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

Ladies and gentlemen, good day, and welcome to the Cochin Shipyard Limited Q4 FY '21 Earnings Conference Call, hosted by Valorem Advisors and PR Partners, Passion for Communication. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We -- on behalf of the company, I would like to thank you all for participating in the earnings conference call of Cochin Shipyard for the fourth quarter and full year ended -- financial year ended 2021. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management participating with us in today's earnings conference call and give it over to them for opening remarks. We have with us Mr. Madhu S. Nair, Chairman and Managing Director; Mr. V J Jose, Director of Finance; Mr. Shreejith K. N., Chief General Manager, Ship Repair; Mr. Sivaram Narayana Swamy, General Manager, Business Development Shipbuilding; Mr. Shibu John, Deputy General Manager of Finance; and Mr. Syamkamal, Company Secretary. Without any further delay, I request Mr. Madhu Nair to give his opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. First of all, let me convey warm regards from Cochin Shipyard Limited. I'm Madhu Nair, CMD, Cochin Shipyard, and thanks for taking your time to be with us today. I presume most of you would have seen the short presentation which we uploaded, which gives a brief of what's happening in the company and about the financials. As you are all aware, we've gone through a very difficult phase. In fact, things are not yet back to normal. So this has been a difficult year for us, to put it that way. In fact, things are generally going well, and that's when the lockdowns came in last year that have been -- the company had to lock down. But then at the earliest possible we could recover back, we tried to see what best we could actually do. And as I say, every dark cloud has a silver lining. What we actually did within those more difficult spot work, we started working in 2 ships and by exploiting the company much better, the company's infrastructure much better. And it's -- last 30 years, Cochin has not worked in 2 ships. We have been actually working in a single ship with extended hours and a night shift predominantly for contract work. But after the lockdown and when we opened, we saw that because of social distancing norms, there was no other way but for us to actually move into this particular mode, which was a bit uncomfortable for people because of logistical reasons, but then these days, we have started working from 7 in the morning till 10 in the night in 2 shifts with a little bit of an overlap. So to that extent, a difficult period has been converted into an opportunity and then the entire workforce also was with us in this. As we move forward, given an acute glimpse of what happened, Q1 of last year was practically a washout. You would have seen the results, our ship repair could do very, very little and shipbuilding also couldn't do much. Q2, we were -- it was back to sort of recovery mode. But Q3 and Q4, I thought we could come back much better and we could handle things. The only catch in Q3 and Q4 was essentially, as we move forward, there were some projects, especially in shipbuilding, which missed milestones because we still needed some foreign OEMs to come in. And because of second wave, which was going through Europe, the travel from -- especially from West Europe, but some of the key people couldn't come in. So that was a disappointment. But from a turnover point of view, from a work point of view, which we could actually move forward despite missing milestones, especially a critical milestone on the aircraft carrier where we were practically ready to go to see early into this financial year. But as we are speaking, we have not been able to do that. We are still missing it. And certain other projects, the milestones could not be achieved. But despite the difficulties, what best possible on the work front has been done, keeping the safety of people in mind. It's a fact that we have had a number of cases in the company turning COVID positive, but being -- most of them being in Kerala, the treatment has been good and things have been generally handled well. So as we are speaking, touch wood, things have generally been good, except one unfortunate fatality. So this is where we were on the COVID and then the people front. Coming to the CapEx projects. You are aware that we are implementing 2 large projects. There's a new dry dock being implemented under the new ISRF project. And unfortunately, both have got severely hit because there have been significant migrant labor on both the projects. The dry dock is being implemented as a turnkey project by Larsen & Toubro. And the ISR project is being employed by Simplex Infrastructure. So both had the labor issues. In addition on the ISRF project, Simplex Infrastructure have also had some financial difficulties, which has actually led to both the projects suffering. I think, in my personal opinion, it's been a fairly strong setback on both our infra projects. Our new subsidiary in Kolkata, Hooghly Cochin Shipyard Limited, we could move forward despite all the difficulties in Kolkata and [indiscernible] also, we could move forward. We actually got the people to stay within the campus, and we could move forward with the work. As we are speaking, we are pretty close to start off work in that facility in Kolkata. In the meantime, you are also aware that Tebma Shipyard Limited in Malpe in Karnataka, we have taken over. And Malpe presently is also getting refurbished and we are hoping to start work as early as next month. Where we are currently, I'll just touch upon that and then get into the financials, but where we are currently like -- this year, again, continuing what we thought we did good work in Q4, like we have moved on to Q1 of this year and work has really picked up, but that's when on 8th of May, we had to shut down. But then we started working from 31st onwards in part mode. So as we are speaking today in the company, we are almost -- 55 percentage of people are working in the company. Generally okay, but shipbuilding, we need to push forward a bit more. So that's generally on the physical part. And during the meantime, like what all happened and what didn't happen, as I said, aircraft carrier, the final 3 trials has not happened as of now. I'll explain, we are very close to getting into the free trial mode, which is a big event, which will be a big event for the country and for the project. And we are very close. So you'll get these announcements coming in very shortly on the aircraft carrier project. We were building a vessel for the defense research. Practically, that vessel is completed, but the vessel has not been able to go to sea because we are missing a few OEM engineers were to come from Norway. And it's again around the corner, that kind of a thing, because it's just the trials that's remaining on that ship. In the meantime, like the vessels we are building for the Jindal Group, the 4 mini bulk carriers, we proceeded with the work. There were disruptions. Jindal also faced difficulties in positioning crew and others. But as we are speaking, the first vessel has been delivered even during this lockdown period and sailed off from Cochin Shipyard. And the second vessel is ready to go for a few trials. Actually, as we are speaking, the vessel could go for the trials as early as tomorrow. We have had this project for the Cochin Metro, which has suffered because of COVID. Again, import of certain critical ever since because it's an FRP board that has actually suffered also with stranding in Suez that has led to a little bit of difficulty over there. But again, the first vessel of those projects also, next month, we are starting deliveries of that vessel. So we have moved forward. So ship repair, we have come back strongly. There are projects -- there are fair bit of projects, and we have won some good naval projects also again this year. There was a large tanker project which we have won and that project is expected to start next month. She'll be reaching Cochin Shipyard. So ship repair, we are seeing generally good traction these days. Coming to the financials, you would have had a glimpse of the financials for Q4 and the full year. I thought, under the circumstances, Q4 has been good from all points of view, from a turnover and profitability point of view. In fact, our profitability is -- to put it mildly, it's a little bit too good. That's specifically because the aircraft carrier is actually in a stage and part of the -- significant part of the turnover came from the aircraft carrier and that, too, from a part of the work, which has got higher profitability in it. That's why there's a significant EBITDA margin of 30 percentage in Q4, which I want to caution that is -- that's not standard. That is actually too good to believe. So that kind of a margin is there. And on the overall year, like we have clocked INR 2,818 crores on the turnover. I think we aimed a little bit better. We did not touch it. As you are aware, like difficulties because of COVID, like you plan for something and the last minute something doesn't happen. People couldn't travel from even interstate and other things. So it was sort of a hand-to-mouth moment, but till the end, we tried that well. And you can see from the Q4, we have been actually better, but overall a tad disappointing, but then at INR 2,818 crores from -- is the turnover. And -- but as I said, since the profitability was coming from the aircraft carrier commissioning and trial phase, which is a little bit of a higher profitability figure part, the PAT margins are good. And the overall PAT figure has not come down as commensurate with the turnover. That is the overall picture here. So this is the current situation here. And if I may, before I conclude, if I may touch on how are we looking into the future. We are all generally good. This second wave is a deep disappointment for us because we had sort of everything coming back on the controlled aircraft carrier. People are in high morale over there. People are planning to go out to see that the Navy is fully involved. I can't name the exact details, but there are certain things which are done pretty close to sea trial where you put in more than 400, 500 people on the ship, and they work like a [ unicorn ] drill. All those things happened on the vessel. So it was at that level. And then we had to call it off. Then we had to call it off. So I just wanted to convey that we are pretty close to going out for 3 trials on the aircraft carrier. And that project will move forward with potential target delivery date, which is early part of next year, early part of 2022. The other projects, the technology demonstration that's held for the DRDO will get delivered shortly. The Jindal vessels, the second vessel, will undergo trials, then will get delivered shortly. The KMRL projects, as I said, the first vessel will start -- will get into delivery mode next month. And thereafter, by end of this year, we expect another 6 or 7 vessels to be delivered by the end of this year and that will continue. By that time, the KMRL vessels also will get [ delivered]. Jindal's third and fourth vessels will also get delivered. I forgot to like mention like we are building these 4 vessels for Andaman & Nicobar Administration. Out of it, the first vessel has been delivered. It's reached the port there. The second vessel is going good. End of this calendar year, we should have the delivery of the second vessel. Third and the fourth vessels are larger vessels. There could be some changes happening on that vessel, which I'm not fully privy to disclose at this stage. But then those vessels could undergo a functional change. It is one of those vessels and could play a different role for a different agency within the government. That's all I can convey at this stage. You'll have to pardon me for that. But then it's been built as a -- it has been contracted as a 1,200-passenger cargo vessel. So it may undergo a certain change in its function for yet another standard government entity. We'll keep you posted. At the moment, we are in a position to convey things clearly on that project. So all in all, the shipbuilding process will move forward. We have secured these 2 significant projects, not very big from a financial point of view, which are 2 autonomous vessels from a Norwegian client, things going well. Early part of next year, those 2 vessels will get delivered. And as we are speaking, ship repair, as I said, there are projects. Mumbai operations has suffered setbacks, even though there has not been a lockdown, but then a significant number of people went through COVID difficulties. Again, travel was a little bit difficult. So Mumbai activities will get ramped up this year. Cochin operations are doing well. So ship repair, we hope to go to some positive figures by end of the financial year. So all in all, looking forward, turnover-wise, we should be well past INR 3,500 crores coming for next year, at the end of the year. I may not be able to give you good feelers on a quarter-to-quarter basis or first quarter, second quarter kind of thing at this stage. As we move forward, we can open up a little bit more on that because as we are still speaking, the shipyard is not at 100 percentage worker level. But coming Monday onwards, we are sort of getting back to 2-shift operations, and we'll move forward on that. So this is essentially on the physical part and the financial part. I also wanted to paint a picture of where this company should go, in my opinion. I've been, again, when I'm interacting with all of you, I've been in the chair for now almost 5 years and 6 months. So after my first term, thanks to the Government of India for imposing faith and giving me an extended term for another 5 years. So what we are trying to do in Cochin Shipyard is a subtle transformation of this company. We have made sure that CSL 5 years back was a single-unit company in Cochin with the main yard in Kochi. And as we are speaking today, we have 7 units spread over Kochi, Mumbai, Kolkata and Port Blair, also in Malpe and Karnataka. We hope all these units, over the next 12 to 18 months, stand alone as functional units because we have ramped up. People have been positioned. Mumbai will have about more than 200 people working for us in Mumbai. Kolkata, between the 2 units, we'll have more than 100 people. Port Blair will have about 50 people. So all these recruitment, people positioning, things have been done. And this -- all of these, what we have done, this growth path, both on shipbuilding, ship repair and the geographical expansion, has been in line with what we are running in Cochin Shipyard called the CRUISE 2030, which is a long-term strategic exercise, which we have undertaken along with the Boston Consulting Group, who have been with us over the last 2 years. A difficult phase for them also, but we have worked together on various trajectories here. And I'm generally happy that most areas which we have touched upon, things have gone well for us. Positive, again emerging. We are very closely talking in Europe. We hope the moment people are free to travel from Europe, we could see some orders coming in. We are expecting -- we are extremely hopeful of some orders, especially for what we call the short sea vessel segment in Europe, in West Europe. We have been really pushing for building up the dredger areas in India dredger manufacturing. And we have been very fortunate in concluding a long-term MOU with Messrs. IHC, which is the world's #1 dredger company from Netherlands. IHC is practically 60% to 70% of the world's dredgers and they are the #1. It's Royal IHC, more than 100 years of pedigree. So we're extremely happy to have this association with IHC. And it's, again, even more gratifying that I can convey that it's been decided that dredging operation of India will procure dredgers. And as we move forward, we are in the discussion. So again, we are not in a position to confirm anything, but I can confirm that we are in discussion with Dredging Corporation of India, along with IHC to build dredgers in Cochin Shipyard. Hopefully, things should be concluded shortly. Significant move for the country and for Cochin Shipyard. Also, we have concluded a major contract under the Make in India and Atmanirbhar Bharat initiative with Messrs. Fincantieri Group of Italy. Fincantieri, as you are probably aware, is the largest group in Europe and among the world's top technology groups. We are teaming up with them and the particular naval project, which we have secured in ship for repair, a large project. It's about -- it's plus INR 150 crores of turnover on that single project. That project is a vessel grower. We are teamed up with Fincantieri and will be executed in Cochin Shipyard. So Fincantieri teaming up, IHC teaming up. Yet another very strong teaming up, which we have done is with an organization called Robert Allan. Robert Allan is the world's leading #1, by any yardstick, tug designer in the world. Robert Allan is a Canadian company, and we are teamed up, especially because there is this new SOP that has been released that as we move forward, practically tugs made out in the country will have to be built in the country. And we feel with this association, we should be in full position there. We are talking to at least 3 entities in India on potential tug orders. We hope things should move forward. COVID restrictions have also played a little bit difficult with the potential clients, but we are talking on this front. Smaller things, the new subsidiary in Tebma Shipyards, we hope to get going within the next couple of months with some small fishing vessel orders and something else which we are talking over there. Hooghly Cochin Shipyard Limited, we are talking with inland transport companies with potential first orders for the Kolkata yard. So on all fronts, we are moving forward. And all of this has been wrapped in the CRUISE 2030 long-term initiative. All of these, these revenue segments, which we have been talking. Again, we are talking significantly with potential coastal shipping companies in India, including some of the leading cement makers in the country. Again, can't take names here, but then leading cement makers are thinking of using the coastal shipping route for transportation of cement because they are all set up silos and clinkers in the ports. And for me, personally and very passionately, a new area where Cochin Shipyard want to move forward. As you're all aware, this shipyard is today structured predominantly as shipbuilding division and ship repair division. We have structured a new division in this company, which we are calling CSSAS, which is Cochin Shipyard Strategic and Advanced Solutions. We have gone through the highest level here, and we have structured this organization at a minimal level. We have actually done some recruitments also. And again, I would not be in a position to discuss specifics. But the thought process, this is going to be the knowledge of CSL. We look at all newer technology areas, electric mobility. You are aware that CSL today is the leader in electric mobility in the marine space with the Cochin Metro Board and the Norwegian contract, both of which are electric propelled. So electric propulsion, fuel cells and hydrogen-operated vessels, solar power vessels and various other strategic solutions, which would be defense and [indiscernible] defense. These are all things which we are working on. Expectations on how it will move forward, there's entirely different kind of proposals which we are driving, but it's not just come off the cuff, consistent initiatives over the last 2 years, along with BCG, dovetail into CRUISE 2030 is why we have formed this new division. And we hope to come back to you with success stories and newer things in this division also as we move forward. As you are pretty clearly appreciating, like the division may not start churning out high levels of revenue right from the start, but we hope that we'll be also lucky to get some critical breaks as we move forward. But SMA is here to stay as a new division of Cochin Shipyard. So it will be ship building, ship repair and CSSAS as we move forward. And all in all, the leadership in CSL at my level, at my Board level and at the senior management level, and the mid-management level feels, yes, we are going through difficult times, extremely difficult times. We have never had something like this last January onwards, on and off COVID, first wave, second wave difficulties. You planned something, it gets disrupted. But even during the difficulties, I think we have held our morale high. And as we move forward, we hope things will only improve. We're extremely pleased to see, this time, it's for real. The Make in India and Atmanirbhar Bharat initiatives, we are seeing this for real and we are very much playing a part here. And as we move forward, I'm sure that I'll have more discussions with you, and we can convey much more details here. And as we move forward, once COVID difficulties are over and travel restrictions are removed, I welcome many of you to come down to Cochin Shipyard. We'll be happy to show you around what we are doing in this company and the newer infrastructure and facilities, which we have created for the country and for the company. So with this, I think I've taken a fair bit of your time, but I thought it was needed to just convey where we are. So thanks a lot for being with us, and we can take questions. And we will try to be as open as possible, but if there are certain things which we are not able to speak because of you are aware that there are the 3 projects being handled in the company. Yes, the next-generation missile was a big contract coming our way. We have still not signed the contract, but we have been declared L1. So that's an extremely positive news for us. So we feel strongly positioned on the order book front as we move forward because our current order books, I didn't touch upon that before we might close. The current order book, around INR 12,000 crores, and they're just -- if we bring in the NGM, the next-generation missile vessels, now they're about INR 10,000 crores. So I think the main trunk is intact. We are here to take a few risks, which could turn out to be profitable for the company as we move forward. And I think next few years, we are -- we hope things are looking good for Cochin Shipyard. With this, I hand over to the team. And as I was saying, like, whatever possible, we'll try to explain. If possible, we'll explain it straight away. If it's not possible, we'll send in the answers later. And if there are certain things which we have to hold back in the -- due to not being able to disclose very openly at this stage, kindly inform us. So thanks a lot for being with us, and over to you. Thank you.

[Operator Instructions] The first question is from the line of Sandeep Tulsiyan from JM Financial.

Sir, my first question, firstly, thank you so much for that elaborate update on each maybe division of the company and the future growth plans. Firstly, on the annual revenue target, we have pegged it at INR 3,500 crores for FY '22, keeping in mind all the current disruptions that have taken place in 1Q. If you could elaborate a little bit more on how much top line you're targeting from each of the different segments, shipbuilding and ship repair. And within shipbuilding, how much will be IAC, non-IAC? And then should prepare how much will the Cochin Shipyard contribute? And all of these new yards at Mumbai, Kolkata, Tebma, how much of those yards jointly will contribute to ship repair?

Sandeep, I'm not sure whether I can share that kind of a detailed information at this stage. But approximately, I can convey word is revenues will come from and this can go a little bit up. That's what I would think. So from the aircraft carrier, we should be expecting to get about INR 1,850 crores. And from other shipbuilding projects, we expect to get another about INR 950 crores, INR 970 crores. And we should be getting INR 750 crores to INR 800 crores from ship repair from all the places together.

We will move to the next question, which is from the line of Mohit Kumar from DAM Capital.

Two questions, sir. Of course, you gave the breakup for the FY '22. Can we spin to some picture of FY '23? And do you think, what kind of contribution is likely from the new ASW Corvette, the new order in FY '23?

FY '23, around INR 4,000 crores. Around INR 4,000 crores should be coming in FY '23.

So do you think this new order will kick in from FY '23? And what kind of contribution will pan out? In a sense, is it possible to give some sense of the...

The ASW Corvette orders are starting to come in even from FY '22 onwards. But the new NGMV contract orders will not come in from that point. It will be because we expect to conclude the new contract by end of this calendar year. And then there is a design and engineering phase. So the turnover for NGMV will kick in only a year after that.

F '24.

FY '24.

Understood, sir. And sir, how do you see this beating the margin underway change going forward for next 2 years? Or do you think these margins are sustainable? And on ship repair, do you think there will be -- the ship repair will clock the FY '20 numbers, given that the situation has more or less normalized now?

See, the margins are basically, like as I said in my initial part, like the aircraft carrier project, the margins have been a bit more on the higher side. Again, you should not read too much into it. So those margins are because probably we have worked significantly in the previous years. That is -- that's the way I should look at it because it's a long, long project. So the kind of effort which wouldn't be getting converted earlier has actually got converted later. And it's not about physical effort, it would have been probably design and engineering, which we don't recognize for turnover, but its effect was coming in much later. It's an engineering [indiscernible]. Aircraft carrier project, it took almost [ 6-odd years ]. So that -- those were actually being recovered later. Now margins, these are all competitive tenders, the ASW and the NGMV. We have -- we actually said that ASW Corvette was extremely competitive for contract and the margins were -- we had conveyed earlier the margins are actually in single-digit levels over there. But the NGMV contract is a little bit better than the ASW project. So I wouldn't want to talk specific project margins, but then we'll get into the double digits, early double digits on the NGMV project.

Understood. But last question, sir?

Ship repair margins should be consistent. And as you said, whether we'll go and clog the record turnovers, which we had done 2 years back, I'd like to hold my guns till we get into the next quarters.

Understood, sir. Now how does the order pipeline is a large tender, which you are bidding for in FY '22? Or do you think that will get concluded and where we have a fair chance of winning the bid?

Yes, we have the order pipeline where we are participating strongly. Two projects on the Coast Guard and one on the Navy, altogether about INR 4,500 crores of order pipeline. We feel all we have -- we're actually hopeful, but it is 1 is out of INR 4,500; 2 -- 1 bond project is about INR 700-ish; the other one is about INR 300 crores, INR 400 crore project; and the other one is a slightly larger one. It's about INR 3,500. That is the kind of spread. So at least one project, we should be able to win. That is -- that's our take as we move forward. But again, order pipeline, I was also mentioning other than the Navy, the dredger order pipeline could be fairly big. It could be around INR 1,000 crores, which we are fairly confident will come our way.

[Operator Instructions] The next question is from the line of Parimal Mithani from Credential Investments.

I just wanted to know for the [indiscernible] CapEx in this, which has happened on the international ship repair [indiscernible], the new write-off, [indiscernible]. And what will be in crore you had -- how much of your spending going out from now for the year, current year?

See, for the current year, we are expecting to spend altogether INR 330 crores on the CapEx, on the dry dock and the ISRF. And what we have spent till now, is that the question you're asking? Yes, on both the projects together, we have spent about INR 1,240 crores.

Okay. Okay. And sir, second question is in terms of your order book, which is, sir, how likely are we going to any big orders from the vessel side, sir, currently?

Pardon. Can you repeat that question once again?

You mentioned on your con call, you have 3 orders, which is from the Navy and the Coast Guard, about INR 3,500 crores. Are these on a nomination with you or are there competitors?

These are all tenders and these are all expected to be finalized shortly. It is in advanced stages. And what we understand from the system is that all are getting finalized fairly shortly.

Okay. And sir, the RFP backlog will [indiscernible]?

This RFP backlog is more or less over, but there's a new one also coming up, which, again, we'll be participating. There's a next-generation OPDs coming up.

[indiscernible] or is it shipbuilding?

New building, new building.

Okay. And what is the size of the order [indiscernible], your ballpark figure?

I can't say. That's what I said, the larger project was INR 3,500 crores, but can't say whether if I get that well and good. But the other ones are about INR 700 crores and INR 350 crores, INR 400 crores, that kind of a thing. So it will -- we have bid strongly against all of this. So we'll have to wait.

The next question is from the line of Jonas Bhutta from PhillipCapital.

Congratulations on achieving these milestones on the IAC. So my question, first question is on the [ ISCVC ], that even though the ship can start sea trials as early as July, but there is almost a INR 5,000 crore kind of work to be done yet on the ship. So if you can help us understand whether this entire INR 5,000 crores will be revenue recognized by the time the ship is commissioned? Or you think that the work to be done will be lower than what has been earlier estimated and, hence, this entire INR 5,000 crores would not need to be revenue recognized given that some of this could also entail some bit of buffer costs. So that's the first question.

Yes. See, Jonas, this figure which you had mentioned, I'm not talking explicitly on this, but then the figure you're talking is about 10 to 15 percentage on the higher side. So that is -- that's the remaining that is around the project. And it is not entirely getting recognized by the time we deliver the vessel. You use the word commissioning. See, delivery of the vessel, then it may we take delivery. So delivery is what we said early part of next year or next calendar year. And after delivery, there are some parts which the Navy gets into it until they commission the vessel. And even post commissioning, there are certain things where Cochin Shipyard is getting associated. So there are still revenues that will have to flow from that project post delivery. And it is actually -- that is how the contract is also structured.

So this INR 4,500 crores will be recognized over a 2- to 3-year period. Is that a fair assumption, sir? And not in this 1.5 years till the ship gets delivered?

[Operator Instructions] Ladies and gentlemen, thank you for patiently holding the line. The management line is reconnected. Thank you, and over to you, sir.

Yes. In fact, we are talking to Mr. Jonas Bhutta from PhilipCapital, that's when the line got disconnected.

Yes. So my follow-up on your response, sir. I just wanted to understand, this INR 4,500 crores of the outstanding book will be executed over a 3-year period and not necessarily over a 1-, 1.5-year period when the ship gets delivered to the [indiscernible].

Correct, correct.

That's helpful. Sir, my second question was, sir, like you rightly said that the ASW margins that you had earlier guided for, which will be single digit and you are looking at slightly lower double-digit margins on the NGMV. Just wanted to understand, both these projects have fixed price and the volatility in raw material is quite immense at the time of the NGMV bid because you have still not closed the contract. So you're saying it will get closed only by the year-end calendar. That means that you're still open in terms of your -- the bids that you've put in or the rates at which you put in. What makes you so confident that the same issue that we had in case of ASW where the ForEx cost sort of went up, like so what makes you believe that you will be able to do these double digit -- at least a low double-digit margin in NGMV, sir?

See, on the NGMV, as you probably are already aware, like the foreign exchange is covered because it's under the new DPP and the foreign exchange variation is covered. Now coming to commodity prices and fluctuations, on naval projects, the commodity prices both happens in the cost of scale. Yes, definitely, if the steel price goes up. There is an impact. But at the end of the day, these are not still heavy or the only thing that goes up is still a little bit of channel steel here and there and some piping. But these are compared to the size and scale of the project, these are all absolutely minimal. Even on the -- in the case of ASW also, it was the overall steel on the ASW would be about just 200 tonnes. So even if you think about $200 difference, what is the kind of difference that happens on that asset? So when you look at the overall cost of the ship. So that commodity pricing is not a great factor. You're right, if it was a bulk carrier, we would have got extremely worried. But commodity pricing is not a very major part. And on the NGMV, the ForEx, we are covered.

The next question is from the line of [indiscernible] from [indiscernible].

Just a minute. I need to take an urgent call here.

Yes. Jose here, Director of Finance. He is taking an urgent call so you can continue with the questions.

Yes. I'm [ Nickel ]. Can I continue with my question?

Yes, please, please.

Sir, my question is that if you look at it, like, it's a little more long term in nature. Now as in previous participant question, MD sir said that this INR 4,500 crores of ISC order book will get extinguished and this was also a high-margin business. What I want to understand, which means that once this ISC goes off, the rest of the INR 1,800 crores kind of the order book, which we have as of now, is a single double-digit -- low double-digit kind of a margin business. But I would also presume that IAC is taking a much larger infrastructure. So can the order -- the rest of the order, which we are doing at INR 400 crores, INR 500 crores, can it be doubled? Or can the revenue potential of the rest of the order book or execution period can be faster once IAC goes off because that much infrastructure can be released? So on an annualized basis, is it like on a normal order book ex-IAC, we can continue with a INR 1,500 crores, INR 2,000 crores of an order execution? Do we have that much infrastructure to sustain? Or what kind of maximum potential we can do?

That's correct. So naturally, when the IAC goes up, today, about 2,000 people are working on the cross carrier and the infrastructure is supporting that. So that's the whole plan. So when the IAC goes up, luckily for us, what was most important for us is to have a good strong pipeline. That is why the ASW Corvette and the NGMV, even if it comes at a little bit of a tough margin, why we won those projects, now there's 8 plus 6, 14 vessels over next 6 to 8 years. What happens, it lends extreme stability to the yard. And when you are doing vessels in series, IAC is a one-off vessel. When you are doing vessel in series, after a few vessels, after one, the second vessel, we -- this is like it becomes extremely comfortable for the yard to actually move forward on this vessel. So from a margin perspective and from the turnover perspective, yes, the turnovers will definitely -- the figures you are saying, INR 1,500 crores, INR 1,600 crores, that's kind of -- we will have to do that and slightly more. That is our intent. And the margins, naturally, you will not get a margin like an IAC anywhere and we have continuously mentioned this. A kind of EBITDA margin will not be available. But that is the shipbuilding business. The thing is you'll have to populate your shipbuilding yard much more with more orders which we feel extremely confident, not just the naval orders, we expect certain orders to come in from outside also. Some of the Indian clients also. See, there's regular orders, which we are talking will be a pipeline for the company. So those are things which we'll run in parallel. So at the end of the day, it is execution track record, which will be defining the company as we move forward. Margins definitely will not be IAC level. It will come back.

Okay. Just one on -- as you touched upon the dredging part, this INR 1,000 crores, which you mentioned, is the cost of 1 dredger or is it a combination of 3 or 4 dredgers? Because in a news article in Business Line, the chairman of Dredging Corporation had mentioned that in India, there is not much dredging facility available and the requirement is much large. So if -- and I thought with this tie-up which we had, it opens a much larger potential business for Cochin. So -- If you can just help me understand, is my understanding correct? And what could be the potential size or what is the potential market for dredging in India, which is currently not being completely manufactured in India?

Large dredgers are not manufactured in India. And the large dredging companies in India, the DCI and Adani at this stage. And all of the dredgers are practically imported, except maybe one in the past result. That's a different type of dredger also. So the dredger market, it's not -- straight away, it is not that the dredger market or dredge building market can build up straight away. Because it's not that -- see, a dredger lasts for 25 to 40 years, the way you use it. So dredging in all ports in India. So dredging is going to increase, but there is also competition. There are foreigners, foreign dredging companies also working in India. So within India, we expect there will be numbers, but it's not like it won't come in the tens or that kind of a number. It is always -- because it's all costly vessels, these all -- a single vessel could be ever between of $50 million to $100 million kind of a thing. So you end up talking 2, 3, 4 vessels coming from maybe these players and maybe at least 1 new player coming into the field. So this is kind of what will come in. So we are looking at dredging as one of the verticals within our shipbuilding revenue group.

Okay. Just one last thing. I think we were doing dredging earlier. We were manufacturing dredgers earlier, but then we discontinued. Am I correct?

Not really. We had just done one small dredger way back in 2000 and that, too, again, was in cooperation with IHC of Netherlands. But otherwise, Cochin Shipyard has not done dredger. In fact, India is not done dredger.The has been just one. It's slightly different dredger built by Mazagon Dock about 20 years back in combination with a German-Dutch design. But otherwise, a dredger -- the smaller dredger, extremely small ones, which is like a $2 million to $3 million kind of thing, those are cutter suction dredgers, small river cutter suction dredgers. Those are made in India with foreign design support.

The next question is from the line of Shanti Patel from Shanti Patel Investment Advisors.

Who are the main competitors in our industry? And our -- what is our capacity utilization as on today? And are you confident that, that will continue in future also?

So the competitor is a defense shipbuilding, if you are talking about high level [indiscernible] segment. If it's a defense shipbuilding, there are the defense peers here, Mazagon Dock, Goa Shipyard, Garden Reach Shipbuilders and Hindustan Shipyard and Larsen & Toubro Shipbuilding. These are the competitors on the defense side. On the commercial side, it is not really competitive because we are, by far, the largest from a size and scale point of view. But then there are some able companies like the Chowgule Group in Goa. There is [indiscernible] shipbuilding division in Kolkata and then there are very small players in the industry. This is on the shipbuilding cost. On ship repair, again, closest competitors would be Larsen & Toubro Shipbuilding, which does a bit of ship repair, especially for the Navy. And Hindustan Shipyard Limited doing ship repairs. Also in the private sector, Chowgule Shipyard, although their shipyard is in [indiscernible] near Jager. And capacity-wise, ship repair, we are -- there's no absolute authenticated figure, but we would think we are somewhere around 40 to 45 percentage of organized ship repair happening in the country. And shipbuilding, if you are looking at our turnover, we are #2 after Mazagon Dock. And like overall, maybe India, including the naval shipbuilding may be doing something around INR 215,000 crores on a -- in a given year. So we are probably somewhere around 20 to 25 percentage of the Indian shipbuilding capacity.

The next question is from the line of Giriraj Daga from KM Visaria Family Trust.

So my first question is, can you give me the breakup of INR 4,500 crores of IAC order in terms of cost plus and fixed price?

I'm not getting into the exact figure, but then approximately, just a minute, just give me a minute. Fixed part would be about 35 percentage. And the balance is costs.

Okay. Okay. Okay. My another query on the margins. You mentioned that obviously IAC had a higher margin than this year. And this year, we had booked good margins. But should we assume this year margin on IAC to continue for the rest of the orders or this year particularly you had some component which had a very high margin. And hence, on the IAC margin will also drop? Is this the right assumption or...

Something similar because what I was saying is that IAC went through the construction phase. Then the testing and commissioning phase. So we are currently in the testing commission fee trial case. So the margins generally should be consistent with what we have seen over the past quarter.

So sir, their margins are higher and the margin should be fair [indiscernible] lower volume business in like FY '18, '19, '20. This is what you want to convey?

Can I repeat that question again? There's a...

[indiscernible] This year, we had a very good margin. Despite our revenue getting lower, we had a higher EBIT margin in the EBITDA, profitability in the Shipbuilding segment. I want to understand the IAC margin part will remain same for the rest of the FY '22 and FY '23. Or will the IAC margin also declined on a like-to-like or apples-to-apples comparison, FY '22 IAC margins will be lower than FY '21.

So the IAC margin is comparable. But then again, I'm not in a position to give you fine detail. That's why I said 35 percentage would come from the fixed part. And there's a margin difference also between the fixed part and the cost plus spot. You're probably aware of that. So -- but it would be consistent from what we have seen in the immediate past.

Okay. My second query on the CapEx side. You mentioned that INR 330 crores of CapEx. But looking at the CapEx number, will we be able to commission [indiscernible] as for our guidance of December '21?

It looks a little bit difficult as of now, because we have also got force majeure claims of delays from the trade makers. Simplex Infrastructure has had difficulties. So we may touch and go. We are still looking at December end of this year. But whether the entire facility can get commissioned, we'll have to see as we move forward. These would be something spilling beyond this also.

Yes. Then a small follow-up. What is the FY '23 CapEx will be? That number should be materially higher FY '23 CapEx?

We should be around INR 400 crores.

INR 400 crores. Okay. So we are targeting FY '23, the dry dock also to commission, right?

The dry dock, the -- more commissioning. We are now set for '22 December. That's completion of the work, and then there's a big crane, which is coming from Korea, which will actually reach here. The commissioning maybe a few months beyond that. So yes, FY '23, maybe '23 March, April, we should be able to start expiring the book.

Okay. So maybe total CapEx of about...

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, excluding the IAC, we will be having almost order book of INR 17,000, INR 18,000 crores. I'm including this INR 10,000 crores of next-generation missile. So what would be the execution period for this INR 18,000 crores order book?

See, I may have to draw your attention that it is INR 18,000 crores order book portion, the ASW Corvette and the NGM project, because that is the way the Navy wants it. So this is -- if you're looking at NGM, for example, from a contract, the first vessel is to be delivered in 42 months, 48 months and thereafter 1 vessel every year. So when we are talking about fixed vessels, you can see it goes into 48 plus 5 years, essentially. So that's 9 years, the NGM really going. And the ASW Corvette, we are currently in the construction phase. That's also spread over 6 years. Now -- so this is not the sole order book, which we have, but this is what we have right now. And as we move forward, that's why we will target to bring in new orders into the company as we move forward because, for example, if you are looking 5 years down the line, it is not that we have full order book. Because it -- exactly 5 years from now we'll have probably 1 or 2 ways [indiscernible] remaining and a few NGMV remaining. That is not the order book that will be there at that point of time. We'll actually continuously try to fill this order book portion as we move forward.

Okay. And now that once this IAC will be over, so currently, we are doing around INR 400 crores of shipbuilding other than IAC. Let's say whenever this GMV and ASW both go together, we'll have a good execution, what kind of peak revenue we can do in shipbuilding?

Somewhere around INR 1,600 crores, INR 1,700 crores is what we are -- from NGMV. And from the ASW target, from around INR 800 crores to INR 1,000 crores. So we -- it should be somewhere around INR 2,500 crores of shipbuilding turnover. And this was a question somebody has some time back. This is where we'll actually do on the shipbuilding part.

The next question is from the line of Aditya Mongia from Kotak Securities.

I just want to kind of clarify, when you are saying that the margins are going to be at low double digits. Are you talking like I think level or at the PAT level for the new order set?

Can I repeat that? You're asking the low double digit was PAT or EBITDA. Is this your question?

Yes, that's the question. Like whatever are you kind of guiding for the margin for the new shipbuilding models [indiscernible]?

That's at the PAT level.

Second question which I had was more retail division that you intend to fund. You have given us some color, but if you could give us some more in terms of the kind of investments that we may want to do in the third business in that you want to [indiscernible] some processes on the time line [indiscernible].

Not really in a portion to discuss the money part on this division. So the way I thought I should convey to our investors and analysts that we are moving in this direction. So right now, we are looking at certain investment opportunities. That is for sure. But the most important part is we're actually building up people. So the investment currently is in people in that organization. And revenues, there are a few leads being followed, but it's too early days to actually discuss anything on this division.

The next question is from the line of [ Nitesh Shi ] from [indiscernible] Securities.

Yes. Sir, as part of our internal assessment, when can we complete this international sea prepare project? Like when -- till what date it has been postponed to, sir?

See, we have actually formally postponed it until end of this year, December 2021. But we are sensing some difficulties in the completion, especially the turnkey contract involved is getting some difficulties. She has not fully recovered back from these COVID difficulties and the financial difficulties. Plus there are certain equipment which is imported, especially cranes, which may take some more time. So probably maybe next quarter I can give you much better information, but then we are probably getting into mid of next year for the commissioning.

Okay. Sir, sorry to harp on it, but there are -- in the market, there are really some difficult things about -- we are hearing about the Simplex Infrastructure also. So what is the -- is there an alternative? Or do you see we will be able to complete this thing? And what are we...

No, no. I fully understand. I fully understand what you're asking. See, we have -- this is one project where Simplex Infrastructure has not let gone. They are still working on the ground. I can tell you that. And we have worked very closely with them. We have tried to support them to whatever extent possible. But I can tell you, even if there's a break, we are probably in a position to hold the project because the complete marine part of the product is already completed. The complete equipment part or the cranes and other things, we are holding it directly. And they've gone through difficult because it's been a steel price increase have hurt them badly on this project. But for us, it was a sort of a the escalation clauses, which are normal escalation clauses are not taking -- giving them full comfort on the same part. But we hope, and we are standing by them, we hope that they will be able to continue, but then work had slowed down. That is our greatest concern. They are -- it is not that they stopped and moved forward. Work has slowed down. And since they are facing some difficultly, some of the good people have left. They are still -- there are excellent people here. But all in all, since we are facing these difficulties, that's why I'm not able to give you exact dates and other things. But even if something goes wrong with them, we are in a position to take over the work and complete it. But that's definitely not the best method to move forward.

Thank you, sir, for being candid. And I hope by next quarter, we get -- I mean, the company is still [indiscernible] is able to get a clear cut visibility on the project.

The next question is from the line of [ Ashok Daman, ] an individual Investor.

Congratulations not only on your numbers, but your wonderful new initiatives. I have a couple of questions. One regarding, you mentioned just now that we will do peak ship building revenue of INR 2,500 crores.

Correct.

What year would that be, sir?

Pardon?

What year would that fall under, that INR 2,500 crores revenue?

Which year will it come?

Yes.

Immediately after IAC.

Immediately after IAC.

Correct. Because we are currently -- actually, the current financial year, we are -- we will get into sort of good work on the ASW Corvette. And next year, that's FY '23, ASW Corvette will be one of the critical key components in our revenue turnover. And since there are 8 reserves in the ASW Corvette, we raised this level as we move forward, along with our other projects which we'll have. And by that time, NGMV will also kick in. So NGMV plus the ASW Corvette and certain other shipbuilding projects, which we haven't got right now. But as I was saying, the dredger, a few projects which you are talking in Europe, there's a high level of optimism that those will also come in, because we definitely need this mix. We need a mix of naval and other projects because our target has always been trying to increase the volumes in shipbuilding. Because as you're aware, like the infrastructure, the overhead, that more or less it remains steady. So if we can actually increase your turnover, which is the figure which we are talking, that is where the profitability will come sustained.

Sure. My last question, sir. You gave projections for FY '22. And ex indigenous aircraft carrier, you are saying the other shipbuilding will be INR 950 crores, which is almost 2.5x and other ship repair will be INR 800 crores, which is again the double. When -- how do you see this going forward?

See, shipbuilding should go even more than this because shipbuilding depends on how much orders we can garner. We should be able to -- we are hopeful that we can take this much more forward because on the shipbuilding side with the ASW and the NGMV coming in after some time, we should be able to take this forward. Ship repair, we have -- we actually set some internal targets for us. See, at the moment, ship repair is a continual flow. And at the moment, we have some breaks. Again, there is 1 month break from May 8 till now is actually pulling lockdown by -- at least it's not just 112, it will take off a little bit more than that. So ship repair also, where we have this 800-ish level, we expect things should consistently go up 12, 15 percentage, at least going up on a yearly basis.

Okay. Great. And congratulations again.

The next question is from the line of [ Nishal Jain ] from [ AMS Wind ].

Sir, again, I have a follow-up question regarding your peak revenue and order book. So like you mentioned, sir, peak revenue would be INR 2,500 crores after the IAC, right? I just want to understand, sir, how do you see -- when a peak revenue is INR 2,500 crores, the order book will primarily consist of ASW and next-gen missiles, right? So what kind of peak order book are we looking at in the next 2, 3 years? Do you think the order book, which is currently 18,000, including IAC and next gen beside an ASW, can it ever reach to a level like INR 25,000 crore or INR 30,000 crores in the next 3, 4 years, sir?

This is -- thanks for asking this question. This is our wish list also. But I can tell you like -- see, just see in shipbuilding and as a company, we always made an order book, which I've always used this word, there's is about something like 4 to 5x your aspirational annual turnover. This is where we want to go. And we will actually bid aggressively for both, because that is where the company sustains itself because the company's overheads are not going down. There's a [ PSU ] company. If something is going down, we don't track our people, we hold our people. So there's a core overhead which we are carrying in this company. So what is very important is, and that is why we'll go on all fronts. That's why I said we go into Europe for short sea shipping, we'll try for dredgers, we'll try for the naval projects. And we'll drive up other private contracts also within the country and outside. But at any point of time, the general take is that -- for example, when I'm saying -- when I'm guiding you into a turnover target of around 3,500, 3,600 level, internally, I would have in my mind about 4,000, 4,000-plus, and I'll multiply it by about, say, 5x. So that's about 20-ish. This is what I need to have now, which touch would we are having this order now. But next year, I need to actually have an order book position of around, say, around this level, slightly more, about 10% more, so about 22%, 23% I should have. And this is the continuous challenge for people like us getting into the market and getting these orders. But the good part is we are sensing positivity. And how we'll be able to convert that possibility, we'll have to walk the talk together, but we will try our best to go into these levels.

And sir, what kind of peak revenue are we targeting for ship repair, like the 2,500, I believe, is on the shipbuilding side, right?

My Chief General Manager of Ship Repair, Mr. Sreejith, is looking at me. He is not giving me good figures. But then, internally, we want to do -- there's nothing called a peak. We want to continuously grow on ship repair. So it is not about peak. It is with Mumbai coming in, Kolkata chipping in, Port Blair coming in and Cochin Shipyard and the new ISR of when it gets commissioned, we want to move forward. So ship repair should be on a continuous growth. But we have guided 1,000, 1,200 in 1 to 2 years to come. That's where we are guiding. And I think at this stage, that is what I should say. But as we move forward, ship repair should be -- it's like it should keep on growing because we will end up repairing at least around 200, 220 ships in 1 year when these facilities also coming up.

Okay. Okay. And sir, my last question is, sir, on the new decision, the knowledge center, the knowledge arm that we have coming up. So if you could throw some light like you said you're investing in people. So if you could throw some light as to who is going to be the main person who's going to drive this division, what kind of people are we looking at to hire. And strategically, how are we looking at this decision to provide [indiscernible] revenue potential? Can we have because of this synergy and because of this new division coming in, sir?

See, I can give you only a very, very high-level picture here. We have set up this division with one of our key executives who have been with the company for 25 years, strongly involved in different engineering. He is heading the division along with 2 assistant general managers who have both been with the company for 15-plus years. Then we have got around 6 people with the group right now. But as we move forward, by end of this year, we will have about 20 people within the organization. And the larger thought process is to have this as a -- probably as a subsidiary company or an associate company as we move forward and going to -- under the CRUISE 2030 initiative, by 2030, getting to at least INR 1,000 crores company -- INR 1,000 crores division. This is the thought process. But too early days to discuss much more detail, but this is overall plan here.

The next question is from the line of [ Sanme Adiyal ], an individual investor.

My question is that -- about the dry dock. When can -- like when do we expect them? And what kind of revenues do we expect from the dry dock?

See, the dry dock, as I said, we are looking at completing the dry dock, the civil part, in December '22. We are closely working with Larsen & Toubro on this. But the crane may come in a few months thereafter. So there's around '23 mid. Now the revenues from the dry dock, it would be difficult for me to discuss it at this stage. We have our internal discussions on this. But then till now, like since we haven't taken it through the Board in great detail, I'm probably not in a position to share revenue discussion from the dry dock at this stage.

Right, sir. And my question is that, this dry dock, the size of the dry dock is similar to the size of the dry dock which we have right now or it's slightly bigger?

Bigger. It's much bigger. It's much bigger.

So we can expect on similar lines or slightly higher from it?

Should be. Again, it could also handle some critical assets for the country if the country decides to do so. Like the next [indiscernible].

The next question is from the line of Viraj Mithani from Jupiter Finance.

Congratulations on the outstanding numbers. Sir, can you tell us our own cash in the company would be how much as of today?

Can I request Mr. Director of Finance, Mr. Jose, to handle this question?

Yes, just 1 second. Cash is around INR 1,000 crores.

INR 1,000 crores. Sir, my next question is regarding the ship repair business. Is it a business or a continued business? How do we look at the shape of that business? Would it be going up and down second quarter? Will be steady over the quarter?

Because we have to take it in the overall 1 year picture because in the quarter, there will be ups and downs. But in throughout a year, you should see that [indiscernible].

And the other different shipyards also entering this like DRC and others. So do you face competition from them? So they are also talking about the ship repair business.

As of now, only and certainly doing ship repair, is not a start-up.

And sir, my last question is, going forward, broadly, we'll have a net margin of 16% to 18%. Is that [indiscernible] mix up with building and ship repair?

The ship repair EBIT margin is around 23 percentage.

[indiscernible] broad blended net margin should be around 16 to 18?

On a PAT basis, around 15 to 16. EBIT-wise is around 19 to 20.

And sir, what will be the growth on the blended business, in both the business if I have to look at here for next 3, 4 years?

See, we have been guiding around 12 percentage year-on-year. But in the last year, we could not achieve that. But going forward, we'll be able to do that.

In the shipbuilding, is it? Or both?

Overall. Overall. Overall.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Madhu Nair, Chairman and Managing Director from Cochin Shipyard Limited, for closing comments.

Yes. I'm Jose, Director of Finance. CMD has gone for another meeting with the Ministry. So thank you all the investors for joining the call, and we'll catch up with you later. Thank you. Thank you all.

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