The company has just announced that they have got a repeat order from the defence ministry worth Rs 485 crore to build a cadet training vessel for the Navy. Dhananjay Datar, CFO, ABG Shipyard spoke to CNBC-TV18 regarding the repeat order and why it is prestigious."
Chief financial officer Dhananjay Datar told CNBC-TV18 that the vessel will be delivered in 48 months from the date of signing.
"We are already building two cadet training ships and are halfway through with the first two. So we are doing quite well as far as this sector and these orders are concerned." he added.
The company's EBITDA margin stands currently at 24-25 percent and has a strong unexecuted order book of Rs 9,500 crore. ABG's market capitalisation is currently at Rs 1,964.74 crore.
Below is an edited transcript of Dhananjay Datar's interview on CNBC-TV18
Q: ABG Shipyard has got a repeat order from the Defence Ministry. Can you give us the details of this order? The size of the order is almost Rs 500 crore, what margins do you make on this? What is the timeline?
A: This order is quite prestigious because the thrust is on defence nowadays, and we have proved time and again that we have been winning defence orders. This vessel is close to Rs 485 crore and will be delivered in 48 months from the date of signing.
We are already building two cadet training ships and are halfway through with the first two. So we are doing quite well as far as this sector and these orders are concerned. We are happy to get associated with the defence production going forward.
Q: What margins do you normally make in orders like this?
A: There is no order specific margin. We have been clocking close to 24-25 percent EBITDA margin and that is where the business stands.
Q: Where does your unexecuted order book stand at this point?
A: We are close to Rs 9,500 crore unexecuted.
Q: How much would you bid for and how much would like to rake it up to in FY13?
A: Current tenders which are from the coast guard, navy and combined defence, close to Rs 8,000 crore tenders are already out and people have participated. So it is not only us. Almost all shipyards present in India are in these tenders. So we will come to know in next five-six months what happens.
Q: While you do have quite a strong unexecuted order book one threat that remains on the Street with regards to ABG is the rising interest costs as well as debt-to-equity. Do you have any plans to reduce that and where exactly would it stand at this point?
A: I think that is the risk with every ship-builder in India, not ABG alone. All the corporates that have a lot of rupee exposure on debt are trying to switch that debt into External Commercial Borrowings (ECBs) if it is possible, and we are approaching lenders and Reserve Bank.
We should be able to switch that debt into ECB because we qualify all the conditions that Reserve Bank has imposed and I am quite hopeful that we will be able to convert most of the rupee debt into a foreign currency debt.
Q: Are you producing to capacity?
A: No, nothing like that. Capacity is capacity, how can I reduce it.
Q: Do you have enough orders? The shipping industry went into a fairly long-term glut.
A: .We have Rs 9,500 crore unexecuted order book. I need to execute it. So we are not reducing any capacity as far as today.