Recently, the stock of Garden Reach Shipbuilders have had a good enough run-up, tempting everyone to ask whether there’s more to it or is the ship going to sink?
Here are some highlights from the concall, which indicates that although there would be short-term hiccups, the long-term story for the company remains intact:
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The company’s order book as of 30th June 2023 stood at Rs 24,546 crore, which consists of 6 projects. This entire book is expected to be completed by FY27. For a context, its Q1 FY24 revenues stood at Rs 756 crores.
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With respect to the immediate bid pipeline for Q2 FY24, the company expects bids for 3 projects worth Rs 4100 crore, where it feels itself to be a strong contender. Further, RFPs for 3 more projects worth Rs 7500 crore are expected to be online by CY24.
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RFP for one specific project i.e. 8 Next Generation Corvette will come out in the latter half of FY24. That project itself would be worth Rs 36,000 crores. Also, the RFP for next generation destroyer would come out in the next 4-5 years, whose order value alone would be more than a lakh crore.
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The combined shipbuilding program of the Indian Navy and Indian Coast Guard over the next 15 years indicate that they would place orders of more than 150 warships in the coming years.
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As the current order book gets executed, the company has opportunities available in the domestic warship building, export opportunities, ship repair, and diversified products.
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The conventional PAT margins in the shipbuilding industry are between 7.5-8%. The next 3 years being peak revenue years, the company is confident of maintaining these margins.
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In the shipbuilding business, the maximum revenue accrual is when the ship crosses 40% of the construction and reaches 60%.Hence, the revenue accrual is not linear in shipbuilding, and it depends on the type and phase in which the ship is under construction. And currently, ships in one of the company’s projects with unexecuted orders worth Rs 13,000 crores have crossed 40% construction levels.
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The company’s ship repair business is in the nascent stages and forms just 1.5% of its revenues. However, the company is looking to enhance revenues by at least 4x in the next 3-4 years.
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The company’s core focus will be domestic warship building, but it will also foray into building autonomous vehicles and green energy platforms.
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Q1 FY24 results were very good. The margins expanded 30 bps YoY and the company registered its best ever PAT. The company says FY24, FY25 and FY26 will be peak revenue years.
To Summarize:
Orderbook as of Q4 FY23 stood at Rs 25,110 crores, whereas by Q1 FY24, it stood at Rs 24,546 crore. At the end of FY24, the company aims to maintain an order book of Rs 24,000 crore plus.
On concerns of order book getting depleted by FY27, the management guided that Indian Navy and Indian Coast Guard in the next 3 years will come up with RFPs worth over Rs 1 lakh crore, so there will be enough on plate for everyone.