here. A producing a marine gas turbine generator and producing a marine gas turbine for main propulsion. These have always been imported, either from US or from Ukraine.
A lot of attempts are being made with the private industry to ensure that we produce all these products with infrastructure and facilities within the Navy and within the country and MDL is a very strong partner, even when I am talking about P75I submarines, which is pegged at about Rs 43,000 crore.
There's a huge amount of impetus from the Government of India that can you produce a submarine by your own design rather than sourcing this design from a foreign collaborator and MDL has already committed almost about over a period of time Rs 2000 crores to see that each and every component we try and produce indigenously in collaboration with different companies.
Another product that we have never made before in the country, is the main propulsion motor of a submarine, the requirements are very few because you don't have too many and each one is fitted with just one submarine.
So, when you don't have a sustainable quantity in your hand and a huge investment which is required, is almost Rs 150 crore, but MDL has taken unto themselves, but we will produce and maybe 50% we invest and likewise, if I have to rattle it out as to what MDL is doing, MDL has also in this country for the first time has produced a fuel cell powered vessel, which is already in water in collaboration with Tata Defence.
So, here are some of the initiatives and to prove that what I have talked about an indigenous submarine, we are making a midget submarine and that will see the water in the year 2023, completely indigenously produced.
I have one more question. Does this ability to execute in such a fashion enable you to get export orders? Do you have capacity and the bandwidth to execute them while you're doing so much of work for India?
Actually, looking at our capability and the capacity that we have, our capability and the capacity basically translates into with all the modernisation and the innovative tools that we have brought in, we can produce 11 conventional submarines and 10 capital warships at any point of time in Mazagon Dock Shipbuilders Limited.
So right now, since we have already delivered four submarines, and let me share with you, fifth one, I am going to do in a month and day after tomorrow on 24th I am delivering a destroyer which costs about Rs 8,500 crore to the Indian Navy.
So, it's an ongoing process. This year itself, if I am slightly diverting from the main topic, we have done in the current calendar year, four launches and two deliveries which is going to be there now in December, which is the best ever performance by any shipyard in the world. Nobody has done this kind of performance anywhere and last year also we had delivered two submarines and a destroyer, just on the aftermath of Covid, the best performance again by any shipyard in the world.
So, this is how we figure and in terms of export engagements, we are in touch with a shipyard called Zvezda in Vladivostok in Russia. They have come and seen our facility and they want a collaborated joint effort to go and build their commercial warship.
Mazagon Dock also so far, if you look at the historic perception, we have actually exported 243 commercial vessels to UK, Iran, Mozambique, Singapore in the past. So, this order, we are evaluating through our embassy in Moscow and that is going to be a very, very good kind of a collaboration and they won a very large number of orders which is pending for commercial shipping, and we need to depute our team out there and build platforms there.
In addition, there are certain orders I would say from some places where we are very intensively engaged. That is the six in number ships for Royal Malaysian Navy, then the Royal Malaysian Navy needs support for the Scorpene submarine.
Do you believe the share of exports or share of global orders for Mazagon Dock would go up in the years to come or do you believe there is a lot of execution needed in India itself and that will take up all of your capacity?
The first thing is our domestic requirement itself is paramount because if all what we are talking about if those order books are going to be executed, and the new one which is going to be entering.
Of course, but there are lots of countries who are coming and asking us, can you supply a Scorpene submarine to our countries? That's what I was talking about there was a big team which came from Malaysia. They have two in number Scorpene submarines, and they want the entire infrastructure facility for the maintenance should be set up in the country. Something similar also has come from Brazil and some of the countries want that and enquire whether we can build Scorpene submarine?
Now in case if I get my P75I six in number, I don't have the capacity. But yes, in the meantime, I can certainly get going with that and we can execute the maintenance programme.