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Last Updated : Sep 12, 2018 10:56 PM IST | Source: Moneycontrol.com

Garden Reach Shipbuilders to focus on repairs & lowering material costs to boost margin

The Kolkata-based shipbuilder that builds warships and patrol vessels for Indian Navy and Coast Guard will be launching its IPO on September 24 at price band of Rs 115- 118 per equity share

Viswanath Pilla @viswanath_pilla
 
 
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Garden Reach Shipbuilders & Engineers (GRSE), the defence public sector undertaking selling shares as part of its upcoming initial public offering (IPO), on Wednesday said it is focusing on garnering more repairs and retrofit works and lowering material costs to boost margin.

Margin in ship repair-cum-retrofit segment is around 25-27 percent.

The management said it is looking at cost savings in material procurement as materials constitute about 80 percent of a shipbuilder's costs, in addition to strengthening its R&D and expanding capacity at Rajabagan Dockyard in Kolkata, which currently serves small and medium vessels.

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“The Indian Naval fleet is aging and needs repairs and retrofitting. In addition to congestion at naval dockyards in Mumbai and Visakhapatnam, they have to service an ever expanding fleet. So, we are negotiating with the Navy on securing annual maintenance contracts (AMC) and retrofitting works,” said VK Saxena, Chairman and Managing Director, GRSE.

As on today, contribution from repairs business is minuscule for GRSE. On the other hand, the ship repair business constitutes 26 percent of peer Cochin Shipyard's revenue.

GRSE has an order book of Rs 20,313.6 crore, much of it is from the Defence Ministry on a nomination basis, under fixed price contracts with a profit margin window of 7.5 percent.

That margin can get further squeezed in cases of cost overruns, delays in delivery or failures to meet contract specifications.

The Kolkata-based shipbuilder that builds warships and patrol vessels for Indian Navy and Coast Guard will be launching its IPO on September 24 at price band of Rs 115-Rs 118 per equity share. The IPO is part of the government's disinvestment programme, which involves dilution of 25 percent stake to raise Rs 335-345 crore. The issue will end on September 19.

GRSE posted a revenue of Rs 1,346.5 crore in FY18, with an earnings before interest, tax, depreciation and ammortisation (EBITDA) margin of 10.8 percent. While its peer Cochin Shipyard has an EBITDA of 17.5 percent, which was largely due to a better mix of shipbuilding and repair-cum-retrofit business.

Of the Rs 20,313.6 crore in orders, the three P17A-class frigates order itself is worth Rs 19,300 crore. The delivery of the first P17A-class frigate is expected to be rolled out on April 2023 and the final one in April 2025.

To usher competition and diversity, the government is awarding contracts related to defence manufacturing by calling tenders, sparking bitter competition among public sector and private shipbuilders.

GRSE emerged as the lowest bidder, or L1, in two major defence orders worth Rs 6,000 crore for building 4 survey vessels and 8 anti-submarine warfare shallow water craft (ASWSWC).

Moneycontrol has learned that GRSE was aggressive in its bids. The contracts are expected to be signed by December, the delivery for which is expected take between 2 and 7 years.

The management expects orders worth Rs 4.5 lakh crore from the Indian Navy through a nomination basis and competitive bidding in the next 9 years.

Both Indian Navy and Coast Guard are expected to grow their fleet to about 200 vessels by 2027 as India enhances its role in protecting maritime assets and secures shipping lanes in the Indian Ocean as a rising regional power.

Currently, the Indian naval fleet includes 135-140 ships and submarines, while the Coast Guard fleet consist of 120 vessels.

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First Published on Sep 12, 2018 07:04 pm
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