Market Overview

The shipbuilding industry is experiencing a positive outlook, with growth anticipated in the green energy sector and increased interest from European clients. The Indian government's new shipbuilding policy is expected to further boost the industry. The global marine and shipbuilding market is projected to reach $184.5 billion by 2029, with a 4.84% CAGR. Approximately 90% of global freight is transported via sea.

Key Players

Key players in the Indian shipbuilding sector include:

• Garden Reach Shipbuilders & Engineers Ltd (GRSE): GRSE designs, builds, and delivers warships, commercial vessels, and other marine structures for government and private clients.
• Mazagon Dock Shipbuilders Ltd (MDL): MDL designs, builds, and repairs warships and submarines for the Indian Navy and Coast Guard, as well as commercial vessels and offshore structures.
• Goa Shipyard: Cited as a competitor in the shipbuilding market.
• Cochin Shipyard: Also involved in building green energy vessels.

Competitive Landscape

The shipbuilding market is competitive, with several players vying for both domestic and international contracts. GRSE is a leading player in the Indian market with a strong order book. MDL faces competition from other shipyards, including Goa Shipyard. European nations are increasingly looking at India as a commercial shipbuilding hub.

Technological Advancements

The industry is seeing integration of 3D printing technology. There is a growing emphasis on green and hybrid shipping, with incentives for green initiatives. GRSE has already made a foray into this segment through a partially research and development funded project on a fully electric ferry.

Regulatory Environment

The Indian government is formulating a new shipbuilding policy framework to bring India into the top shipbuilding nations. This policy is expected to focus on green initiatives and linking ship breaking with shipbuilding . The government is also emphasizing building commercial ships under the Indian flag with incentives.

Future Outlook

The Indian Navy aims to have a minimum force of 175 warships by 2035, up from the current 132. There are currently 68 warships and vessels on order, with a collective estimated value of approximately INR 2 Lakh Crore. GRSE aims to increase its shipbuilding capacity to 28 vessels concurrently by 2025. MDL is also undertaking a significant capacity expansion plan. The Indian government's focus on self-reliance and the "Make in India" program is expected to drive growth in the sector.

Potential Investment Opportunities and Risks

• Opportunities:
• The Indian government's focus on shipbuilding and the "Make in India" initiative.
• Growing demand for green energy vessels.
• Increasing interest from European clients.
• Expansion into new markets and product lines.
• Risks:
• Potential delays in project execution.
• Increasing material costs as projects mature.
• Competition from other shipyards.
• Uncertainty regarding government policies and incentives.
• Supply chain disruptions.
• Fluctuations in working capital due to large projects.

Financial Performance

• GRSE: In Q2 FY25, GRSE reported a 28% YoY growth in revenue from operations (₹898 crore to ₹1153 crore), a 27% YoY growth in total income (₹969 crore to ₹1228 crore), a 19% YoY increase in EBITDA (₹120 crore to ₹145 crore), and a 21% YoY rise in profit after tax (₹81 crore to ₹98 crore). The order book stood at ₹24,221.37 crore as of September 30, 2024.
• MDL: MDL's Q2 FY25 results were consistent with the past two years' performance. The company is nearing completion of several large projects. MDL reported a negative operating cash flow of approximately INR 180 crore in Q2 FY25.

Order Book

• GRSE: As of September 30, 2024, GRSE's order book stood at ₹24,221.37 crore, comprising 12 projects with 43 platforms. This includes 17 warships for the Indian Navy, 13 hybrid ferries for West Bengal, and vessels for Bangladesh and a German client. Approximately 99.4% of the order book is for shipbuilding, with 3.17% for exports.
• MDL: MDL has secured orders from the Indian Coast Guard and an export order, along with offshore projects from ONGC (approximately INR 7,000-8,000 crores).

Project Details

• GRSE: Key projects include P17 Alpha Frigates, Anti-Submarine Shallow Water Craft, Survey Vessels, Next Generation Offshore Patrol Vessels, and oceanographic research vessels. GRSE is also working on a fully electric ferry for the Government of West Bengal and 13 hybrid ferries.
• MDL: MDL is involved in the P-75I project (in collaboration with TKMS) and the retrofitting of air-independent propulsion (AIP) systems on Scorpene submarines.

Capacity and Infrastructure

• GRSE: GRSE's dry docks and building berths have approximately 70% utilization. The company has increased its capacity to construct 24 warships concurrently and plans to increase this to 28 by 2025.
• MDL: MDL has significant infrastructure for shipbuilding and submarine construction, including dry docks, wet basins, slipways, and specialized shops. The company is planning significant capacity expansion over the next four to five years.

Government Initiatives

The Indian government is focused on making India a top shipbuilding nation. The government is planning to give infrastructure status and incentives to boost the Indian shipbuilding industry. There is a focus on green initiatives and linking ship breaking with shipbuilding. The government is also emphasizing building commercial ships under the Indian flag with incentives for green shipping.

Green Energy Vessels

There is a growing emphasis on green and hybrid shipping. GRSE has completed a fully electric ferry project for West Bengal and secured an order for 13 hybrid ferries. MDL is also interested in participating in the growing green and hybrid shipping market, particularly in Europe.

Export Potential

European nations are increasingly looking at India as a commercial shipbuilding hub. GRSE has received orders for multipurpose vessels from a German client. MDL is also actively pursuing export orders.

Risks and Challenges

• GRSE: Risks include potential delays in project execution due to social unrest in Bangladesh and the impact of material costs increasing as projects mature.
• MDL: Risks include delays in project deliveries, uncertainty regarding the timing of liquidated damages reversals, potential revenue dips during the transition between projects, and competition. MDL also faces challenges in securing new orders, particularly large-scale projects.

Indigenization

Indigenization is a focus area of the Indian government, with shipyards mandated to maximize indigenous content. GRSE's indigenization content has been between 80 to 92% in recent projects.

Material Costs

Material costs increase as projects mature, which is a natural phenomenon in the shipbuilding cycle.

Additional Points

• The offshore support vessel market is expected to grow at a CAGR of 5.41%.
• The Indian Navy aims to become a leading ship repair hub within the next decade.
• The commercial shipbuilding market in India is relatively small compared to the defense sector.