Category
📺
TVTranscript
00:00Thanks so much for tuning in to this conversation on Talking Point.
00:21It is a set of businesses which are in focus and which are a part of the defence sector
00:28and which are the shipbuilders, if you will, the shipbuilding sector.
00:31Because while a few, a couple of weeks ago, a couple of brokerages came out and downgraded
00:37some of the defence names, saying that the only concern is rich valuations because the
00:42book-to-bill ratios and the execution seems flawless for now.
00:46The question was around valuations.
00:48Then subsequently a couple of other notes have come and said that what about post-2027?
00:53Can the margins which they are enjoying right now come off?
00:56Can viewers or investors realistically take a call on what business could look like post-2027?
01:02ICSS Securities wrote that note which we highlighted wherein they had this very steep down, lower
01:09price on Mazagon Dock.
01:12Now therefore we thought it best to get in the management and try and understand how
01:16does the management think about the business.
01:19So Mr. Sanjeev Singhal, Chairman and Managing Director of Mazagon Dock Shipbuilders joins
01:24us to talk about how the landscape may be like.
01:28And with me is my colleague Sajith, of course, joining in.
01:30And Mr. Singhal, thank you so much for joining in.
01:32I know we spoke about four or five days back, but it's great to have you back because just
01:38to try and clarify the air around some of the concerns.
01:41Now one of the notes, Mr. Singhal, suggests that the margins of Mazagon Dock in particular
01:49have improved in recent times, led by ahead of time delivery of vessels, lower cost incurred,
01:56so on and so forth.
01:57All of that may not remain a constant.
02:00And therefore at some point of time, these very high operational metrics may not sustain.
02:05What would you say to that, sir?
02:08I would rather discuss the fundamentals of the company as far as the company is concerned.
02:12You are well aware that we have been into this business for 250 years.
02:17We are a debt-free company.
02:19There are no loans, no advances, and no liabilities, which are of any significant nature.
02:25As far as the company's outlook is concerned, we are very bullish with respect to the growth
02:29of the company.
02:30We have recently acquired additional 15 acres of land adjacent to the existing location
02:35of Mazagon Dock shipbuilders.
02:38And we are also into developing this land parcel as well as 37 acres of land, which
02:43is at Nava, approximately 10 nautical miles from our existing location.
02:48And intend to spend approximately 4,000 to 5,000 crores over the next four to five years.
02:53So this is just a framework which I wanted to give considering the business outlook,
02:58which is internal to the company, which I am sharing, that we believe that the company
03:03is poised to grow many fold over the next couple of years.
03:08Now coming to your query with respect to the future orders and the margins, yes, margins,
03:15we would not be able to commit with respect to anything that what margins are sustainable.
03:20It's a business which evolves and each project is a different project.
03:25But yes, what I can say with respect to costs, saving on cost is a continuous endeavor.
03:31We have been working on it.
03:33And if you look at our wages ratio, the employee dollar that has been consistently coming down
03:40in terms of percentage.
03:42There are no plans for any kind of a significant hiring.
03:46Yes, some small hirings may be there based on the technical requirements.
03:51So we don't see any significant change in the cost structure going ahead.
03:56With respect to the Project 75, which we are executing currently today, the Scorpene Submarine
04:036 in numbers, we have delivered five submarines.
04:05The sixth submarine is also slated for delivery probably in the third quarter of this financial
04:10year.
04:11And moving ahead, we are expecting order for another three additional Scorpene Submarines
04:17for which we have submitted all the details to the ministry, including the pricing.
04:21And the two rounds of Costing Committee evaluations have already taken place.
04:26We believe that the Costing Committee is close to forming up their recommendations and post
04:31this based on certain discussions and in case any negotiations are required, we expect this
04:38order to be finalized anytime soon.
04:41Apart from P75I, which is sixth number of Submarines with AIP fitted and Lithium-Ion
04:46batteries, where we are participating in collaboration with TKMS Germany.
04:50And here also the positive news is that as far as the field evaluation trials are concerned,
04:55the offer submitted by the combine of TKMS and Musgondox Shipbuilders has been evaluated
05:02and that evaluation is complete and successful.
05:05So this also is a positive development and we expect if the things move as per the timelines,
05:09then by next year, there should be positive news on this front also.
05:14Apart from the Shipbuilding Orders, which I have indicated earlier also, Project 17
05:18Bravo, which is a follow on of 17 Alpha, four number of frigates which we are executing
05:22right now.
05:2317 Bravo, this would be seven numbers or eight numbers, maybe divided on two shipyards.
05:29So this also is being discussed and likely to be, this would be a requirement.
05:36Recently, we have participated in Next Generation Corvettes, which again is a Corvette project
05:40for eight number of Corvettes, which will be divided over two shipyards.
05:45So here also we have submitted our bid.
05:48So with the due course when the bids are opened.
05:51And so Next Generation Corvettes are there, Next Generation Frigates are there, Next Generation
05:56Destroyers are there.
05:57So we see a continuous pipeline apart from, of course, the offshore projects, which we
06:02have recently again revisited this area.
06:05Last year, we got an order from ONGC for 1150 odd crores.
06:09This year, we have received 4600 crores.
06:12So this also is a separate stream of revenue, which we are developing.
06:17Mr. Singhal, sorry, I just want to come in because it's just so much to pack in an answer
06:21that it becomes difficult.
06:23So you're bagging a lot of contracts.
06:25There is no question on the book to bill ratio, let's say.
06:29So one of the things that is or one of the concerns expressed is that once you start
06:34executing the new orders, could, while it's difficult to predict what will cost happen
06:39to cost, but your revenue recognition methodology, they say is going to be likely to be milestone
06:45based, and hence margins could come off.
06:48Now, could you explain if this is indeed going to be the case?
06:52Revenue recognition is not milestone based, it is based on the cost to completion.
06:59So what is our assessment with regard to the cost of completion and how the costs take
07:03shape?
07:04So during the initial stages of the project, it is quite possible that until the orders
07:10have been formed up and placed, the revenue recognition or the cost to completion is calculated
07:15on a conservative basis.
07:17But this has been our experience and considering the learning curve, which MDL has already
07:22crossed, we see and based on the past experience, so there have been substantial savings in
07:28the cost and there are a lot of processes and methods and research and development,
07:34which is regularly going on, which helps in bringing down the costs of execution.
07:40So I am not committing with respect to the margins, whether they will be 20% or 27%,
07:46but yes, based on the past experience and based on the order profile, we believe that
07:52the margins also would continue to be reasonably healthy.
07:56Just a single, Sajith here, you know, while you are sitting on an order book of nearly
08:0040,000 crores as you speak, you have enlisted some of the projects, where you have already
08:07bid in or you would be nominated over the next 12 to 18 months.
08:12Is it possible for you to, you know, give us a ballpark figure of kind of order book,
08:17order prospective orders that will flow in, in the next 12 to 18 months.
08:21You spoke about 17 Bravo, which is again 7 to 8 numbers, then there is, I think if
08:28I am not wrong, the acquisition AOC has already approved 8 Corvettes, DAC has approved 8 Corvettes,
08:36which will be divided again with 2, between 2 shipyards, Yu and maybe possibly Cochin
08:41shipyard, which would be nominated for that, you know.
08:45And then you have the project 75I for additional 3 Scorpion class submarines, which is coming
08:50in.
08:51What could be the prospective book that would come in over the next 12 to 18 months, if
08:56as and when the government releases these orders?
09:00I can say, as far as the current scenario is concerned, by and large, the orders are
09:05not on nomination basis, it is on competitive basis.
09:07So, I would not be able to predict how many orders Mazgaon Dock Shipbuilders will be getting.
09:12But yes, what I can say, based on the orders in which Mazgaon Dock Shipbuilders would be
09:19interested and where we are a strong contender, we believe that during next couple of years,
09:26the order size would be approximately up to 2 lakh crores, which would be available for
09:32the shipyards in totality.
09:35So, what pie actually Mazgaon Dock Shipbuilders is able to bag, this will depend upon what
09:41kind of bids we are submitting.
09:43We internally remain positive, very positive about it, considering our inherent strength
09:48in these particular segments.
09:50Order which is 17 Bravo for frigates and you said 7 to 8, what would be the size of that?
09:57This includes 3 submarines of Scorpene, this includes 75 Pis, 6 number of submarines, this
10:05includes 17 Bravo, this includes next generation Corvettes, this includes next generation destroyers.
10:11So, these are the orders which are likely to be finalized over next couple of years.
10:18And a broad value which I can look today could be in the range of 2 lakh crores.
10:23And that would be distributed between 2 to 3 shipyards, that's what you are saying between
10:28you, Cochin and maybe Garden Reach?
10:31I am not saying between which shipyards, these are on competitive basis.
10:36Some of the orders are likely to be split between 2 shipyards, some of the orders will
10:40go to a single shipyard, like in case of submarines, 6 number of submarines, this will go to a
10:45single shipyard.
10:46The 3 submarines, this will go to a single shipyard.
10:48With respect to next generation Corvettes, with respect to follow on of frigates 17 Bravo,
10:53with respect to next generation destroyers, yes, there can be split between 2 shipyards.
10:58Because you know, if you look at the capability as we speak of shipyards, you are the most
11:03capable in terms of building of submarines and Cochin has that capability of indigenous
11:09aircraft carrier and Corvettes and others which can be split between many couple of
11:14shipyards which is there.
11:15So even if you look at it, between in the next 24 to 36 months as and when all those
11:22approvals come in and your bids are scrutinized, financial bids are scrutinized, is it fair
11:28to say that you are looking at between 80,000 to a lakh crores of additional order book
11:32coming into the books?
11:34I would not be assigning any figures, sorry for that.
11:37But given the numbers, I am talking about the 2 lakh number which you gave.
11:41I can discuss about what is the expected value of the orders where we would be participating
11:46and where we will be focusing.
11:48Of course, we are not looking at aircraft carrier.
11:51So the orders which we are keenly focusing on, I can discuss about that what is the expected
11:58value or the size of the orders.
12:00What MDL is able to bag, this only time will tell.
12:04So you know, is it fair to also say that, you know, that the concern that the market
12:08has that there is no visibility of orders beyond 27 or 28, it is still founded because
12:13there is this order book which is coming in and which is in the process and it will come
12:17in over the next couple of years.
12:19See, you have to understand, the viewers also have to understand the basic structure of
12:25this industry.
12:26If you really look at it, as far as the shipbuilding orders are concerned, they are always lumpy
12:32and they have a long gestation period.
12:34Currently, the order book which I am executing, it comprises of three major orders, that is
12:39the P75, 6th number of Scorpene submarines, which was awarded in 2005.
12:44Subsequently, the 15 Bravo destroyers, four numbers of which we have delivered three,
12:49now the fourth one is slated for delivery this year.
12:52This was finalized and awarded in 2011.
12:56And the third major order that is the frigates order, this was awarded in 2015, four frigates
13:00for which we will be starting the delivery from this year.
13:04So, this is a typical nature of this industry.
13:06These orders are large value, these are lumpy and there is a gestation period between finalization
13:12of these orders.
13:13So, today when I am talking of at least four to five large value orders, so I see this
13:19is a very, very promising scenario for this industry.
13:23If I am talking of three submarines under 75, I am talking of six submarines under 75,
13:28I am talking of next generation, corvettes, eight numbers, I am talking of 17 Bravo, Apollo
13:33frigates, eight numbers, I am talking of next generation destroyers.
13:36So, I see a very, very promising scenario and the orders getting finalized much, much
13:43earlier than what is typical for this industry.
13:47How do you look at the capacity because you said you only spent 4000 to 5000 crores over
13:51the next couple of years as you expand between Nawa and Mumbai port.
13:56Once that happens, how much your capacity will go up for corvettes or destroyers and
14:01submarines?
14:02Capacity for a shipyard is in terms of numbers also, as well as the size also, with respect
14:11to what size of vessels you are able to accommodate.
14:14Right now, we have a capacity of accommodating 11 submarines and 10 ships simultaneously.
14:18So, 21 vessels we can accommodate at the existing location itself.
14:22With respect to the new locations which we are developing, we are going for a significantly
14:27larger infrastructure which can take vessels of much larger dimensions.
14:32So, this gives us a better flexibility.
14:36If you are looking in terms of capacity, maybe this would lead to a doubling of the capacity
14:41one and a half, one and a half times to two times of the existing capacity.
14:45And in terms of dimension of the vessels, many of the larger vessels which we are not
14:50capable of handling today, we cannot handle it right now.
14:53So, this would make the yard future proof with respect to the dimensions of the vessels.
14:57So, any large vessel also we will be able to accommodate with comfort once the infrastructure
15:04is in place.
15:05So, Mr. Singhal, I am trying to invert the conversation now.
15:11There is a large set of orders coming in.
15:14I heard you say that some of these might get finalized earlier than what was maybe anticipated
15:19by the street and you are doubling your capacity in select spheres of work as well.
15:26Is it therefore wrong to think that post FY26 or FY27 when your revenue will see a significant
15:35uptick, let us say in the next two or three years, that there will be a precipitous drop
15:39in both revenues as well as profitability?
15:42Is it wrong to think that?
15:43Do you reckon that there will be a trending move higher or trending move ahead for revenues,
15:49executions and profits for the next few years?
15:53See, internally, we remain positive with respect to the outlook and with respect to the future
16:00order position of MDL, has it not been the case?
16:03Sir, post FY27 as well, I mean, sorry, sorry to come in, but I am saying everybody knows
16:08that until FY26, 27, it is all good.
16:11I think the question is only coming for post FY27.
16:15In case we are not bullish post 27, we would not be planning for investing 4000 to 5000
16:22crores.
16:23Okay.
16:24Then the existing yard capacity would be sufficient in case I am not reasonably bullish with respect
16:29to the future order position.
16:30That's true.
16:31That's true.
16:32Okay.
16:33So, good to get that clarity.
16:34Just one quick follow-up there.
16:35Would all of this be used for domestic purposes or B2G India purposes, or would you believe
16:43that there is a large export opportunity as well for you?
16:48Yeah, export opportunities also exist.
16:51We are trying to tap this market also.
16:54We have an export order right now for six number of ships to Denmark.
17:01And we definitely intend to expand this segment also.
17:04So, exports will also, we are also exploring other countries.
17:08This area definitely remains open and one of the reasons for expansion is to add to
17:13the capacity so that we can cater to repair maintenance, we can cater to commercials,
17:18we can cater to exports apart from the naval and coast guard requirements.
17:21Give us a sense of the cash flows as well, because today you are 85% of revenue comes
17:27from construction, 15% from repairs and maintenance.
17:30Will this ratio change as you go forward because you get a higher margin on repairs
17:35and maintenance as compared to construction?
17:37So, will that ratio also shift as you go beyond 2027 and as you get more repair and maintenance?
17:43And I guess the refit program is also coming in for some of the Scorpion submarines.
17:51This I would like to bifurcate it slightly as far as the shipbuilding is concerned.
17:54Yes, we, although we are eyeing at the repair and refit segment, but primarily our focus
18:00will remain on the new build.
18:01So, new build will be a primary focus and this percentage with respect to shipbuilding
18:06is not likely to change significantly.
18:08Maybe I don't see a revenue definition of more than 10% from the refit and repair segment.
18:16But yes, as far as the submarines are concerned, submarine is an area where repair and refits,
18:22this also is likely to contribute in a significant manner.
18:26Because we have recently delivered 5 submarines, 6 we are going to deliver, another 3 of the
18:32same series, 9 submarines.
18:34And submarines have a typical life cycle of around 30 years and post that, after medium
18:39refit and life certification, we can add another 10 to 12 years to the life of the submarine.
18:45So during this period, there are periodic refits.
18:48Like if I say, if I take the case of 2017, we delivered the first Scorpion submarine.
18:54So the refit of the first Scorpion submarine is falling due in 2025.
19:00So this in 2025, we expect that first of these Scorpion submarines would be coming to us
19:05for refit.
19:07And we have delivered from 17 to 22, 5 submarines.
19:10So practically every year, every 12 to 16 months, 18 months, the second submarine, third
19:16submarine, fourth submarine, fifth submarine sequentially would be coming to us for refits.
19:22And by the time we complete the last submarine refit, the second refit of the first submarine
19:28becomes due.
19:29So this is a sort of continuous cycle.
19:31So at any given point of time, once the cycle starts, we would be having multiple submarines
19:37with us for their refit cycle.
19:40So if you look at the submarine business, once we are building a submarine, it gives
19:47a continuous business cycle for next 40 to 50 years.
19:51So this is a very long drawn cycle and here the value of refits and overall, etc. is a significant chunk.
20:01Got it.
20:02Mr. Singhal, one last question from my end.
20:04I'm drawing it back to the first question and you gave me a part answer.
20:07I just wanted some clarity there if you can.
20:09I understand you can't give commitments on margins because it's a very moving piece.
20:14But I heard you say that the margins you expect will continue to remain healthy.
20:19Now how do I define healthy, sir?
20:21Because healthy could mean around this 20-odd percent mark that you are doing.
20:27Healthy could mean slightly higher than that.
20:29Healthy could well mean 15% as well.
20:31What is healthy?
20:32Some range, if not an exact number.
20:34Yeah, as far as the range is concerned, I can only say that for a shipbuilding industry,
20:40margins, anything more than 10% is a healthy margin.
20:45So the problem is you've been operating, let's say for example, you're operating at 15% in
20:51FY24, the expectations are that you'll go up to 21-22% in FY25-26.
20:57Could there be a drop back to 10% after that?
21:00A very precise projection into the future, that would not be appropriate and that would
21:06not be feasible at this stage, particularly when we are in the process of finalizing various
21:12orders.
21:13So depending upon their timing, depending upon their size, depending upon when we actually
21:18get and how much we actually get.
21:21So then there are many variables and determinants.
21:23So giving a number at this stage, because these are not the existing orders, we can
21:29discuss with respect to the existing orders, but with respect to the orders which are yet
21:32to come, it would not be proper on my part to define these values at this stage.
21:38Okay.
21:39Okay.
21:40Well, we wish you all the best, Mr. Singhal.
21:43Thank you so much for taking the time out and being with us on this edition of Talking
21:46Point.
21:47Really appreciate your time.
21:48Thank you so much.
21:49All right.
21:50That's Mazagon Docks.
21:51Well, clarified on revenue, Sajid, but just I was hoping that they would speak about whether
21:57margins could come off from 21-22%, no clarity there.
21:59It's a little tough, right?
22:00Tough, yeah, of course.
22:01Because it's based on percentage completion and the kind of, and as and when the order
22:05comes in.
22:06And he's saying that, you know, Mazagon is, you know, has a competency in submarines and
22:13destroyers.
22:14Yeah.
22:15And Cochin, which has a, you know, competency in aircraft carriers.
22:20And between Mazagon and Cochin, you have, you know, you know, corvettes and frigates,
22:23which they can together make.
22:26Even though it is said that, you know, there are other players, but the cost, they work
22:33on a negative, you know, working capital.
22:36So that's an advantage to them because that, you know, it brings on the, you know, financial
22:41bid that they put in for any of the orders, you know, much lower compared to any competition
22:47because the cost of capital for others are much higher.
22:49And we've seen L&T talking about it, that, you know, we have put in so much of capital,
22:53but we are not able to get the cover, the capital there, that's because the cost is
22:57very high.
22:58And for them, because they are 50-year-old companies, the cost of capital is, you know,
23:04very, and the biggest takeaway is that 4,000 to 5,000 crores, if he's putting in capex
23:09for the next two to three years and increasing the capacity, doubling the capacity, he's
23:14talking about, you know, the from current 10,000 odd crores, he's looking to a revenue
23:17of 15 to 25,000 crores in the next five to eight years is what they're looking at.
23:24So that is something which we need to, he's not saying it, but he's basically saying that,
23:30you know, I'm putting that 4,000, 5,000 crores.
23:32Why would I do the capex if I was not bullish most of 597?
23:35Indeed.
23:36Okay.
23:37Viewers, with that, it's a wrap on this edition of Talking Point.
23:39Thanks so much for tuning in.