GRSE — earnings call

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Questions and answers

15:41:02 +05'30' · Research Analyst

Garden Reach Shipbuilders & Engineers Limited Q3 & 9MFY25 Analyst Meet 13th February, 2025

is enclosed herewith. · Research Analyst

Excuse me, sir.

Sir, so I had a question.

So, I just wanted a percentage number like on an average, if we are building a ship, then how much percentage of that ship is being imported.

Cmde PR Hari

Okay.

Thank you, ma'am.

Indigenization has been a focus area of the government.

What terminology Atmanirbhar Bharat?

And there are so many initiatives taken by the government to improve or increase the indigenous content.

The last 3 projects that we have completed, that is including the Survey Vessel Large, I considered completed, because the equipment ordering, everything is over.

Survey Vessel Large project, the Landing Craft Utility and the Anti- Submarine Corvette, all 3 projects, we have 85% plus indigenization.

Coming to weapon-intensive platforms.

Now indigenization as a service, if you're looking at warship building, 100% of the hull is indigenous.

Around 70% of the auxiliary machinery is indigenous.

Around 50% of the weapons are indigenous.

All put together, the figure I mentioned, around 85% plus is indigenous content.

is enclosed herewith. · Research Analyst

Okay.

Thank you, sir.

And my second question was with regards to the budget.

So, we did see that this time, the Ministry of Defence had to give back somewhere around ₹13,000 crore back to the Ministry of Finance.

So, I just wanted to know, like why is there so much delay in the process?

Why are we not being able to spend?

And we also know that we somewhere need to expedite the process now, because there is also a dire need for a lot of replacements and for a lot of new things to be bought.

So, what is causing all this delay?

Why are we not being able to spend?

Cmde PR Hari

My appreciation.

It is my appreciation, because it is actually for the ministry to answer, but since you asked the question, I'll give an appreciation.

Now suppose if the NGC contract had been signed during the last financial year, a certain amount of payment goes as a first stage payment.

I'm just giving an example.

So, the fund expenditure is not, because of the delays in execution of the project, it is perhaps in the delays in the process itself.

That is the point I would like to convey.

And again, it is a sinusoidal pattern.

It is not that every time the funds are surrendered.

There will be occasions.

In the last financial year, I understand around ₹13,000 crore was surrendered by the Ministry of Defence.

Maybe in the next year, they'll make up for it.

That's all I can say at this moment to answer your question.

is enclosed herewith. · Research Analyst

Okay.

Thank you, sir.

Participant

I had a question.

So, you mentioned about subcontracting.

So, what part of our revenue as, let's say, percentage of revenue in value terms and in volume terms will be subcontracted outside the entity?

Cmde PR Hari

Sorry, what percentage of the revenue?

Participant

Will be subcontracting.

So that will be made outside the entity, outside our shipyard.

Cmde PR Hari

Okay.

I'll put it this way.

If you take a project cost.

In the project cost, around 65% come from the equipment and sensors that we procure, and around 20% comes from the labour.

That is the human resources that go in.

Of that 20% around 70% to 75% is outsourced.

We retain the core strength.

Core strength means, let us say, the shafting work, which drives the ship, we retain the competency.

The complex block fabrication, we retain the competency.

The design, 100% design is done in-house, because that is the most important factor.

We retain that.

If you are purely looking at percentage, it may not give you a correct picture, because you have to give value also to that.

So, if you look at value cum cost in that case, around 40% to 50% would be outsourced of the labour part, and the balance is done in-house.

Participant

Sir, I have a question.

So as per the budget, there is a lot of advantage for ship breaking.

You did mention a little bit about it, but can you give us more clarity as to how do we plan to take it forward and use the benefits of it?

Do we plan to have a separate section?

Or how are we planning to utilize that?

Cmde PR Hari

Okay, ma'am.

The intent of the government is actually to lure, coax the shipbuilders to build ships in India.

The target globally, I think our share is single-digit figures, low single-digit figures of the global commercial fleet.

The stated target of the government is to increase this to 20% by 2047.

It's a long-drawn process.

For that, you need the shipowners.

You can't impose something on the shipowners without giving them a carrot.

The carrot that has been given is that if you break a ship within India, like if I am a shipowner, and next time when I construct a ship within India, I can use that credit.

40% of the scrap value of the ship broken would be credited into my shipbuilding.

I'll get that kind of financial assistance.

So, it's a very smart way to get the shipowners to build ships in India.

As far as GRSE is concerned, see, the fact is we are shipbuilders.

We are core shipbuilders.

We are not looking at this moment for marrying shipbuilding with ship breaking.

But then as a really ambitious shipyard, we are open to such options in the future.

But at this moment, see, all these things are budget promulgated.

They have not been translated into policies yet.

It might take a couple of months.

We'll see.

If anything, attractive comes out of that, we're open for that.

But at this moment, it is still stated or statement in the budget.

Participant

Thank you so much.

Cmde PR Hari

Pleasure.

Divyesh Shah

Sir, my question is since we are a government PSU, and last from 1 year, we as a common layman gets the feeling that government is something slowing decision-making in every aspect, as far as Defence is concerned, which was there in last 3-4-5 years back.

So, since you are close to the government, what is your personal honest opinion, whether slowdown has happened at the government level, because they are concentrating more on a social part of it.

So, Defence, we feel that it has taken a backseat.

So, what is your personal opinion?

Cmde PR Hari

Sir, we are not totally owned by government, we are owned by you also.

Sir, but I would not like to consider that any decision is slow, because if you watch 2025-2026, rather calendar year onwards, multiple projects, RFPs are going to come out.

Only when you see the RFPs coming in, you will see some momentum.

Coast Guard, at least 3 RFPs have been converted to orders in the last financial year.

Three RFPs have converted into orders.

Navy, NGC, whatever I mentioned, they are all, at least 6-7 of them, RFPs are going to come out in the next one year.

So, I don't think any decision-making delays are there.

Second is all these schemes which they are coming up, be it from the Ministry of Shipping or be it from the Ministry of Defence, both are coming from the same - Government of India.

So, initiatives-wise and decision-wise, in my appreciation, as a PSU CMD, I don't think there is any delay.

Divyesh Shah

Sir, but reason is too weak as far as vision is concerned, but ground-level reality, looks like there is some slowdown.

Cmde PR Hari

Sir, I would like to put it this way.

Vision, it's like very interesting talks have gone about quantity of work, 90 hours per week, 75 hours per week.

But I'll come back to your point.

I just want to lay the foundation for that.

And subsequent to that, another business head tell that it is a quality that matters, it is not quantity.

So there, I have a point.

Quality comes only with tons and tons of quantity.

And that quantity comes from time.

Quantity cannot come.

And if quantity is not there, quality cannot come.

Similarly, vision, yes.

To get the vision, like I was just addressing one of the queries, the vision is to obtain 20% share in the global commercial shipbuilding fleet by 2047.

So that itself is a very ambitious vision from 2% or 3% to get to 20%.

But for that 20%, the initiatives what they have listed out, shipbuilding, maritime corpus, Maritime Development Fund, they are all actual initiatives that are being taken.

Similarly, in warship building, both the Navy and the Coast Guard have stated.

They have not exercised their perspective plans indicate ships.

Navy wants to go threefold in the next 7 to 10 years, maybe too ambitious.

Coast Guard wants to double their fleet by 2030.

But for that to happen, the RFPs have to come out.

The ships have to be built.

The process has started, in my appreciation as the CPSE head, is that the process has started.

The foundation laying, the concrete laying will take a finite amount of time.

But once it is laid, it will move fast.

This is my appreciation.

Pleasure.

Sunil Shah

So just on similar lines and just to add to the question which was there.

Sir, historically, have we seen any point of time that, as investors, we just want to make sure.

Cmde PR Hari

I'll tell you, sir.

The bids were opened in August, 24.

The techno-commercial bids were open in August, 24.

The technical clearance has been accorded to all the bids, naturally, because if they are shortlisted, we qualify for that.

By November or December.

I don't remember.

Yes, there is a marginal delay.

I'm giving a conservative time line of it slipping over to next year.

But you see, sir, because these are high-value orders.

So, when a high-value order is there, naturally, the government would not like to short-circuit the process.

It takes time.

From our perspective, I want the order yesterday.

I want the price to be opened yesterday.

But having been on the other side, I also understand there are compulsions.

Yes, there are delays, but the delays are not un-seemingly.

Sunil Shah

Park it on the shelf, not those types.

We have never seen such a case happen historically for any of the Defence orders where RFQs were there, tenders were invited from participants and...

Cmde PR Hari

I'm not able to recollect.

Maybe yes, sir, but I'm not able to recollect any of the RFQs getting...

Sunil Shah

Not getting converted into a...

Cmde PR Hari

Not getting converted into an order.

There could be delays.

Not cancelled.

But it always happens.

It always happens.

Sunil Shah

Yes.

Sir, patience is the name of the game.

So, we are there, but just to make sure.

Cmde PR Hari

Absolutely.

Gaurav Girdhar

Thank you, sir.

With this, we conclude the Q&A session.

Cmde PR Hari

I think somebody has already raised hand.

I think we should give it a fair chance.

Harshit Kapadia

Thank you.

So, what's your cash and bank balance

Cmde PR Hari

I hope your question is not a tricky question.

It's like I do not want to put my foot in my own mouth.

Ask some general question.

How are you doing and all this.

Participant

Just two questions.

What's your cash and bank balance as on December?

Cmde PR Hari

Cash, simple question.

It's a straightforward question.

I'll let D(F) answer this question.

R.K. Dash

Cash and bank balance, this is as on 31st December, 2024 is ₹3,214 crore.

Out of that, our owned fund is ₹577 crore.

Harshit Kapadia

Okay.

And sir, second question is on your provision.

So next year, as you will be completing P- 17 Alpha for next 2 years, you will be taking a provision for that, mainly for liquidated damages, and for other onerous contracts, which is a general norm.

Now how much as a percentage of your sales would that be?

Because that will impact specifically on your margins, and these are your high-value contracts.

So, if you can share some numbers.

R.K. Dash

Yes.

We are making provision, for liquidation damages, as per Ind AS 115.

And the provision is made only when we'll exceed the delivery schedule.

As on date, whatever already CMD has told that, the project what we are executing, the delivery schedule has not exceeded.

Major project is P-17 Alpha.

First delivery is August 2025.

And we are hopeful that we'll deliver prior to that.

Cmde PR Hari

See, I just mentioned earlier in my introductory talk that the first activity when we are confident of delivery of first ship is the harbour trials.

We have completed the harbour trials, and we intend sending the ship for the first contractor trials during this month.

We are confident of delivering the first ship well ahead of the contracted delivery.

So, we are not unduly concerned about it.

Unless some force majeure condition happens, we are not unduly concerned.

Thank you.

Gaurav Girdhar

Thank you, sir.

Thank you, everyone.

With this, we conclude the Q&A session.

I would request Commodore P.R.

Hari sir to give his closing remarks.

And thereafter, you can join us for the high tea.

Thank you.

Sir, over to you.

Cmde PR Hari

Thank you, ladies and gentlemen.

As I mentioned, it's always a pleasure because I'm not well today, because I've been traveling for the last four days in and out of Kolkata.

Kolkata to Bangalore, Bangalore to Kolkata back today to Bombay.

Next week, Delhi.

So, I'm a bit down.

But after intro, I came back to normal.

So, thank you.

Gaurav Girdhar

Thank you, everyone.

Thank you, sir.

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

We now conclude the conference.