Huge fiscal gains from tax exemption unlikely: ABG Shipyard

In a respite for the shipping industry, the government has given indirect tax breaks for local shipbuilding by announcing exemption on customs and excise duties on raw materials. In addition to this, there will not be any tax levied on parts to be used for ships or vessels manufacturing.Speaking to CNBC-TV18, D Datar, CFO of ABG Shipyard says that this announcement will ease administrative mechanism and expects government orders to flow in coming days. However, Datar does not see tax exemption bringing huge fiscal benefits. Below is the transcript of D Datar’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18. Latha: Will this mean an improvement in margins for you or is it that there is not enough orders. So, you will have to wait for the orders to come before you take advantage of this? A: There are two issues to this. One is of course, there are no new orders at this point of time and therefore, we will have to wait for the new orders to come to really see the full blown impact of what government has given now. But I can definitely tell you this way a lot of ease in the administrative mechanism will come up which the government has done. I do not think it will bring a lot of fiscal benefit to yard because these exemptions were in some or the other manner was available to shipyards earlier also. But, with a lot of administrative paperwork like this Section 65 of bonded warehouse, we have to maintain the inventory registers and keep it in lock and key and keep going back to department for permissions after one year. All this has been done away with. So, a lot of administrative reforms have been done. But I really do not think this results into a lot of fiscal incentive to yards.  Reema: So, what you are trying to tell us is that the ship building industry was anyway exempt mostly from custom and excise duties on raw material and there is nothing new on this?  A: It is more of a administrative reform than giving any real benefit to ship yards.Latha: What is the state of your order book? You did begin by saying that there are hardly any orders to come by.A: Because, as you know, the global ship building market is still not recovered and therefore, maybe you must have seen that the bulk index has plunged below 500 also. So, you know that is the global ship building markets and shipping markets are really not revived as of today. What the ship builders in India is looking forward is sort of a support from the defence sector in India which we believe with sometime it will definitely come. The question is to remain afloat till such time.Latha: So, there is no chance of you coming out of your loss making period now? You will probably report losses for the full year?A: So, fairly good chance, provided some opening happens in terms of defence order book.Latha: You have not heard anything from the government just yet?A: We have been hearing, but it has not really materialised so far. The dialogue is on with the government.Reema: Considering the difficult position that most of the ship building companies are, there are no new orders as you told us, can we expect more reforms for your industry, have you made the pitch for that? Anything that you have heard back from the government to ease your burden?A: The reforms are in place. The question is that how do you actually apply those reforms to ship builders. Ship builders is a very small industry in India if you know, there are not many ship yards which are of large size in India and therefore, probably it will take some more tome for the government to really focus on the ship builders and say what exactly they need. We are being pushed into the normal processes, for example, corporate debt restructuring (CDR). CDR is a generic mechanism available for anybody who is under stress.Latha: But at the moment you are already classified as a non-performing asset (NPA), is it not?A: No, we are not classified as NPA.Latha: You are standard account with all banks?A: Most of the banks.Latha: When are you expecting orders from the government?A: We are expecting orders. We are fully licensed to build defence ships and we are in the part of the bidding, obviously we have bidded for the ships in defence.Reema: Could you tell us the size of the tender which is currently floated if any at all?A: There really cannot be any size. We can only see what ships it is. The size we will come to know when they decide the tender.Reema: So, any rough idea what the pipeline what the orders or the revenue looks like for your company?A: Pipeline of orders for all ship yards, private sector ship yards, for defence ship building is pretty large. I think if all what we hear is true, it could be as large as people will not be able to handle it.