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

Ladies and gentlemen, good day, and welcome to Cochin Shipyard Limited Investor Conference Call hosted by Kirin Advisors Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shaki penjera from Kirin Advisors. Thank you, and over to you, ma'am.

Good day, everyone. On behalf of Kirin Advisors, I welcome you all to the investor conference call of Cochin Shipyard Limited. From management team, we have Shri Jose V. J., Chairman and Managing Director and Director Finance; Dr. Harikrishnan S, Director, Operations; Shri Rajesh Gopalakrishnan, Director, Technical; Shri Shiraz VP, Executive Director, Shipbuilding; Shri Shibu John, Chief General Manager, Finance; Shri Syamkamal N, Company Secretary. Now I hand over the call to Shri Jose V. J. for his opening remarks. Over to you, sir.

Good afternoon, everyone, and welcome to the Cochin Shipyard Limited Investor Con Call. I'm Jose V. J., CMD, Cochin Shipyard Limited, and I'm joining today by Dr. Harikrishnan, Director, Operations; Shri Rajesh Gopalakrishnan, Director, Technical; Shri Shiraz VP, Executive Director, Shipbuilding; Shri Shibu John, Chief General Manager, Finance; and Shri Syamkamal N, Company Secretary. . Let me start by giving you a brief overview of our operational performance during FY '27 so far. During the period, CSL delivered 3 vessels, including the third vessel in the series of anti-submarine shallow watercraft being built for the Indian Navy. The second multipurpose vessel under the export order for our German client, the double-ended Toro Suricata. Our only owned subsidiary, Cochin Shipyard also delivered 3 vessels during the period, including 2 3,800 TW general now vessels to Wilson Group Norway and the a 70-tonne Bollard Pull tugs and Adani group company. Over to financial performance. Let me now briefly press up on the details. For the first quarter, our turnover stood at INR 1,094.21 crores compared with INR 1,068.59 crores in this corresponding period last year. INR 249 crores compared to INR 494 crores last year, while PAT stood at INR 151.45 crores compared with INR 187.82 crores in the corresponding quarter. Our EBITDA margin for the quarter was around 24 percentage, while PAT margin around 14%. Joint venture -- details about the joint venture with tie-off for Dubai. Coming to future strategic initiatives, I would update you on an important decision taken by Board of Directors such as teething -- yesterday, it has also been intimated to the stock exchanges. The Board has approved the proposal to form a joint venture with DDW World Dubai, a DP World company. for owning, operating and managing vessels international ship repair facility, ISR, at Cochin. As you're aware, ISR is a state-of-the-art shippers facility developed by CSL of around 30 acres of land. The facility has a 6,000 shiplift and transfer system, 6 bulk stations and around 1,400 meters of working space. It can handle vessels of up to 130 meters, has an annual throughput capacity of up to 82 ships. The proposed joint venture will have equal shareholding with CSL and DDW holding 50% each. The JV will not only operate the existing ISR but also undertake capacity augmentation through the addition of 10 more workstations. From a strategic perspective, we believe this partnership brings to the complementary strength of both the companies. CSL brings its established presence in the Indian merchant sector and the success in ISR sector, while DDW brings significant international experience, operational expertise and a global customer network in shipper. The partnership is expected to help us improve operational efficiency, adopt global best practices and advanced technologies, reduce turnaround time and importantly, attract international customers to Cochin. We believe this will provide a strong platform for scaling up the ship repair business in Cochin. I would also like to highlight transaction structure. The ISR undertaking is proposed to be transferred to the JV company on a slump sale basis as a going concern for a consideration of INR 1,800 crores. CSL will receive 50% of the consideration in cash, while the balance 50% will be received in the form of equity in the shares of JV company. The valuation of INR 1,800 crores is based on an independent third-party valuations. The definitive agreements, including the joint venture agreement, shareholder's agreement and business status agreement and license agreement has been finalized. The JV agreement will be signed tomorrow on the sidelines of the BRICS Summit at New Delhi, while other agreements will be signed after interoperational JV at a state of requisite approvals. There are certain regulatory and shareholder approvals secured before the transaction can be completed. These include approval from the Ministry of Food and Waterway, become concurrent and shareholders of sales. In particular, shareholder approval is required for the proposed transfer of the ISR undertaking. We will therefore be coming out with a postal ballot to seek the requisite approval of our shareholders. Subject to receipt of the necessary approval, the transaction is targeted to be implemented before the end of the current financial year. As an important update, I would like to share with you is regarding the proposed block fabrication facility at Cochin. As you may recall, CSL signed an MOU with HD KSOE of Korean -- of Korea for exploring various areas of cooperation, including the ticket block fabrication facility at Wallar Vadinar at Kochi for utilization for the new dry dock and the joint shipbuilding activities. Since then, CSL and HD KSOE had series of discussions and engagements. However, we have not been able to arrive at a mutually agreed definitive terms for establishing BFF facility through a joint venture. CSL now will proceed with the development of facility independently at a smaller scale, while we will continue to keep the option of a suitable strategic partnership open if such an opportunity provides value to the company in future. I would also like to clarify that this decision is specific to the block facility only, both CSL and HD KSOE remain positive about the relationship and have expressed their willingness to continue exploring opportunities for collaboration in other areas of mutual interest. Another important project is our proposed shipper facility at Vadinar, Gujarat, which CSL is developing jointly with India Airport Authority. The project has already received CCEA approval in May this year. The facility will have 2 floating dry dock capable of handing large vessel of around 250 meters in length. We expect the agreement is driven shortly and once the requisites are in place, we are targeting to operationalize the facility within 36 months from the receipt of environmental clearance. Now that our joint venture with drydock have been finalized, we may also explore the possibility of collaborating with them for the operation of this facility also at Vadinar. Another important update we would like to share this -- is regarding our proposed facility at vochi in Tutkarin -- CSL participated in an e-option conducted by the Board for a 30-year lease of land and a waterfront to establish a hybrid shipbuilding prepared facility and we emerged as a full bidder. Under this arrangement, against a onetime tender of INR 305.76 crores. CSL will get access to around 110 acres of land and 17.29 acres of waterfront area for a period of 30 years. We believe this provides an excellent opportunity for CSL to expand its presence and develop a hybrid shipyard in that location. The facility will enable us to participate in the governing -- the growing midsized and niche shipbuilding segments including circle and wind energy vessels. It can also provide additional capacity to our subsidiary, Hooghly Cochin Shipyard which is currently constrained by availability of the land and as a result, has limited scope taking up new orders. We are currently working on the modalities of developing the facility with shipbuilding, ship repair and offshore fabrication activities being planned at that location. For all these strategic projects, government support and policy metrics will be very important. And CSL already applied for financial support under the Government of India Shipbuilding Development Scheme for our greenfield and brownfield expansion projects, which will help reduce the overall funding requirement and actual cash flow -- cash outflow of these investments. We also plan to fund these projects through a combination of debt and equity. In this conduct, Maritime Development funds interest incentivization fund which provides interest subvention up to 3 percentage on the loan extended to shipyard and shipping company, will also be very helpful in supporting the financing of these strategic initiatives. Finally, into our order book, for current order -- current unexecuted order book stands at around INR 22,000 crores, which continues to provide us with good revenue visibility. We have also declared an element of next-generation survey vessels for the Indian Navy, valued approximately INR 5,000 crores. Once this product concludes the order book will be around INR 27,000 crores. With that, I will conclude my opening remarks. We would now be happy to take your questions. Thank you, everyone, for joining us today.

[Operator Instructions] First question is from the line of Mohit Charise, Individual Investor. May I request you to unmute yourself and proceed with your question. Due to no response, we move onto the next participant. Next question is from the line of Garvit Goyal from Serene Alpha.

My question is on green maritime. I wanted to understand more on the product market, which will be catered by this JV? And also what is the whole sale that the JV is targeting over the next 3 years within that product market. And lastly, when can we expect some meaningful contribution coming out of the JV.

The company was inaugurated in June '26, and we are targeting a product range of energy storage system, especially for the Marine sector, then trial power management system and/or and we are targeting -- as per our business plan, we are targeting a revenue of INR 640 crores by fifth year. These are our plans.

And what kind of competitive landscape do you see for these product markets that you mentioned. How do you see like -- how many competitors or players who may be coming in the upcoming years? I'm just trying to understand what kind of margins we can have in these products.

We expect a margin of about 20%. And as per the green tech transition program and other various green sector, we expect a lot of orders for the battery in India in the coming years. So the prospects are very high.

See, the basic purpose of considering that JV is start to see now CSL -- is the #1 battery manufacturer, but they are not in the marine sector. And we have our expertise in the marine sector. So this company will arrange that battery required for the Marine usage. So now all the batteries and the relationships are being imported for the marine operations. So already, we are building 4 green touch, the battery system for that, that are being routed through the JV. So CSL has already given out order for the JV company. But we are not expecting much revenue or top line or this thing from that company in the immediate future.

So progressively, we are aiming a target of around INR 640 crores in the fifth year.

And this 20% margin which you mentioned, that margin you're digging about or EBITDA margin?

It is a ballpark figure only because there are a lot of R&Ds also involved. But he is mentioning about...

The business plan is actively involved. We are on the process of making a business plan. .

Okay. Okay. Okay. And your partner, HBL has mentioned that the JV has placed orders for buoys for 2 electrical tugs, right? So I wanted to understand with respect to this particular kind of category, what is the size of -- what is the market size, do you people see maybe in next 3 years for electrical tugs, what is the bid pipeline there? And how many competitors are currently bidding along with ourselves.

See, actually, this electric propelled component on the tug segment is just evolving. And this is because the government of India has also recently declared TCCP transition program, wherein they're trying to push the ports to start off with electric propelled tugs. We feel it will take a little time for a mass movement on this front purely because the electric propelled tugs would cost almost twice that of a conventional tug. But having said that, with environmental requirements becoming more and more stringent, there is definitely another way to go but more on this front. The government of India has also wanting to see 50% of our tugs go green by 2035 to '40. So there are going to be volumes that will come up. But I think the real movement will probably happen maybe 3, 4 years down the line.

So to add more to that. So for this program, that all the conventional diesel-powered products will be replaced with 0 emission vessels. So this is implemented across various phases. And in the '40, we are targeting a 50% reduction by year 2035. So the total investment in the sector is around INR 1,000 crores in the next 10 years and major pays for the battery. So we foresee a good score for this, but at least in the coming years.

And in this JV, 60% is held by HBL and 40% is ours. So we have only 40% in that company.

Okay. And ultimately, whatever the tug loaders are getting in this JV, batteries will be supplied by HBL, right?

Yes, yes. .

Understood.Understood. And what kind of capital we are looking to deploy in this JV, sir, over the next 3 years?

Not much because it is a technology driven because of the manufacturing will be done by the HBL. So we are not getting -- not to set up a manufacturer. We will be marketing under R&D. And the total capital is INR 50 crores.

Okay. This will be manufactured by HBL or you because you people are having that skill, isn't it?

The ship or tug will be manufactured by us. The battery will be by the JV through the facilities existing in HBL, some type of contract manufacturing.

Understood. Understood. Understood. And this entire revenue being, for example, that will be splitted between 60-40, right, HBL 60 and 40 you.

Not the tug, see. Battery.

Can you explain a bit more, like I'm just confused here, means how the revenue will be split? Because what I am understanding is a few people are selling the tug, right? The JV is selling the tug, right? So battery is the internal component which you are purchasing from HBL as a stand-alone entity?

See, that order for the tug will be taken by Cochin Shipyard and the order for supplying the battery will be given to the JV. So the JV will have the turnaround of only the battery.

Okay. Okay. And that will be manufactured by HBL? .

Yes, yes, yes.

The INR 640 crores, which you are speaking about, this will be the JV's revenue, right?

JV's revenue and that will be consolidated by HBL only because they are holding 60%.

That is by the 50. Progressively INR 640 crores by 2030.

Okay. And just last thing, then I will join back the queue. This 20% number which you mentioned, is it a EBITDA margin of the net margin, sir.

It is the EBITDA level, but the business plan has yet to be finalized. We are discussing that only, but it's a ballpark of 20%.

[Operator Instructions] Next question is from the line of Dipen Vakil from PhillipCapital.

Congratulations on the joint venture. My first question is on the line of -- so you mentioned about the Tata fall JV. So what I wanted to understand over here is that now will this -- so while the complete operations lies with DDW. So what kind of orders -- so will you be involved in terms of ordering or anything? Or will this facility just cater to DP World's vessels as to how will be its operations going on. So is it just a -- or it will still cater to the domestic demand as well?

Yes. So it's like this. The reason for bringing in the DDW is to bring in global scale, global efficiencies and connecting to the global bucket. Having said that, CSL today commands a significant market in India for this size of vessels. The ISR facility can handle vessels up to 130 meters long and 6,000 tonnes in weight, and we have a fairly good capital market for this. We don't have a lot of defense and other government which fall under this size and category, which will continue to be routed through CSL. These orders will be taken by CSL, and will be executed by -- it's sort of an execution JV you may call it. So with the freedom for DDW to bring in their lines. And it will become an add-on to the capacity, which we currently -- or the market that we currently target. So it is seen from that perspective. So the business being held by CSL currently will continue to be available for the facility.

And how about the opportunity which is there, which is addressable by both. So considering that yours is -- DDW will be a JV and you also have an active ship repair presence in India. So for the orders where both of them are -- compare as to how this will happen, whether there will be any market share loss or whether any such thing which can happen, which can be detrimental for CSL?

See, actually, the ISRF can handle vessels only up to 130 meters long and 6,000 tonnes in weight. So even today, all the larger vessels are being handled across -- means CSL and across all our units. So we have -- between the 2 of us have a very clear understanding that there will be no ingress into that market by DDW. And the current market share of CSL in the other segments will continue to be held by CSL. The JV will also continue to do the jobs that I told earlier, but we are expecting more global vessels to be brought in by the JV, by DDW because they want to tap into their global clientele as well. So otherwise, there will be no more impact on the business that we did.

Got it. That's encouraging. Sir, second question on the lines of your auto coke and auto pipeline stop. You mentioned that your auto pipeline cuts are L1 into different sort of next-generation survey vessel what is the order pipeline maybe in a year or 2 that you're looking at either in defense or in the commercial side of it or even in the export side of it, which one can give us the visibility on the order inflow and the order book for the company.

See, actually, in the defense, there are a lot of programs are running in the order book, like you are aware of LPD, LPDs done mind sweeper clients, from defense is a major order, which we are expecting soon is around LPD 4 numbers. That will be approximately INR 32,000 crores. Then 12 numbers MCMV, approximately P-17 Bravo 7 numbers that are approximately INR 49,000 crores. So these are the major orders which we are expecting from the Defense side orders. RFPs. Because there are other colleges also. So we will also be participating in the bids. And from the Indian commercial side also because of the demand aggregation being government of India, there is a requirement of around 432 vessels over a period of 10 years. So already SCA and the newly formed the joint venture company DCSL, some of these 3 or 4 tenders, we are participating in that and other companies are also participating in that. So pipeline is good for all companies in all shipyards in India.

Got it. Sir, any -- finalization expected in this year amongst in the commercial side?

Commercial, because we are actively negotiating with one more -- because you are aware, we are building one 12,000 MCO incubation for -- India. They want a requirement for that, so that negotiation is going to a nomination business to CSL. Then other -- we are also discussing with Andaman for 400 numbers, 500 passengers vessel. That is also under sole on a nomination basis. This then participated very standard vessel of ACI with the MR, but the result of that has to be published.

Got it. Sir, last question. You mentioned about the block fabrication unit that you are coming up with at Kochi facility. And now you're going solo into it and maybe it will be a smaller size than first evisage. So can you help us with what is the current block fabrication capacity? And what could be the block fabrication capacity once the new facility comes in.

Presently, our block fabrication facility is around 12,000 tonnes per year in CSL main facility. But because having commissioned the new drydock also, we need more steel throughput. So what we are expecting is that with the Hyundai, we were planning to have a 1 lakh tonne capacity block fabrication facility. Since we are going alone now, we are planning to have a capacity of around 60,000 tonnes per annum. So 60,000 tonnes from the new block facility plus 12,000 from our existing facilities. So it will be around -- the throughput will be around 72,000.

[Operator Instructions] Next question is from the line of Mohit Charusia, individual investor.

Just wanted to understand the cash flow side of the business a little better. Despite the strong PAT in FY '26, operating cash flow was negative, mainly because of that increase in inventory and receivables. And now you are entering another investment cycle in ship repair, including the Vadinar project. So from normalized perspective, what the kind of cash conversion should we expect from business? And now on new ship repair investment, what sort of ROCE or return threshold are you targeting?

Can you repeat the question once again, please? .

Given the FY '26 was very strong. .

Sorry to interrupt you. Can you speak to the handset directly, please?

So I was asking that even the FY '26 PAT was strong, the operating cash flow was negative, mainly because of receivable and inventory. And now we are entering another investment cycle. So from a normalized perspective, what kind of cash flow should we expect from the business? This new investment, what sort of ROCE are we targeting here? .

See, why that operating cash flow is negative, mainly because we have taken -- as you are aware, we have commercial orders from export also, the European customers. The European export market, the cash flow is still like during the construction period, they will pay around 30% during construction period and 70% on delivery. Like on signing, they will pay 10%, then laying 10 percentage, launching 10% and delivery, may be 70%. So now the vessel delivery orders, which has been taken during the period of '23 and '24 and all, they have all stated to be delivered now. . So we have already completed the construction of around 80 to 85 to 90 percentage, but whereas we have received the money up to 30 percentage only. So once this year, we are targeting delivery of around 10 vessels during this current financial year. As mentioned in my opening remarks, we have already delivered 3. So once we start delivering the vessel, we get the 70 percentage or 60 percentage money from the owners. Cash flow will become positive.

So we can expect that cash flow will become positive in FY '27, right?

Yes. FY '27, the cash flow will be positive.

Okay. Okay. And what kind of ROCE we are looking with the new investment.

ROCE will be around 14 to 15 percentage. .

The next question is from the line of Garvit Goyal from Serene Alpha.

Sir, again, the question is on Maritime. I understood that HBL will be playing the manufacturing partner role for the component, right? What will be the role of CSL here across the product basket that we will be catering to?

See, this is the synergy between our shipbuilding skills and the experience of manufacturing of HBL in the manufacture of the energy storage system. So it's actually a synergy between the 2 companies. .

Our inputs will actually come in, in helping HBL to marinize the systems. See, thing is our battery companies are all catering currently to the land side segment, automobiles or land side segments. So marinizing requires a little bit of expertise and knowledge to come in from the marine sector, and that is what we will come in.

And now in India, all these marine batteries are being imported presently. So once we develop the technology, this JV company can supply the Maran batteries to CSL and to other shipyards also.

So maybe if I can just explain that a little for you. Recently, we have delivered the India's first indigenous hydrogen fuel cell vessel. It is now operational in Varanasi. So here also, fuel cells, India does not have marine fuel cells. So we teamed up with KPIT Pune, who had developed fuel cells for automobiles and this was marinized and used on a ship or a vessel for the first time. So this is something similar that we will do with HBL.