Cochin Shipyard Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Sagar Gandhi from Future Generali Life Insurance Company.

Sir, congratulations on completing the large capex project. So, sir, I have two questions. First is on IAC 2. So, in your judgment, by when is this likely to happen? And what will be the value of this project as per your expectations?

I would have difficulty in answering that question on both the points. But we hear from the press and also from our interactions that the project -- decision on the project going to DAC is at a very advanced stage. So, I will have to rest my answer with that. And I'm not in a position to discuss project figures at this stage.

Mid '24 onwards.

Okay. And my last question is on cash, which we currently stands at INR4,600 crores approximately. What is the free cash component and advances from customers of this figure?

Free cash is around INR1,000 crores and the remaining is advance from customers.

The next question is from the line of Deepak Krishnan from Kotak Institutional Equities.

Yes, I just wanted to sort of look at your EBITDA margin performance, a stellar performance of 20 percentage 1H. And now you're saying PAT margin will be 16% to 17%, whereas earlier you had indi cated in the FY '23 earnings call that PAT -- EBITDA margins will be 14% to 15% for the year. So, are we sort of raising the margin guidance and what sort of driven the strong performance in 1H?

See, this year, revenues from IAC and Ship Repa ir. You can see Ship Repair; we are doing strong growth and the Indigenous Aircraft Carrier has also been docked and we are having a Ship Repair part in this. So largely Ship Repair is giving us better margins.

So even EBITDA should be in the similar range, 18% to 19%? Is that understanding correct?

Yes, around that stage.

Okay. And of the unexecuted order of Ship Repair, which is closer to INR1,300 crores, all of that is sort of -- sorry, unexecuted order book of IAC, which is INR1,300 crores, all of that will sort of come in this year itself?

Out of that, around INR800 crores will go to FY '25. Remaining will be in the current financial year.

Okay. So, we may do INR2,800 crores of top line, out of that, you're seeing that closer to INR800 crores is coming from your IAC and INR800 crores is coming from Ship Repair, which is both are higher margin, that's why we're expecting a higher blended EBITDA. Is th e understanding correct?

Can you repeat that once again?

So, your total revenue guidance of INR2,800 crores -plus for this year, closer to INR2,900 crores, higher than FY '20. So, you're saying that for the full year, about INR800 crores, INR900 crores is coming from Ship Repair and INR800 crores, INR900 crores is coming from the IAC order, which are both high margins?

Just a minute.

No, total INR2,800 crores where did you get?

It was INR3,400 crores in FY '20.

Okay. Yes. Sorry, my bad. So, it will be higher than that. Sorry, yes, so...

Yes, yes, yes.

Yes, yes, yes. So yes, okay. So those are the two factors. Basically, higher Ship Repair and higher IAC is driving higher margins?

Correct.

Correct.

Okay. And how are we looking at the pipeline in terms of immediate orders that can come. I think we've locked th e Ocean Research Vessel order, but anything else that you're seeing that can be done in the estimated 6 months?

See, the pipeline, there have been a couple of -- the ORV we lost. And there was another project also which we actually -- FPV project, the Fast Patrol Vessel, that's also gone elsewhere. But we are okay because we never wanted it at the price levels that it has gone. But the order pipeline is still fairly strong. The immediate near -term RFP is about INR1,400 crores of RFPs at var ious stages are there. And there are possibilities which we are looking at in Europe also.

Thank you. The next question is from the line of Darshil Pandya from Finterest Capital. Please go ahead.

Yes. Sir, I just want one clarification from your end. So, could you please provide an update regarding a new cycle which was there in India to construct 24 cargo ships for Russia. This happened in economic forum reportedly. So, is this deal done or how is it? I just want a clarification from your end.

We are not involved in this.

Thank you. The next question is from the line of Viraj Mithani from Jupiter Financial. Please go ahead.

Good afternoon, sir. Sir, my first question is on the guidance you gave, which we'll be having a top line of -- if I'm correct, 2020 with 17% net margin, that's what you said, right? Is it correct to think that way?

Can you repeat that once again, there's a little bit of a bass coming in your voice. C an you repeat that once again?

The guidance given by you, sir, was -- we will have a top line in the range of March 2020 numbers and the net margin would be 16% to 17%, is that correct? Is it -- that's what I heard.

Okay. Sir, my next question is, your free cash of INR1,000 crores, how you plan to use that, sir? This would be the capex for this year? And...

Capex will be around INR355 crores this year. Out of that, we have already spent INR125 crores so far in the H1. So, the remaining will be used from the cash.

And this INR1,000 crores free cash would be used for further capex or some -- or so -- what will be the purpose of this free cash, which we have, INR1,000 crores?

Working capital and partly funding the capex.

Partly funding the capex. Okay. Sir, the next question is, you talked about this possibilities in Europe just to the previous participant. In which -- can you give more colour on that, like it would be in the -- which side of the business and what kind of possibilities would be there?

See, there are two areas where there are possibilities: one is you are aware that we have concluded a contract for two CSOV vessels. So, that space i s still looking active and we are sensing possibilities in that space. There is wind support vessels. We have continuously engaged with various companies and we expect some positive news shortly. The other sector is a European short vessel segment, which i s smaller vessels, but then always, it comes in a few numbers. And that is the kind of vessel which we have recently picked up for our Udupi Cochin Shipyard Limited, the six vessels which I mentioned, with an eight option. Something similar is what we are doing in Cochin Shipyard already for the German clients, eight vessels. So, these are all the European short -sea vessel segment. That segment also we are engaged with a few potential interest, and that also looks strong.

What would be the size of the opportunity, sir?

See, The CSOV project, a deal could be somewhere between INR500 crores to INR1,000 crores. And the short -sea vessel space, again, could be about close to INR500 crores, a deal size, INR500 crores -- that will be -- each of those vessels would be about INR120 crores, INR130 crores kind of a thing. So INR500 crores, INR600 crores kind of a five vessel -, six- vessel order is what we could see on a short-sea vessel side. But on the CSOV side, it is typically one or two numbers or maybe with a two-option kind of a thing. So that is why I said about INR1,000 crores kind of a thing.

Okay. And sir, this the new dock which will be ready probably next year. Will we be using -- will we be leasing it or will be use d for the repairs or what would be the -- until the next IAC order comes...

Initially, we start with shipbuilding. In fact, we have already -- some of the contracts which we already secured will be executed out of that new dry dock -- but the new dry dock is a dual- purpose dry dock. So, when we sense good ship repair opportunities , that also would be taken in that dock. But as you rightly said, as and when -- and we hope the second IAC, if it comes, that would also be in the new dry dock. So, the new dry dock is a large dock, which has got dual use.

Okay. And sir, my last question is about the green ferry. You understand the West Bengal government is quite interested. So, have you -- what kind of traction are you feeling in this sector, sir? Like what could be the could be a good potential for us in years to come?

That's for sure. Actually, the government is taking a lot of interest in what is being called as a Green Vessel Transition Program, and various entities are involved, especially the Inland Waterways Authority of India, multilateral funding agenc ies like the World Bank and others are interested. So, this is an area where we'll see more traction. But we expect that traction to be driven largely from our two subsidiary units, in Kolkata and in Udupi, but Kolkata could be the hub for us to drive that traction.

And sir, who will be our competitors in this green ferry segment? I know GRSE is one. Apart from that?

There could be many of the -- because when this market is opening up, we expect there could be many midsized shipyards and boatyards also coming in that space. So, we see there could be many players coming in that space. But we feel the way -- at least we are seeing discussions happening over the next couple of years, there could be significant vessels considering the size and scale of the country and the requirements. So, I think most of the people should have good opportunities. It has to be a little bit technologically advanced. So, it is not the run -of-the-mill vessel. Such vessels may not be there too much. And if at all it is there, CSL and our subsidiary companies may not be involved in the run-of-the-mill vessels, but a little bit advanced vessels we will be keen.

Thank you. The next question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.

Sir, maybe just one follow -up on the margin. So, I think going ahead, maybe for the years ahead, do we sort of revert back to about 15%, 16% sort of PAT margin? Or do we kind of sustain this improvement or how do we kind of look at it?

Going forward means this financial year, next financial year, is that what you meant?

Yes, sir.

Yes. We hope to sustain better margins over the next year also.

Sure. Maybe if I look at your, expect ed immediate pipeline, if I look at the entire approval, you're saying maybe DAC comes through. How long would yo u believe that for IAC 2 after the DAC approval, would we be at a stage where the order could potentially come to us? Would it be an FY '25 story or do you think it's sort of...

I can't, again, discuss that on a hypothetical basis. And again, it would be improper on my side to discuss that side.

Sure, sir. And maybe any other Indian Navy order that we are targeting? Any on the destroyer, frigate, anything that we can participate in?

See, the RFP s that is already in line, yes, we are participating. But again, we are clear that there must be fairly good financials over there. That is the way we have participated. And the destroyer has not come in. The next -generation destroyer RFP has not come in. As of now, the LPD RFP has also not yet come in. We are eagerly awaiting all this.

Thank you. The next question is from the line of Sagar Gandhi from Future Generali Life Insurance Company. Please go ahead.

Sir, what will be the approximate value of this RFPs, the next-generation destroyers?

We are yet waiting to see this, but then the LPDs were in the range of INR20,000 -plus crores. And NGC, the next -generation destroyers figure has not been really discussed, but it's much higher than this LPD figure.

Okay, thank you. And sir, as far as this capex projects are concerned, new dry dock and ISRF. Sir, we spent only INR1,050 crores in new dry dock and INR740 crores approximately in ISRF. And our capex for full year as guided s tands at INR 1,050 crores. So, does that mean that, we will not be extending or spending the full cost as we had envisaged initially?

Can you repeat that and -- you came in a little bit feeble. But if you can just talk more loudly?

Yes, So, we have spent INR1,050 crores approximately for the new dry dock and roughly INR740 crores for the ISRF project. Now initially, we had envisaged approximately INR1,800 crores for the new dry dock and INR970 crores for the ISRF. That means that we are now doing the spend only INR350 crores for full year FY '24 and both these projects are getting completed in -- I mean until June 2024. Maybe -- I mean both this projects may be -- I mean, leaving some money on the table for Cochin as against envisaged initially?

Yes. We can explain that to you.

Actually, we'll be sending -- because the full commission will happen only in FY '25.

No, he's talking until June.

Until June...

When you complete it.

Yes. It is ISRF will be almost that level -- maybe INR20 crores less than that, will be around INR940 crores. And dry dock because we -- originally, we envisaged two cranes, now we are doing only one crane there. So, some savings may come there. So, it may be around INR1,400 crores, INR1,500 crores instead of INR1,799 crores.

Roughly INR400 crores, at least INR300 crores will be the savings?

Yes. I would suggest conservatively, you shouldn't take that. There could be because at the end of the day, when we wrap up the projects, there are escalations -- permissible as per the contract. What Director of Finance mentioned is the main point. See, there were two cranes on the dry dock. We are putting only one crane, but that one crane was a little bit more costlier than 50% of that total crane cost. So, we may end up a notch lower, but not to the level at INR400 crores, you said. I would guide you towards the -- both the projects together, maybe about INR150 crores to INR200 crores less than those estimates.

Okay. Thank you, sir. Now sir, coming to the ship repair part. So, over the last three, four years, we've tried to be build facilities in Mumbai, Andaman & Nicobar then Udu pi and then Tebma shipyard. And sir, now put together all these facilities are up and running including the new dry dock, which can also be used for ship repair part. What is the maximum ship repair revenue we can clock, let's say, 80%, 85% utilization level?

See, we are continuously being saying that our short term is around two and odd years, three years kind of a thing is to go and touch around INR1,200 crores kind of a figure. As you are aware, like the ISRF, we should have completed this a little bit more earlier. We are now in the mid of next year, even though the civil completion will complete by December. So INR1,200 crores kind of a figure is what we will see in about -- give it about three years conservatively. And this year, we have gone on record our target should be better than the best we have done. So, the best we have done was about INR820 crores...

INR860 or something crores.

We should cross that, so around INR900 crores or slightly thereabouts is what we are expecting for this financial year. And when ISRF also chips in next year onwards. But INR1,200 crores crossing in about three years. And beyond that, I wouldn't want to really talk at this stage, but the next target would be about INR1,500 crores.

Okay. Okay. Because until IAC -2 comes in, the new shipbuilding facility can also be used for ship repair, which is a high-margin business?

But we have certain large projects also which we had taken into that. And ship repair, we ha ve built up significant capacity because the current existing capacities of Cochin Shipyard plus the ISRF. So, we'll have to find the methods and the ecosystem to populate it and execute it well. And we are actually working on various things for that. Rajesh could probably explain a notch on what we are trying to do on the Kochi cluster a little bit. We are not fully out in the open, but a little bit.

Yes. This is Rajesh Gopalakrishnan, Chief General Manager, Ship Repair. So, as you w ould probably be aware, the Government of India through its Maritime India Vision 2030 had also proposed ship repair clusters along the coast of India. And since if you look at the landscape today, Kochi is a hub already for ship repair with so much infrastructure and ship repair happening in the country in Kochi. So, we are just trying to see how best we can develop Kochi as a formal ship repair cluster, for which we are working towards various things like whether it is partnering, whether it is sett ing up more ancillaries and the overall improvement of the overall ecosystem. So, we hope Kochi, moving forward, we'll actually start seeing more volume and basis which, like sir said, we could even see where to take the long-term targets.

We are also trying to get a international partner for certain operational aspects in the new facility. We will let you know in due course, but then we are around the corner with the RFPs slated to come any time now.

Okay. No, because, sir, when we did Mumbai ship repair facility, we were thinking that it will ramp up fast. But somehow it has not reflected in Ship Repair revenues. So now because we've built a lot of good facilities, especially for the repair -- I was expecting a much better guidance from you in terms of Ship Repair for the next two, three, four years?

I agree that Mumbai should have done a bit more better, but then Mumbai this year now, we have done INR70 crores for this year. And the target is around INR140 crores t o INR150 crores for the full year for Mumbai.

Okay. Sir, last question from my side is on Next Generation Missile Vessels that you -- that is currently a part of your order book. Now what's likely to be the execution timeline? And what will be the broad margin in this project approximately?

Execution timeline is the first vessel is 48 months from signing the contract, which we signed in March of this year, March 2023. And we are in the engineering and main equipment ordering stage right now. Things are generally going good on that project as of now. Margins give us some more time to come out with specific margins on that project. But largely, it fits into our normal shipbuilding mix of projects because it's a large contract. It is altogether INR9,800 crores. So, it gives us stability in our top line and margin process as we move forward.

Just a small correction on the CMSRU targets for the year. Sir, mentioned INR140 crores, but INR125 crores is what we are looking at this year.

Okay. Yes. And sir, can I ask one more question because I've been talking for long time? Or is somebody in the queue?

Go ahead.

Yes. So, sir, recently, I was -- I mean one more yard has got ope rational or it is likely to get operational because NCLT thing has already happened, which we all are aware, it is in the public domain. So, what I could understand is there are a lot of LNG carriers which are being built globally and there is no adequate repair facility and some of the yards are also looking at repair facilities for these LNG vessels. So, is Cochin Shipyard also thinking in this direction and because it is already building new facilities, can this be an opportunity for Cochin Shipyard?

See, our new dry dock is actually an LNG carrier -ready dry dock. It's a 310 meter long dry dock and the typical LNG vessels, except what is called the Q -Max, the Qatar -Max, all the other vessels are in the range of 174,000 to 180,000 cubic meter s. That's a standard LNG parcel. And all those vessels can actually fit into the new dry dock. And we had the LNG vessel in mind. So that's always an opportunity. But -- it's not that straightaway you can jump into that segment. But this is something which we are closely evaluating and we'll keep a close watch on it. And this opportunity, if it's good, we will be there. That's for sure.

The next question is from the line of Chinmaye Rane from Kojin Finvest. Please go ahead.

Yes. I want to understand the executable period of your order book, current order book?

The executable period?

Of the current order book?

See, the nav al projects are the ASW Corvette and the NGMV. So, eight ASW Corvettes and six NGMVs. So, the 14 vessels roughly don't hold me on to this, but roughly around seven years.

Thank you. The next question is from the line of Devesh Jhawar, who's an individual investor. Please go ahead.

Congratulations on a good set of numbers. Sir, my first question is regarding the vessel made for Andaman & Nicobar administration? Any update on finding new potential buyers on that project?

Not yet, not yet, while there are interactions with at least two entities, both government I'm not in a position to disclose, but as of today, not yet. And it's a point of a little bit of concern for us.

Okay. And sir, my second question is regarding the dredger we were building for Dredg ing Corporation of India. What is the current status of projects? And what kind of opportunities are we seeing? Are we seeing any other orders of dredges in India or in the international markets?

On the current stage of the project which we h ave concluded, we are cutting steel, we are targeting 30th of this month. It would be a function, but 30th of this month is what we are looking at, steel cutting and thereafter, it goes into construction. And your second question was opportunities. See, DC I themselves would need at least one plus one more and that is an opportunity within the country, the large vessels. But we are also seeing a larger opportunity from international market. I'm not in a position to discuss this, but we are in discussions, and it is looking good. So that segment, which is always on our radar because now we are doing this one vessel for DCI and in cooperation technological partnership with M/s. IHC Holland, which are world leaders in this space, it is bringing a bit of attentio n into that space from the international market. And we are working closely on this, but it looks good.

Thank you. As there are no further questions, I would like to hand the conference over to Mr. Kaushal Shinde for closing comments.

Thank you, everyone, for joining the conference call of Cochin Shipyard Limited. If you have any queries, you can write to us at info@kirinadvisors.com. Once more, thank you, everyone, for joining the conference.

Thank you. On behalf of Kirin Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.