GRSE — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Thank you very much.

We will now begin the question and answer session.

The first question is from the line of Rohit Natarajan from Antique.

Please go ahead.

Rohit Natarajan

Thank you for this opportunity.

So my first question is on you addressed the physical progress in the order backlog.

I will appreciate if you could help us with the outstanding vessel wise.

I said P17 A how much is the outstanding order backlog similarly survey ASW and NGOPVs?

Cmde P.R. Hari

Thank you, Mr. Rohit.

The total outstanding order book is 23739.59 crore.

Out of the total order outstanding, P17 Alpha order outstanding is Rs.

13,132.46 crores, Survey Vessel Large Rs.

1291.79 crores, Anti‐submarine Shallow Water Craft Rs.

5319 crores.

Next generation ocean going petrol vessel Rs.

3404 crores and of course the Naval Surface Guns Rs.

235 crores.

Rohit Naratajan

Sir, if you could help me understand this ASW, I understand, we are working currently only on the four vessels, but what is the timeline to deliver all the 8 and how are we planning to start the remaining 4 vessels as well?

Cmde P.R. Hari

Thank you again Mr. Rohit.

ASW Shallow Water Crafts at the outset we can state that the production of all eight ships has commenced.

Now, coming to the progress I had mentioned earlier, but I'll repeat the 1st vessel 66% completed, the 2nd 60%, 3rd 51%, 4th 42%, 5th is 26%, 6th is again around 26%, 7th is 16% and the 8th is 13%.

Which means the production has already commenced.

We start the production, We get the hull constructed, equipment are lowered and after the equipment are lowered and the hull block joined.

This would be done in a dry dock or a building berth, but after this is completed, the ship is put to water for the first time, that is when the term we use launch takes place.

Four of these ships out of these eight have already been launched, launching generally we do after with physical progress of construction of around 40%.

Now the stages of the four ships are being launched, all eight construction at various stages.

And of these four ships that have already been launched, the 1st ship, we expect to be delivered in the next four months.

As mentioned, this starts 66% and the next ship is closely following around 60%.

So, from then on, we'll be able to deliver a ship every five to six months.

The entire project would get completed by 2026.

Rohit Naratajan

Got it.

Sir, how many dry docks will be available or maybe they will be sitting idle to say so that you can win new orders and start the work like by the end of this fiscal.

Cmde P.R. Hari

OK, now you got it.

Bang on.

You're right.

The major requirement for any shipbuilding company is availability of Dry Docks or Building Berths.

So, in our case we have captive dry docks available both in our main unit and we have also a dedicated facility, the Rajabagan unit, where we have an end to end facility for construction of small and medium size ships and in both these facilities we have dry docks available.

Right now, our 70% of these docks are occupied, which means even at this juncture we have around 30% spare capacity.

We have also adopted a strategy wherein we partner capable shipyards, private or public, who have got spare capacity.

This has been basically the strategy has been adopted.

One, we're using the spare capacity, second we can facilitate concurrent construction at the same time I maintained a certain amount of let us say dock can both availability with me, which means should I get a new order, I will not be caught by wanting for a dock or both availability.

So we always keep around 25 to 30% for dock captive and available with us.

This is the current status.

We have adequate berth and dock capacity.

Rohit Natarajan

Got the point sir, but if I understand, because you have this Bangladesh order, that will also get concluded this year, a lot of years that ASWs will be launched as well.

So technically speaking, there will be further spare capacity in dry dock level.

Right?

Cmde P.R. Hari

But at the same time, we have just started the production of four in number next generation ocean going petrol vessels and these are big ships, they're hundred plus meter ships.

2nd, as I mentioned, we just got an LOI for oceanographic vessel.

This will again a big ship It is around 85 meters.

In addition, I had made the statement in passing that with respect to exports and commercial ships, we have definitely made advances at this moment, and I cannot commit because I'm not sure about it, but yes, we are very confident that in the coming months we will be getting orders on this front also.

So, this is from what we are doing at this moment.

The next part is again I had mentioned that both the Navy and the Coast Guard will be coming up for new projects in the coming years and months.

So, then I finished this next generation OPV the dry dock and Building Berth requirements, but definitely we would be getting fresh orders.

Rohit Natarajan

Got it.

Sir, from the order perspective, you mentioned that next generation destroyer of four, but the industry buzz is that it's actually eight and it's could be in the size of 80,000 crore as such.

Is that the right way to understand?

Cmde P.R. Hari

You are partially correct, one yes, it is 4 + 4, but it is 4 + 4.

Once the four is completed, then only the next four will come.

That's why I had mentioned the four.

What is the information available now.

I would not even say immediately the RFP could come out only maybe in 2025 early to mid of 2025.

So, the initial requirement would be for four, which could be enhanced to 8, maybe has not even taken the memo from DSP as of now.

Rohit Natarajan

But Sir, from a capacity perspective, NGD is technically speaking at 10,000 deadweight tonnage kind of vessel.

Will you be in a position to do that at your yard?

I mean is size a constraint?

Cmde P.R. Hari

Absolutely.

We have got adequate capacity and capability for this, whereas there is capacity assessment which is being carried out by the customer that is the Navy and we intend and aim to get a stick with respect to our capability, no issues with respect to capacity or capability.

Since you mentioned the displacement and also the dimensional requirements.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Venkatesh Subramanian from Logictree Consultants Private Limited.

Please go ahead.

Venkatesh Subramanian

Yes, Sir.

Good evening.

Two questions.

One is, you mentioned about the current order book and what is pending and continuing from previous con calls, Sir, is it fair to assume that the current order book that we have would be exhausted over the next three years broadly? that's my first question.

Second, in terms of exports, you mentioned some very interesting places like Scandinavia and a few other things.

What could be the size of the opportunities is the order size?

Can expect over the next one year in terms of if you are able to capture any orders?

Cmde P.R. Hari

I'll answer your second question first.

See as I had mentioned that we are attempting for orders in Guyana where we have already made a deal.

We're also trying the Scandinavian countries.

The background is that one Guyana definitely we have delivered ships there then they have requirements.

Second, Scandinavian countries have actually opened up.

Europe is now looking at India for commercial shipbuilding, but at this juncture I will not be able to give any further details because most of these are in negotiation stage perhaps, I'll be able to hopefully give you good news in the next con call or the next‐to‐next call.

But the bottom line is that there are opportunities available and we are moving aggressively towards them.

Second, coming to the order book.

Order book position as you are aware, it's around Rs.23,739 crores.

See, we are only in the mid of 2023, i.e. the second quarter of FY24 has just finished.

As per the current execution plan, the NGOPVs would definitely spill over to FY27 maybe 2028 because as the contract to these ships are to be delivered only by FY28. So, right now we have enough in our hand to last us for the next five years.

That is, mid of 2023 to at least mid of 2028.

Of these projects that they're on, the deliveries will definitely be staggered starting the first of the deliveries of the 19 ships that are currently under construction commencing next month.

And what we are aiming is between the projects ship every five to six months is what we are targeting.

Venkatesh Subramanian

So P17 Alphas, the remaining would be completed over the next two years, FY24 and FY25?

Cmde P.R. Hari

No, P17 alpha, right now we've got around Rs.13,000 odd cores remaining as per the delivery timelines, what has been mutually agreed between the customer ‐ Navy and us, these three ships are to be delivered between mid of the calendar year 2025 and mid of calendar year 2026, which means definitely we'll go to financial year 27.

Venkatesh Subramanian

My last question, Sir, which is you have talked about the shipbuilding cycle, how the revenues you have actually educated a lot of us.

My question is, considering that we are almost coming to another six months to go four months to go in terms of financial year, what would be the peak revenue recognition year would it be FY25 or FY26?

Cmde P.R. Hari

Definitely not FY24. You have already seen that we have touched around Rs.1700 crores already.

So we are actually moving vertically upwards.

We would be maintaining the same trend as per the present progress of construction and the revenue accrual plan in the next financial also.

So, it could be either FY25 or FY26, it could be either of these years or it could be almost there.

Venkatesh

Or both could be big years for us.

Cmde P.R. Hari

Yes, both FY25 and FY26 definitely big years.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Amit Dixit from ICICI Securities.

Please go ahead.

Amit Dixit

Thank you for the opportunity and Congratulations for the good set of numbers.

I have couple of questions maybe at the same risk of being repetitive because I joined the call a little bit late.

If you could just, let us know the status of Next Generation Corvette, where we are in there and when can we expect RFP to be floated?

That would be helpful.

Cmde P.R. Hari

Thank you, Mr. Amit.

See the Next Generation Corvette RFP is in process.

As per the DPP, the process that has shown is clear is that the basic requirements are made by the Navy and after that, with the estimated cost, it goes for a DSP approval.

This DSP had occurred an AON during the first half of the last year that is 2022.

For a value of Rs.36,000 crores, this is the 8 ship project among L1 & L2 in the ratio of 5 + 3.

So, this is the background.

Now, the statement of technical requirements are being finalized by Navy in consultations with the concerned shipyards.

And in my appreciation, with present happening and based on the current progress of their readiness, we expect the RFP to come out in the latter half of next calendar year.

FY24 end is when I expect the RFP to come out.

Amit Dixit

Sir, why I'm asking this question is because in the Standing Committee of Parliament report, we saw that next generation, Corvette was clearly mentioned as one of the ordering points till FY25. So, if RFP comes out at the end of FY25, that means ordering would happen, maybe one year after that, is it fair to assume that?

Cmde P.R. Hari

If the RFP's issued towards the end of the next calendar hypothetically say in the third quarter of FY25, from then considering the minimum time required for the bid submission, evaluation.

The realistically, the ordering would happen that the contract conclusion would happen will be/ is likely to spilled over to FY26, at least the first half of the FY26.

Amit Dixit

OK, got it.

The second one is on destroyer.

So this is your commentary slightly different from the peers or may be my understanding is a little bit different.

Where they mentioned that all 8 destroyers will be ordered and they will be kind of the order will be split between 2 shipyards.

That's what was told to us.

But now you are saying that it will be ordered in two tranches of 4 + 4.

So, is it fair to assume that even the first tranches of four will be split in between 2 shipyards or it will be like the winner takes all kind of game.

Cmde P.R. Hari

As for the present understanding and what we are given to understand, it is likely to be in two tranches with 2 + 2 is 4 in the first tranche with the two shipyards as there is 2 + 2 followed by another four again 2 + 2 that means two shipyards will definitely be involved in this project.

Amit Dixit

OK.

And how much time, do you think it will be between the tranches in terms of orders?

Cmde P.R. Hari

There is no clarity at this moment on that.

There is no clarity even because this project has not even gone for DSP approval.

When accord of an AON.

So what I'm trying to convey, it is still under deliberation stage.

We expect clarity on this only maybe in another six months.

So, at this moment there is no clarity except for the input that these ships are required for the Navy and the requirements are being finalized.

Amit Dixit

OK.

So the last question that I have is a book‐keeping question.

If you can let us know the contract asset and customer advances on the balance sheet.

Cmde P.R. Hari

First thing before I go to this, there are no advances from customers.

Customers are not giving us any advances.

So only stage payment takes based on stage completion and as per the DPP condition, in ship building there are 15 stage payments, so there are no advance.

As of now, our bank balance stands at Rs.

4397 crores owned fund is Rs.

270 crores and the project related fund is Rs.

4127 crores.

This is for all the projects put together.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Harshit Kapadia from Elara Capital.

Please go ahead.

Harshit Kapadia

Congratulations and thanks for the opportunity, Sir.

On the order front, what I saw probably you have not mentioned, the landing platform dock order, is it that the order has now cancelled or we are not qualified for it.

That's the reason why we are not highlighting that particular order.

Cmde P.R. Hari

Thank you, Mr. Harshit, there has been a lot of talk going on.

Actually one of the investor con‐calls call had mentioned about this, but it has been going on for quite a long time, that's why we have put it off, let us say this is a project, which has been in the horizon for a very long time as far as I can remember, it is more than five to seven years the discussions have taken place at even at this moment there is no clarity as to when the AON would be accorded or when converted to RFP, that's the reason why I did not mention about it.

Harshit Kapadia

Thanks for the clarification around P17B which you had mentioned.

So, the similar thing will also happen in that the way the NGD order is going to be placed as in once your P 17A will get delivered then P17 B will be taken into account in terms of ordering or is it that different in P17 B can be ordered before that as well?

Cmde P.R. Hari

As per the current delivery schedule, the P17 Alpha project is expected to be concluded by FY27, that is mid of calendar date is August’ 26.

I think the project would get completed even if the process of AON and the subsequent formalities start.

Now it will take that kind of time.

What I'm trying to convey is that the construction of these ships will commence only after this project is completed.

Harshit Kapadia

When would the ordering happens according to you?

Will it be FY25 that we will see the RFP coming out and you will be bidding for it or it could happen post FY27?

Cmde P.R. Hari

At this moment there is no clarity on that.

All that is known is that there is a requirement for the Indian Navy.

For another 7 ships of the same class with minor tweaking of the specifications and maybe whatever is the latest weapon system that could come in.

But there is no clarity with respect to the timelines.

The requirement very much there and it has been acknowledged, but the timelines are still not known.

Harshit Kapadia

Sir, so in this regard previously it was mentioned that FY25‐26 could be the best of this year.

But then going up to FY27, since a lot of this big ticket or high value orders which are not right now in the clear stage of when it will come on board when the tender will happen when the awarding will happen do you think FY27 we may see a sharp decline in terms of revenue as most of your chunky orders will get executed and revenue booking will happen.

P.R. Hari

We have the NGOPV project still to be going on during that time plus the new order which is of course just about Rs.

840 crores.

There is an oceanographic research ship which is a confirmed orders that we have in our hand as of now.

This is exactly the reason why we are moving aggressively for other avenues of business i.e. commercial shipbuilding exports and so on.

So, I don't see any major dip in the revenue from operations during these years because, see we are on FY24 now.

So FY25, 26 ‐ 27 to go.

Definitely, we expect orders at least next year or next year.

Which will mature into revenue generation and FY27. So, I don't see any major dip.

I mean we should not be really concerned about the dip during FY27 or 28.

Harshit Kapadia

And what brought GRSE to get into autonomous vehicle anything you can highlight this was that either given by DRDO was it that you guys figured out that this is a vacuum?

Then we could be the one who could be the starting company to get into this.

It would be helpful and on the commercial ship building part, if you can share something on terms of size of orders, which you look at not just from one‐year perspective, but in terms of opportunity size, it will be of great help because we probably are looking to build up this.

Any color on this would be helpful.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Viraj Mithani from Jupiter Financial.

Please go ahead.

Viraj Mithani

Thank you for the opportunity.

And although very Congratulations for the good numbers.

So, my question is, is this order book peaked out, whether would the margins will be affected or there will be a higher or lower trajectory?

Cmde P.

Hari Very interesting question.

Every time I get this question, I was wondering why it did not come so far margins have been consistent in my views.

Ours is not a routine industry.

Ours is a highly specialized industry where the PAT margin above 7.5 is considered healthy.

As I've stated, we have been maintaining our profit margin that is PAT margin plus 8% under sort of 8.99% we will maintain this during the coming months and years.

And Sir any updates on the repair business, any color on that?

We were still planning in this?

Cmde P.

Hari Currently as I said mentioned earlier, we have taken over three docks from the Kolkata Port Trust; 3 medium size dock, all of them almost 100% occupancy and currently we are executing six refit orders of various Coast Guard ships plus we keep getting commercial ship refits too.

We are at a modest position at this moment.

Our order book stands just about Rs.80 crores from this segment.

As I had mentioned earlier, we were just pushing the system.

We expect this to increase in the coming years because more and more refits will come considering the fright strength of Coast Guard and the Navy.

We are not yet got a break into Naval repair yet.

But they got captive repair facilities.

We are pushing the system and having experienced the success so far we intend to ramp up the ship repair vertical in the coming years.

Right now, we reported modest Rs.

80 crores order book outstanding as we have.

My last question is Sir, about this green ferry, what kind of market potential do you see?

Some color on that in terms of growth, margins in future to come.

Cmde P.

Hari Green ferry or other green vessel potential is huge as with every other nation, even our country is also going in for zero emission basis.

This is the process which has already commenced.

The first step would be to meet the requirements of the state governments to meet their inland motor transportation requirements and even in both Kerala and West Bengal have advanced strong in just this, Kerala has gone ahead with green vessel in a big way.

I had mentioned that there is another RFP which is live for 15 more vessels for Kerala.

In a nutshell this is an area where huge opportunity exists.

The ports would ultimately work to resort to green tugs.

The all the barges which move in our rivers with the land motors run through oil.

The aim would be to eliminate the conventional powered platforms.

So, at this juncture I can only state that huge potential is exists and quantification at this stage may not be possible and just to put things in perspective, some of the nations like Norway has already given a dictate that they must grow 100% green by 2030, so it is that kind of impact and opportunity, we didn't want to miss out the first most advantage that's why we have taken this order from the government of West Bengal.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question of our question and answer session.

I would now like to hand the conference over to the management for closing comments.

Cmde P.

Hari Thank you, investors for listening patiently to the literary address, and I hope to have answered the almost all your queries and in case of any further query, please feel free to contact us.

We will ensure that all your queries are addressed.

We also thank Concept Investor Relations for coordinating this conference call.

And we have started this financial with a robust Q1. We have maintained the tempo during Q2 also and we improved, maintained the tempo in the coming quarters too.

Wish you all belated Happy Durga Puja and Diwali.

Thank you.

On behalf of Garden Reach Shipbuilders & Engineers Limited, that concludes this conference.

If you have any further questions, please send an email to [identifier removed].

Thank you for joining us, and you may now disconnect your lines.