Cochin Shipyard Limited (COCHINSHIP.NS) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I'm Aysha, moderator for this call, Welcome to the conference call of Cochin Shipyard Limited, arranged by Concept Investor Relations, to discuss its Q2 and H1 FY '21 conference call. We have with us today, Shri V. J. Jose, Director Finance; Shri Rajesh Gopalakrishnan, General Manager of Business Development and New Projects; Shri Shibu John, Deputy General Manager, Finance; Shri Balakrishnan Poovathra, Deputy General Manager, Finance; and Shri Syamkamal N, Company Secretary, who will represent Cochin Shipyard Limited on the call. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Shri V. J. Jose, Director Finance, for the opening remarks. Thank you, and over to you, sir.

Good evening, everyone. My name is Jose V. J., Director of Finance, Cochin Shipyard Limited, and welcome to the con call of Cochin Shipyard Limited. First of all, let me tell you that our CMD, Shri Madhu S Nair was supposed to join for this con call, but unfortunately, he has to attend a meeting -- urgent meeting with the Ministry. So kindly excusing for that. And main operational highlights for the year -- for quarter was the -- we have signed a contract for 2 -- construction of 2 autonomous electric ferry vessels for Norway. It's an export order for Norway. And we have also signed an MoU with Fincantieri, Italy, for technical collaboration for the -- for jointly bidding for the new shipbuilding project for Navy and other different sector. And the other major event which was -- what has happened was that our CMD Shri Madhu S Nair, his tenure has got extended for another 5 years. His 5 year -- original term of 5 years was supposed to end in December '20. Now he has got another 5 years more to serve the company. And during quarter, we have delivered 5 numbers of fishing vessels. And we have delivered 2 numbers Ro-Ro vessels to water -- Inland Waterways. And we have delivered one Marine Ambulance Boat to Kerala State Fisheries Department. And during the quarter, we have also acquired Tebma Shipyard, one shipyard at Malpe through the IBC process. And we have paid the bid amount in 15th September 2020. And from that date onwards, the Tebma Shipyard has become 100% subsidiary of Cochin Shipyard Limited. We plan to start the operations by January 2021, though. And the construction activities in our another subsidiary, Hooghly Cochin Shipyard Limited, is also progressing. And though there were some delays due to the COVID pandemic, we are now targeting the commissioning by March this financial itself. And regarding the infra projects, the 2 major infra processing which are under construction, the ISRF, the International Ship Repair Facility at Cochin Port Trust, latest, the percentage of completion is almost 73% as of the 30th September '20. And as of now, we are planning to complete the project by December '21. And out of the INR 970 crores of total project cost, we have already spent around INR 466 crores as on September 2020. And regarding the drydock, the percentage completion -- physical completion is 35% as on date. And we have spent around INR 585 crores out of INR 1,799 crores, and the target of completion is December '22. And in the operational front, while we were able to substantially ramp-up the operation -- production activities compared to Q1, we could not achieve the turnover and profits reported for the same period last year due to various constraints relating to COVID pandemic, which afterwards is still persist. The turnover for the Q1 was -- Q2 was INR 657 crores and it is 32% down if you take the last year same period. And PBT is at INR 146 crores. It is 44% down. And PAT is INR 109 crores. It is 48% down. And this particular quarter, we had an additional impact of around INR 25 crores to the P&L due to unprovisioning, which is -- we had received one demand from the Customs Department, for which we have made a provision of around INR 25 crores. So this is an additional impact for the quarter. And major constraint faced by the yard during the quarter was mainly because of the restriction on international and interstate travel. Because of that, we don't -- we are not able to get service engineers and OEM service engineers for the critical commissioning of other works. These factors have adversely affected the [indiscernible] of equipments in certain ships. And because of that, we are not able to deliver these ships as of today. Despite the above, the company is taking all efforts to improve the level of operations with various proactive measures going forward. With this, I conclude my operating remarks, and we'll take your questions one by one.

[Operator Instructions] The first question is from the line of Jonas Bhutta from PhillipCapital.

And firstly, wish, you and Rajesh, Happy Diwali. I have a couple of questions. Firstly, with the travel restrictions still being on and thereby limiting the foreign service engineers to visit India. And what is the likely impact of this now on the IAC commissioning or delivery date? Does that move forward? Or you're sticking with the same original date, at least as of now? That's the first question.

Yes, Jonas, regarding the IAC delivery date, see the -- we were -- September 21 was the targeted delivery rate. Now there will be around 2, 3 months shift. So we are expecting by December '21 will be the delivery dates of IAC. So there will be much shift on the delivery dates of IAC because we are planning to start the basin trial on 27th November this month.

Okay. And so within a year of basin trials, you think that it will be ready for delivery?

Yes, yes, yes. That's what we have planned.

Okay. And is this impacting any other projects other than IAC? Or this is IAC which is sort of the worst impacted?

Yes. This is impacting 2 projects, mainly one is that TDV -- that [Foreign Language]

Technology Demonstration Vessel for the...

Yes, DRDO.

Yes, Jonas, this is Rajesh. Happy Diwali to you, too. Yes, your question is relevant because right now, the TDV, the Technology Demonstration Vessel for the DRDO is also sort of very close to completion, and we are moving on to the trial phase. And the service engineer issue is affecting that vessel, is affecting that vessel quite badly. And also, our first passenger vessel, the 500 pax vessel, is also due for the sea trials in about a month's time. So we are actually trying to talk to all the OEMs separately and trying to mobilize them and even trying to see if they can have resources provided out of India. So these are the 2 other projects, which are actually as of today affected, other than the IAC. IAC right now, as we told you, it's the basin trial, which we are going ahead. We should be able to manage the basin trial right now.

So in such a scenario, sir, does this open up for LD, at least on the TDV and the 500 pax Andaman Nicobar project? So do you foresee a of LDs coming in?

Yes. As per the contract terms, there will be LD, Jonas. But since both the projects are for the government, and they are also aware of the situation, we can sort it out. That's what we have planned. We can discuss it and sort it out. That's what we have planned.

But you'll first have to provide it in the P&L. It will be a non...

Yes, yes, we'll have to provide in the P&P because unless we get a return confirmation from them, till such thing, we will have to provide in the accounts.

Got it.

And that is being provided also so far.

And this INR 22.5 crores charge that we've taken in Q2, does this -- is it all of it? Or do you expect that going forward, there could be more for the same...

No, no, no. See...

Department basis?

No, no. This is the final figure. While we have taken -- we have challenged the order, and we have filed the appeal also. But for the sake of good order sake, we have made this provision 100%.

Got it. Got it. Sir, my second question was the shipbuilding revenue breakup. So if you can provide that between IAC and non-IAC? And within IAC, cost-plus and fixed price?

Yes, yes. One second. For the Q1 or -- Q2 or H1?

Q2, H1, both should be okay.

Okay. Okay. Okay. So the Q2, total shipbuilding other than IAC is INR 73 crores. And IAC cost-plus is INR 283 crores, fixed price $207 crores. So total IAC is INR 491 crores and total shipbuilding is INR 564 crores.

Okay. And lastly, sir, if I can squeeze in one more. Sir, have we started execution on the ASW? Or that is also -- that was actually expected to pick up pace in Q3, Q4 this year. That is...

See -- yes. We are planning to start the construction on 1st December for ASW. We continued plan on 1st December.

Okay. From 1st December. So the order book of [ INR 6,311 crores ] still remains the same as of now. So there's no revenue expected?

As of now -- yes, yes, yes, we have not booked any revenue from that so far.

And what is the Phase 3 order book right now?

Phase 3, one second. Phase 3 remaining, remaining to be executed.

Sorry?

Phase 3 remaining to be executed is [ INR 2,244 crores ] .

The next question is from the line of Sandeep Tulsiyan from JM Financial.

I hope everybody is doing fine and wishing a very Happy Diwali. Sir, I have a couple of questions. Firstly, if you could share the CapEx, which is likely to be incurred in balance half of the year for FY '21? And how much of CapEx you are likely to incur in FY '22? If you could break that facility wise, it would give us some clarity on the progress of projects, how they will pan out in the next 2 years.

Yes, yes. See, as I mentioned, ISRF totally, as of 31st March '20, we had incurred INR 438 crores. And for the FY 2021, we will be spending another INR 143 crores. And for FY '21/'22, INR 130 crores, 1-3-0. And for the drydock, 31st March '20 figure was INR 556 crores. FY '21, INR 201 crores and FY '22, INR 200 crores.

Balance will go into '23 for trial runs?

Yes. Yes, yes.

Yes. Okay. And for the Tebma Shipyard, is there going to be any additional CapEx that we will incur on top of whatever we have paid for the acquisition?

Yes. We are expecting to spend around INR 15 crores, not much. Additionally, INR 15 crores.

Okay. INR 15 crores in this year itself?

Maybe INR 5 crores this year and INR 10 crores next year.

Okay. All right. And secondly, question is on the order inflows. Any progress, if you could share on the projects which are under bid right now or any new tenders where we have participated?

Rajesh.

Sandeep, Rajesh this side. Yes. Just an update is something similar to what we had last time as well. The major Navy and defense projects that have -- we have bid, there are around 5 projects that we have bid for. Fast patrol vessels of the Coast Guard, 8 fast patrol vessels, 12 air cushion vessels for the Coast Guard, 6 new generation missile vessels for the Indian Navy, 2 multipurpose vessels for the Indian Navy, 3 cadet training ships for the Indian Navy. So these are the 5 projects. And right now, as we speak, there's a tender on for 6 new generation offshore patrol vessels for the Indian Navy.

Okay. And which of these are likely to move ahead? And what is -- and which of them is likely to get closed first and the tentative side if you could share?

Yes. I actually told it in the sequence in which I think it is going to move, and that's the sequence in which we have bid really. So first comes the first fast patrol vessels for the Coast Guard. The technical bids have been opened in October -- October 2019. So it's quite some time. So we are expecting something to happen there, not -- in the not too far future. And the air cushion vessels also of the Coast Guard, again, it was -- the technical bids were opened in November '19. So -- and we're expecting them to go ahead and open the price bids shortly. As regards to the new generation missile vessels of the Indian Navy, I think it may take a bit of time because the bids went in just prior to the lockdown in March. So maybe they would need a little more time, but the technical bids have been opened just prior to the lockdown. So we are expecting them to come back to all the bidders. The multipurpose vessels, the technical bids are opened in June. So that will also, I think, need time. Cadet training ship, the bids are submitted and the technical bid has been opened just in November this month. So that is, again, probably is going to take some time. The total value of all this bids is approximately in the tune of around INR 16,000 crores.

Okay. Got it. And if one last bookkeeping question if I may squeeze in is, as I was going through the balance sheet, there's a very sharp jump in the other current liability, and that has really helped our cash balance to improve. If you could highlight why there has been such a big jump in the first half of this year?

One second. Can you repeat that question, Sandeep?

Sir, in the balance sheet -- stand-alone balance sheet, other current liabilities have gone up from INR 1,150 crores to almost INR 2,200 crores. So just want to check that what are the key items where there's been such a big jump?

Yes, yes. See, out of that, you are mentioning about the other current liability?

Yes.

See, out of that, INR 2,180 crores is the contract liability, which is the money -- advanced money received from the customers minus the amount spend.

Okay. These are the -- this is the net number.

Net number. INR 2,180 crores is the contract liability. That mainly comprises of around INR 1,200 crores from IAC and ASW around INR 600 crores to INR 700 crores.

The next question is from the line of Umesh Raut from Yes Securities.

Sir, my first question pertains to the ship repairing operation. So could you please update us how the existing operation sites that those are going on right now? Mostly, I believe, first half impact, I believe, most of the operations are right now on track. And similarly, what kind of top line we can expect in full year FY '21 from ship repairing?

Ship repair, for the full year, we are expecting around INR 500 crores to INR 550 crores for the full year. And for the H1, we have reported around INR 110 crores. And the major project which we are going to execute now is, one is Sagar Vijay, which is around INR 80 crores.

Okay. Okay. And sir, last time, you also spoke about the INS Vikramaditya orders that is expected to due for FY '22. So any further update on that?

Not really FY '22 we're not sure because Vikramaditya, the Navy hasn't yet released any sort of inquiry or tender. So we're not sure because they may not really want a drydock in '22. But if at all, they need any upload repairs, we are yet to receive any inquiry.

Okay. Okay. And sir, about the shipbuilding operations, what kind of top line one should look at for full year FY '21 as well as for FY '22?

For the ship repair or shipbuilding?

Shipbuilding.

Shipbuilding sir, shipbuilding.

Shipbuilding, for the full year total for the company, we were trying to achieve around [ INR 3,000 crores ] last year actuals around INR 3,400 crores. But now we may not -- we are trying to target around INR 3,000 crores level for the full year, approximately. So out of that, around INR 550 crores will be ship repair, the remaining will be shipbuilding.

Right, sir. And sir, for full year FY '22?

FY '22, it will be around INR 4,000 crores we are planning, around INR 4,000 crores.

Okay. Okay. And sir, out of this INR 4,000 crores. how much of execution will happen from anti-submarine shallow water craft?

It will be around INR 600 crores to INR 700 crores, approximately.

Okay. Okay. Got it, sir. Sir, one bookkeeping question. So I just wanted to know cash position and advances from customers as on September 2020?

Yes. The total cash position is around INR 3,440 crores on 30th September. Out of that, if you -- the IAC and -- customer advance is around INR 1,800 crores. And the CSL cash is around INR 1,400 crores, which excludes the IPA fund also.

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, most of the questions have been answered. Just a couple of things. You mentioned INR 4,000 crores revenue we're targeting for FY '22. That includes the ship repair, right?

Yes, yes, that includes ship repair also.

Okay. And secondly, sir, if I see your order book, it's around [ INR 13,500 crore ]. Can you just elaborate major orders out of that?

Yes. Out of the [ INR 13,900 crores ] , INR 5,750 crores is from IAC and INR 6,300 crores from ASW Corvette, that is also from Indian Navy. And the remaining are from [indiscernible].

Okay. Okay. And sir, lastly, so obviously, even if I see the Q2 performance has been improved sharply from -- compared to Q1. But still, we are almost 30%, 40% lower compared to last year Q2. So how do you see H2? And how exactly the situation at the ground level in terms of working? And are we back to pre-COVID level of construction activity?

Yes. See, the yard has actually put in place systems that would facilitate working in 2 shifts and bringing productivity levels back to pre-COVID levels. But as we had discussed earlier in the call, challenges we are facing are mainly due to supply chain disruptions and also related to availability of -- timely availability of service engineers and support -- external support. So this is a challenge that we are facing right now. Internally, as we said, initially, yes, we had issues with migrant labor couldn't come back after the lockdown. But those situations have gradually improved. Yes, a bit of COVID issues still persist. But as we speak, it is actually the service support and supply chain issues that are mainly posing a bit of a problem still, continuing to pose a bit of a problem.