Knowledge Marine & Engineering Works Limited (543273) Earnings Call Transcript & Summary

Okay. We'll start yes. So good afternoon, ladies and gentlemen. On behalf of Hem Securities, we warmly welcome you to Samruddri Season 3 [indiscernible] our Virtual Corporate Access initiative featuring emerging listed companies across high-growth sectors. We are delighted to host this webinar session with Knowledge Marine & Engineering Works Limited. Knowledge Marine is an integrated maritime infrastructure company with capabilities across dredging marine engineering, shipbuilding, vessel repair, chartering and ancillary services. The company has evolved from a focused marine services business into a diversified maritime solutions platform participating in opportunities across sports, inland waterways, coastal logistics, green maritime infrastructure, shipbuilding and Allied Marine services. KMEW's business is supported by a growing fleet base, long-term contracts, government-linked paradigm opportunities and expanding capabilities in raising green turfs and shipbuilding. During the year, the company has reported important operational and strategic developments, including major order wins deployment and expansion. We'll hear more from the company itself and joining us or representing the company is Mr. Christian Rose, Manager, Investor Relations. Before we proceed further, I would like to read the standard disclaimer. There may be forward-looking statements about the company and its business operations, which are based on the beliefs, opinions and expectations of the company's management as on the date of this webinar. Company does not undertake any obligation to update forward-looking statements to reflect future events or circumstances. These statements are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied. Participants are therefore advised not to place undue reliance on such forward-looking statements. The webinar is only for information and interaction purposes and should not be construed as an offer recommendation or solicitation to buy or side any securities. Participants are advised to conduct their own independent assessment and concern their financial advisers before making an investment decision. With this, I will now hand over the session to Christian for taking this forward.

Yes. Good evening, everyone. Thank you, [indiscernible], sir, for the introduction. So I'll just share my screen. Okay. Hello, everyone. My name is Christian. I handle Investor Relations at Knowledge Marine. I'm joined with my colleague, [indiscernible]. She handles Finance, GM Finance at Knowledge Marine. So I'll just run you through our PPT. The Knowledge Marine, we have founded in 2015, we are currently -- we have 3 verticals, which is dredging, charter hire and shipbuilding. So we are a completely integrated marine platform. So starting with dredging, we do capital and maintenance hedging as our core service. So capital dredging is -- I'll start by defining the terms, a lot of people might be very new to what dredging is. So capital dredging is when you first escalate virgin soil at a port or any -- in the river also. And maintenance dredging is when you are doing maintenance at the port with -- by escalating [indiscernible] carried by the ocean currents. And we also do dredging. Right now, we are doing reversing in the National Waterway -- on and National Waterway 16, which is [indiscernible]. And we've done sand mining in Bahrain previously. So a charter hire, we give out certain smaller vessels, pilot boards, speed petrol boards, mooring boards, service boards. On charter basis, we get a charter income on daily usage. And we've also started folding into the green transition program tugs, which is completely built through electric batteries. And now we've also started shipbuilding. We built ships in small -- we build small and specialized crafts, ranging from 30 meters to 120 meters. And so these are our verticals. We are completely integrated as of now. And our mission is to provide value additions to ports and marine establishments through holistic, innovative and environmentally sustainable solutions in the fields of marine engineering and construction. And our vision is to emerge as a global player in the field of marine services by maintaining professional standards with specialist knowledge of environmental-friendly techniques, innovative approaches and focus on health, safety and cost efficiency. So we've started our company in 2015. We began with the ship repair and refit business, and then we also expanded to ship owning and chartering. So post 2015, we were completely only doing ship repair and owning and chartering. And then our first government contract was from Kolkata Put Trust. So we acquired a hopper barge and then converted into a grab hopper through which we completed the project. And now as of today, we are standing at INR 5,000 crores of market cap, and we've secured 2 greener contracts, the 2 maiden greener contracts, the first 2 in India. And also, we have secured [indiscernible] tracing contract by GNPA. So this contract was a very technically intensive contract, previous contractors have -- players have attempted and failed, but however, we have much successful. It required controlled blasting and a lot of complex efforts. And also, we have started our shipyard, new shipyard land we have acquired. So we are planning to build a shipyard in Saphale, which will be very close to the upcoming adapt. And we've raised INR 285 crores through preferential allotment of equity shares in December last year. So how does our business model work? So our business model consists of, first, we have our own in-house data proprietary data through which we survey a lot of the court areas and areas where dredging is required, and we understand what exactly lies in this bid, whether it is rock, whether it is silt. So that is very important for us to know because that dictates what sort of vessel we can use for the dredging operation. So we have that data with us. And before identifying any tender, we also have a list of treasures. We aim to acquire for set tenders. So we have a team, which goes around throughout the day checking for tenders on various government portals. So after we've acquired a particular tender, we've made a notice of a particular tender, we move on to bid preparation with the help of our management. And during the preparation and after submitting the bid, if there is a lot of processes going on in between. There's a lot of technical specifications. We have to pass a lot of financial specifications. We have to pass. And post that, it is awarded on L1 basis. So the person who quotes the -- entity quotes the least amount will win the contract. So post the contract award, there is a specific time where the fleet is mobilized. So we get -- it depends on the contracts. For resin contracts, we have a larger mobilization timing depending on how big the contract is and what is the specification of the contract. And then further, we have project -- we execute a project, and our projects, we get -- we recognize revenues or 3 types of major contracts. One is lump sum debt based contract. So based on how much we dredge, we get paid and there is unit rate contracts. So for each unit, cubic meter we dredge, we get paid for that. And the main difference is in the lump-sum debt base, we have to maintain a specific depth. But in the unit rate, we have calculated based on the overall quantities. And the other one is day rate charter rate. So for our charter fleet, we get paid on a per day basis. So there's 100% utilization across all our dredging and chartering assets. And so this charter rate, we get paid monthly. I mean daily charter rate is calculated, we get paid months and that's how our revenue is recognized. And these are our clients. Apologies. So yes, we only -- we only cater to government and central government entities as of now. So these are our clients who have also worked in Bahrain for a while. We've also completed projects in Myanmar. Yes. So let me talk about the rising market in India. So the current growth rate in India is 8.4% CAGR. And compared to the global CAGR, which is 3.5%, the current market size is anywhere between $750 million to $770 million. And the quantity dredge in 2024 is around 4 million cubic meters in capital resin, which is now projected to grow to 225 million to 250 million cubic meters by 2030. Maintenance regime was at 110 million cubic meters, which is also projected to grow to 125 million cubic meters. So the projected service mix of this forecast is capital dredging, which is the larger percentage and maintenance aging, which is 25%, others include other infrastructure projects. So as you can see, India has a decent growth rate for dredging and we aim to capitalize completely. And the charter higher market currently in all the major 12 ports, that is around 550 to 600 vessels required. This is not taking into account any minor ports or any other entities. And from that, we have currently deployed less than 25 vessels. So this shows that we have a substantial presence and market penetration in the charter and higher market and the vessel lifecycle ranges around 15 to 20 years per vessel. And annually, there is around 15 to 30 vessels up for renewal. So -- and these vessels are very diverse, they could range from mooring boards, tugboats, speed petrol boards. Now we have the Green Tugs and shipbuilding. So we have a yard we have yards at the [indiscernible] currently. So which is around 30 kilometers from Mumbai. It is 100 square cubic meter yard, which is covered with all the equipment required for shipbuilding. And we have -- currently have projects ongoing over there, which is the construction of our board from the inland water the authorities of India and construction of accommodation boards from again, inland waterways the authority of India. So most of our shipbuilding projects is from IWA, and we also recently bought 2 Green Tug contracts from [indiscernible] authority and [ VOC Airport ]. And we recently acquired land in Saphale which is around 15 acres of land, which is close to the Vadhvan Port. The Safari is in Parker. It is around 90 kilometers from Mumbai and it is close to like 10 kilometers from close to [indiscernible] and its 500 meters from the [indiscernible] and 20 minutes from railway. This shipyard will be develop in 3 whole phases, this -- and the final capacity would be around 16 to -- 14 to 16 vessels. So this is our 3D model of the shipyard, which we are planning to build. Yes. So one of the schemes, which mainly affects us is the [indiscernible] vision. So this vision -- the goal of this vision is basically to establish India as the top world top Maritime Nation by 2047. So there is nearly INR 80 lakh crore of committed Maritime growth. So the core focus areas here is to, again, develop our mega ports than modernize port operations than green shipping initiatives, which is again strengthened by the Green Tug transition program. And then in general, just help and enhance the maritime transport logistics and the entire sector in India. And as I mentioned, Green Tug won 2 contracts. So this Green Tug basically, the government wants to transition all the normal fuel-based talks to Green Tugs by 2040. So it is a phase-based system scheme. So currently, we are in Phase I, which is each the 4 major ports will have 2 Green Tugs each, which comes through 16. So right now, we have 1 -- 2 of the 4 major -- I mean from the 4 major contracts or we have 1, 2. And yes, so we plan to keep bidding for greener contracts as we now have renewed shipbuilding capacity also. So -- and these green to contracts give us a good order book visibility of around 15 years with 2 years time period for building. Yes. Tonnage tax, we recently have adopted [indiscernible]. So this has resulted in 190% reduction in tax rates. This [indiscernible] or capital up for further reinvestment in fleet. So this tonnage tax is applicable only to dredging and chartering services. So we don't have any corporate tax. And this tax is based on the total tonnage of our vessels in the which use for dredging and chartering. So this early adoption of tonnage tax helps us focus better on tax efficiency, our earnings visibility and it helps us with long-term capital allocation. And these reinvestments will directly end up in us -- will enable us to expand our fleet. So this is our order book for the year. So we currently this year have 10 resin contracts, 15 charter hire contracts and 3 shipbuilding contracts. From these contracts dredging the total contract award value is around INR 500 crores, then charters almost INR 900 crores and shipbuilding is INR 233 crores. And from our revenue, 70% of our revenue has been dredging services at INR 184 crores, then another 7% has been ancillary charter higher services and shipbuilding comprises of 21%. We have 100% vessel utilization over all our dredging and charter are services. So if you see at the bottom right, we have our have a table, which expresses who are our top plant. So we have the highest amount of contract value awarded by the OCP Airport. This is due to the -- this includes 2 charter hire contracts and 1 Green Tug contract. And then we have Inland Waterway Authority of India, which has 2 shipbuilding contracts and 3 dredging contracts. And so on and so forth, are the most amount of contracts we get is from WA and DCI Limited. And this is our fleet. So we currently own we own trailing suction operators, cataraction treasures, self-propelled esure self-propelled backhoe risers and hopper bags. So this allows us to have a variety of options where dredging is concerned. So as I said, sometimes they could be sit,sometimes they could be rock. So we have assets which allows us to dredge across multiple variability in the set. So this allows us to have a more -- a better grasp on the market and any opportunities arising from this. We recently also built our self-propelled backward reserve called [ River Pool 47 ]. It is currently the biggest backward esure in India as of date. Yes. This is our port ancillary vessel table. So we currently own on most 27 port ancillary vessels apart from the bottom 2, which are support vessels used for resin. This year, we've had a great year operations wise, we've had a record-breaking revenue through since our inception. Our margins have been really good, and we've exited tremendously in this particular year. These are our directors. So I'm Managing Director, Mr. Sorab has almost 16 years of experience [indiscernible]. Our CFO, Kanak Mani, has almost 18 years of experience. He is CS by degree. And then our CEO, Sujay, sir, he has vast experience in dredging and other services. He's work -- he has worked in L&T. He headed the dredging business at L&T, headed the rising business at Marketer and also headed dredging at [indiscernible] port. He has almost 21 years of experience. He also has a masters in -- apologies. So this is it from my end. This is our PPT.

Thank you very much, Christian. So participants, we will start with the Q&A round. I request you to start typing in your questions. So Christian, I would like to understand who will be our competitors and what are KMWs, USPs over those competitors?

Okay. So we have multiple competitors to each segment. So if you take dredging, we have smaller competitors like Rock & Reef than [indiscernible]. Then we also have a -- we have -- we don't -- if you see the listed companies, that is just us and DCI, however, we don't directly compete to DCI because a lot of the contracts contracted from DCI, DCI gives us the contracts because we make -- we have smaller treasures. So we can dredge and operate in shallow drops, whereas DCI cannot -- there are a lot of large players in dredging involved you see for a lot of bigger projects, you have international players like [indiscernible]. So these guys have and even DCI, they have huge resue with capacity ranging from 12,000 cubic meters to 20,000 cubic meters. Our treasures are ranging from, say, 1,500 cubic meters to 1,900 cubic meters. So we can dredge in, say, shallow drafts. So we compete with smaller players like Rock & Reed, [indiscernible], et cetera.

And what would be our USP, MSP? Yes. What would be KMW, USP against those competitors?

So we have -- our main unique selling point is the data we have and the team -- so we have always made sure to have very efficient operations. If you remember in the start, I have mentioned that we started our entire journey after building a riser, we acquired a Hopper barge, which is a board, and we put a crane on that, and we converted it into a grab riser. So throughout our journey in the last 10 years, we have always tried to find a way to acquire our assets at a lower cost, let it be refitting or by finding pressures at secondhand resell at a better cost. So we also no, we have not built pressures, but we are in the process of building users. But we have always acquired result lower costs the cost of our asset. And so it is more feasible for us to make money when we make our dresses are cheaper than our competitors.

Are we planning any CapEx for FY '27 and FY '28?

Yes. So for FY '27, we are planning to acquire 2 dresses, which is the 5,000 cubic meter treasure and a 7,000 cubic meter treasure. So this is our current CapEx plan for 2027. So '28, I cannot really comment as of now.

More specific on our vessels, how many and which all vessels are idle as of now.

So we have a fundamental that our vessels, if they are idle over 3 months, we scrap them. However, we -- in our history to now, we have had no vessel which has been added more than 3 months. Right now, we have 100% utilization through all our vessels, and we currently have 45 vessels.

Okay. Question in your PPT, you mentioned about the Saphale CapEx expansion. So if you could add more color to this and like what was the -- how much was the CapEx? When do you see the implementation happening? And how would the revenue makes be?

Okay. So CapEx as of now is around INR 100 crores. We are planning to expand our shipyard over 3 phases. So the first phase should get done by next year. So after a first phase gets done, we'll be able to construct all our current order book vessels and along with the green tug. And then after that phase wise, we'll keep building the shipyard right now, also, it has certain capability in the Phase 1, which will just help us through our -- to get through our order book. So -- and after that, we can keep adding to shipbuilding contracts and go from there.

Okay. Also in your PPT, you briefly test upon international markets or export orders. So if you could specifically give some details on the bar and the Europe export orders.

Okay. So we had operations in Bahrain. So however, we were operating in Bahrain last year. Last year and last year. However, due to now we found better utilization for our vessel in India. And due to the war and everything and due to uncertain geopolitical situations, we are waiting for the entire geopolitical scenario to improve. So we could go back there. But apart from Baring internationally, we have worked in Myanmar. And right now, we are focusing on India. We do -- we are also looking for vessels to send to Bahrain and to start better international projects. However, India right now is very right for us. We are getting plenty of opportunity. So we are -- our vessels are currently all caught up in India.

Also, if you could share some details on the tenders which the company is targeting. And mainly, if you could share details along by segment, by amount, by tender and what would be the pipeline? And how do you see the revenue being booking happening over the years?

So we currently have a bids and pipeline of around INR 3,000 crores. So this is spread across dredging charter higher than Green Tugs and shipbuilding. So we are assuming forecasting a revenue of around INR 350 crores for next year through this order book. If you want, I can share the bids in pipeline later on. It's a separate chip.

Okay. You have it? In the meantime, Christian, if you could just share.

So you want me to talk about a few tenders we are aiming for, right? So you Yes, I was just think for that, apologies for the delay. So right now, we are aiming for 1 tender in new Mangalore port, which is around INR 200 crores. It's a maintenance hedging contract. This is one of the contracts we are looking to get our new TS HD, the 5,000 cubic meters. Then we are again aiming for another maintenance hedging contract at Kolkata Port, which is around INR 500 crores. So resend then for Charter are, we are aiming for a greener contract at Mumbai port. Mumbai Port has -- will have 2 Green Tug tenders out. So we are aiming for that, Mumbai Port and [indiscernible] port. Then we have shipbuilding contracts. We have a lot of RWA contracts on our Bison pipeline with which grows around 400 crores. That is the gross idea I can give you for now.

So that would be really helpful for the participants. If you could also add a few more details about the green truck, what is the bidding pipeline? And for the next 2 years, how do you see this particular panning out?

So Green tag is -- a Green Tug contract or something, which we'll recognize revenue a little later on compared to all of our other contracts because the entire time line, we get -- so it's a 15-year contract. So you have a long visibility. However, it start, it will start 2 years after winning the contract because that 2 years, they give us to build a vessel and mobilize it. So right now, as I'll just open that slide, I'll give you a better idea. So there are around 160 to 120 fuel-operated petrol operated tugs. And for now, we are in Phase 1. So there will be -- there are around -- will be around 16 contracts out to 2027 for tenders for Green Tug post that they'll start scaling up the Green Tug based on this proof-of-concept and pilot. And right now, if you see, we've gotten a VOC and BPA port. And post that, we are also currently aiming for a contract from [indiscernible] Port, Mumbai Port and Kolkata port. We have already gotten the parts and everything right now, we are in the process of building and porting in another 2 years, we should be ready with [indiscernible] we plan to build this green dog in our new shipyard in Saphale.

Okay. So similarly, on the shipbuilding front have we deliver vessels to date and what capabilities we currently mine building?

Yes, sir. So we currently are executing 3 contracts from RWA. So we have contracts for -- we have contracts for work boards in for IWA, then we have accommodation boards for II than [indiscernible]. And if you take the Green Tugs in contra. For the past couple of years, we've been building our own -- we -- whatever ships we had to build by -- for our operations for charter and high purposes, we've been building it in-house at [indiscernible]. So this has given us -- we've been doing it with for a long time. So this has given us the confidence and this has given the confidence to say WI and VP and CPA to that we can deliver further vessels.

Christian, again, a follow-up on the rate how much does it cost to build 1 Green Tug?

It costs around INR 90 crores to build 1 Green Tug.

Okay fairly huge. And that's why the lens time line also for [indiscernible]?

Yes. Yes. It's a little hard to source the parts to make a green tag also, so we have done it very efficiently. So our costing is quite lower compared to our peers. And it is a very -- it's a new concept. So a lot of the other people who have one other players who have won contracts for Green Tugs, they are building it through, say, 1 player is building a true [indiscernible]. So that erodes margins to a certain degree. We, however, are building it in-house, plus we get a shipbuilding subsidy of 20% on green vessels. So that adds to our entire Green Tug contract.

The total vessel capacity of 14%, which we mentioned is so near a clarification, whether it is for all 3 ports or only for the new port?

No, the total one is for select ports, the Green Tugs, right? So it's for select ports. So there is a CPA, VPA Mumbai Port Cochin Port for now.

So again, a follow-up on the Green Tug. So this could be more technical who you share the company's current annual production capacity for Green Tug, how many Green Tug can be built simultaneously? And what is the typical construction time line for a single Green term from order delivery?