Order book seen at Rs 15k -17k cr in 3-6 months: Pipavav

Pipavav Defence and Offshore Engineering Company secured order worth Rs 400 crore to repair, maintain and dry docking of oil rig of ONGC. Nikhil Gandhi, chairman, Pipavav Defence told CNBC-TV18 that the company’s order book has now reached to Rs 8,500 crore. Further, it is likely to reach Rs 15,000-17,000 crore in three-six months.

Below is the edited transcript of Nikhil Gandhi’s interview with CNBC-TV18

Q: Take us through the order that you have got from Oil and Natural Gas Corporation Limited (ONGC). What exactly is this in terms of a margin addition? Where does it take your order book?

A: This is first major contract we have got from ONGC in terms of rigs and oil platforms, because Pipavav has built one of the largest facilities in the world. We are very proud to have made a beginning with the ONGC. It is a very prestigious contract.

ONGC has large number of oil rigs and platforms demand both in terms of construction and maintenance during the next two-three years. Pipavav being the second largest dry dock in the world remains the leader henceforth to secure many such contracts.

Sagar Laxmi is a very prestigious machine of ONGC for offshore requirement, we will provide restoration. As far as the order is concerned, this is five percent of our total order value. This takes our order value to nearly Rs 8,500 crore.

We are looking at securing couple of more contracts from the global market. Pipavav has also secured two contracts from two of the largest oil and gas exploration companies and operating companies called Transocean and Noble. So, the year has ended well for Pipavav.

Q: What are you expecting to do by way of a revenue increase in FY13 itself and then going forward in FY14 since you have a decent order book of Rs 8,500 crore as you say. Can you draw for us how the revenue trajectory will look, how the EBITDA will look and more importantly actually EPS as well?

A: The combined EBITDA normally for warship building, offshore building and drydocking put together about 25 percent on an average. The order book will have a multiplication effect in next quarter or so. Some of the bids which we have already submitted are likely to come through.

We are looking at more robust execution both in terms of current and new orders. Also, new contracts are going to be significant in numbers. Our overall usage of ship building will increase significantly and so as the EPS margins.

Q: From an international perspective as well as from a domestic order book standpoint from Rs 8,500 crore where do you expect the order book to end up possibly in the next three months as well as six months?

A: Between next three to six months our order book could be close to Rs 15,000-17,000 crore. We are also increasing manpower. We have signed Memorandum of Understanding (MoU) and are in the process of finalizing agreement with French major DCNS, which is the second largest warship builder in the world.

With them being shareholder in the company, they will support us in terms of speedier execution and also improvement of R&D, supply chain management and interfacing with clients and other partners. We are in the process of having an all-round improvement over the next one or two quarters onwards, thanks to these two partnerships that we have built - Saab of Sweden and DCNS.

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Q: What happens to the profitability of the company because one of the key points which is been highlighted is that you have been averaging interest costs of around Rs 100 crore in the previous two quarters at least. How exactly do you think that would pan out considering you have some capex on the line as well?

A: In the next 12 months our interest burden will be significantly lower because of the financial engineering that is in the offing and also because of improvement in margins. When the project started off the debt equity was 2.5:1, it came down to 1.5:1 and it has now further come down to 1:1.

We are further expecting this to come down and with the injection of new capital etc, margin will improve and the interest rate will reduce over the next two quarters.

Q: What is the status on your joint venture with Mazagon Dock, because there was a lot of controversy surrounding it saying that the partnership with you was seen as a favour? Is the controversy behind you? Are you sure that you will be able to go ahead and get orders?

A: We went through a very transparent process of about 10 months. We won because we have infrastructure, which anyone can see and compare with anyone else in the country. This is a far bigger and better infrastructure than anyone else in the country. It is one of the three largest and the finest infrastructures globally. Secondly, after this so called controversy the process was restarted and again we were selected.

Following that we have also signed the Shareholders’ Agreement and we also got the first board meeting conducted in December. We are on track, because we believe this is a matter of national security and defense where only transparency will work.

People may try to rake up the controversy, but after all the truth will win. We are very fortunate that not only we have India’s first world class infrastructure, but we also have gone through a complete and transparent process twice.

Q: Have you all got any warship orders?

A: We have just signed a Shareholders’ Agreement and the first board meeting took place this month. Now the next process will move forward.

Q: Is there something on the anvil for which you have applied for? Are you seeing the first warship order coming? It is only for warships, is it?

A: Yes, of course. Mazagon Dock is a defense shipyard and is owned by Ministry of Defense.  We are working with the global companies and global clients both in terms of warships and offshore assets. We have multiple clientele in terms of the warships and offshore assets.

Q: I am just asking you when the first order will come in from the Indian government. Is something on the anvil?

A: We have got this first contract of USD 700 million from Government of India already for the gunboats. We are looking at few more contracts in the next two quarters.