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Few Observations from the Q4 call and press release post that.
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Krishna started FY25 with an order book of 187 Cr. Received 2 notably big orders of 105 Cr. & 88 Cr. from L&T and MoD respectively. It ended FY25 with a 195 Cr. Topline, with ~60% contribution ( 117 Cr.) from bulb bars and 40% (78 Cr.) from weld consumables. Outstanding order book is 267 Cr. which goes to say that another 82 Cr. worth of orders were not declared to exchange separately and Qtr end PR is the way to keep track of incoming orders. Mgmt. is guiding for 30-40% kind of earning CAGR. for next 5 years.
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Weld Consumables - Beginning of FY25, mgmt. had guided that their weld consumable facility will be up and running by Sep/Oct 25. They delivered like a clock. Mgmt. not only delivered on the facility being ready but also procured order and executed it seamlessly. Mgmt. expected this product line to contribute only 15-20% of the product mix for FY25 (as per Q424 call), but it has now grown to be 40% of the topline in just one year. Company is under going certification process for even higher grade of weld consumables. Given the activity in ship building in India and this being an import consumable product, are we just scratching the surface in terms of market potential ? The last known order is from Ministry of Defense for highly critical platform. Does this mean, the orders from GRSE/MDL/CSL of the world are yet to come to Krishna? The company definitely seems to have winning product in it’s hand. Pick & shovel for ship building theme?
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Composite doors JV with VABO : Sea trials are towards end stage and have succeeded. Finalization of contractual terms are in progress which are expected to close soon. Production unit being setup at an expense of 10 Cr. (Half of which will be contributed by Krishna). TAM: Each vessel could have about 5 Cr. of these doors (?). Quite possibly this product line too can go upto 100 Cr. a year type of contribution to topline in sometime.
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Role in Oil Tanker Fleet Opportunity: Company is working to get registered with Bureau Veritas, Lloyd’s Register and IRS . India plans to invest 10 USD Billion on oil tanker fleet. Mgmt. commented that these certifications are in preparation for that when & if the opportunity arises.
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20% stake in Bangalore based Conceptia ( a 15 yrs old ship & submarine design company). Idea behind the acquisition is to move up the value chain from just design to become a manufacturer of module or part for the clients of Conceptia. Company does about 60-65 Cr. revenue with 80 odd people.
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Autonomous Under Water Vehicle (AUV) : Company had earlier invested (50L) into Planys, an IIT Madras based startup which was into ROV for hull cleaning/cavitation/paint etc. Now in June, the company has made an announcement that it has commenced the construction of countries largest and most advanced AUV, designed by Indian Navy and in partnership with Rekise Marine. NSTL , DRDO Lab seems to be at the forefront of R&D on AUV. The company Rekise Marine is a startup by Maitrai Maka, an [IIT Topper], who started the company straight out from his college (https://www.linkedin.com/in/maitrai-maka/) and who seems to have always had a passion for AUV and won the contest iDEX Adti 1.0 Challenge of Indian Navy in Aug’24. Rekise Marine Wins Indian Navy Contract for Jalkapi AUV - Indian Defence Research Wing
Few other links to appreciate the importance of the project.
NSTL’s High Endurance AUV passes crucial lake trials in Mar25.
Royal Navy orders it’s first crewless submarine (AUV) ‘Cetus’ in December 2022 at cost of 15.4 Million Pounds from UK based MSubs . At 12 Meter length and 2.2 meter diameter and 17 tonne, its one of the most complex crewless submersible operated by European navies, designed and built specially for the Royal Navy by Plymouth-based tech firm MSubs .The goal for Cetus – named after a mythological sea monster – will be to move stealthily through the oceans, monitoring hostile activity, listening out for ships or submarines which may pose a threat to the Fleet, or to key national infrastructure such as deep-sea cables and pipelines.
Cut to Mar’25. The project is launched.
Excalbur - UK's CETUS XLUUV launched by MSubs in Plymouth - Naval News
Herne from BAE Systems : UK’s first AUV ? https://www.youtube.com/watch?v=oSHpLesmDUA
Konsberg seems to be at forefront of such AUVs and growing [pretty strong financially] (Financial results Q1 2025: Strong adaptability and well-positioned for further growth - Kongsberg Discovery)
It definitely came as a surprise that a company of Krishna’s caliber is chosen as a mfg. partner for this project of high importance, given that we have so many other well established shipbuilders.
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Waveoptix: (stake increased from 25% to 40%) Company did about 9.9 Cr. topline and 90L PAT and has potential to be a 100 Cr. topline opportunity in 3-4 years.
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Company completed 3 yrs of listing on SME. On it’s way to be listed to mainboard and BSE soon.
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A very interesting development has happened for this business.
On 3rd July, Ministry of Defense has come out with a Press Release titled " DAC clears 10 capital acquisition proposals worth approx. Rs 1.05 lakh crore under Buy (Indian-IDDM) category
out of those 10, there is a specific commentary as follows -
“AoNs were also accorded for procurement of Moored Mines, Mine Counter Measure Vessels, Super Rapid Gun Mount and Submersible Autonomous Vessels. These procurements will enable mitigation of potential risks posed to the Naval and Merchant Vessels. To provide further impetus to indigenous design and development, AoNs were accorded under the Buy (Indian-Indigenously Designed Developed and Manufactured) category.”
This is super good news for Krishna given the development highlighted in the post above this one.
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Good read on the topic of future plans of India for AUVs.
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Krishna Defense & Allied Industries :
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Recent past capex has increased the capacity of production and as per there last con-call it was operating at 50 to 55% and can increase to 80% capacity utilization. So if this happens operating leverage kicks in and margins can expand.
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From last con-call if we look at order book the number shown was same. So new orders were still in pipeline and need to see increase in order book this coming half year. Also management told that there are in talks with defense order.
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Company has a Joint venture with Netherlands company called “VABO”. Company is aiming to enter new line product that is composite doors (doors made of more than 1 material) and hatches. Currently they are in trail phase with the clients which needs to be tested under different conditions. If successful this can be a big opportunity for the company because this gives new source of revenue. Another is the doors and hatches are not only for new ships also can be used in replacing the doors of existing ships.
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Company stake in Waveoptix (40%) that develops ROF (Radio frequency over optical fibre). New orders will increase order book & the profits of the company & Conceptia (20%) that operates in design of submarine & offshore ships. Provide service to India, Middle East & Europe. So now the company can take contract of design & manufacturing of component place itself as design & manufacturing company. New stream of orders & revenue.
Current Risks :
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Working Capital : Currently company only provide its product and service to Indian Navy, Defense so it needs to hold inventory, delayed receivables and not hold that power to get extended credit period from vendors. If the problem persist it needs to depend of debt for working capital.
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Delay in tenders rolled out from DPSU : If delays in DPSU contract roll-out will lead to orderbook becoming flat and revenue growth pace slowing down.
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Concentration Risk : Since company client is only Indian Navy, Military. So any hold by the Defense institution or delay of giving orders to DPSU will have affect on the company. Going ahead it needs to add more client like Coast guard, Commercial shipbuilding, if opportunity for export.
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Orders coming are short term based : If the company is getting orders that are completely executed in short period of time. Any fluctuation in raw material prices the company needs to absorb the cost, impacting the margins of the business.
Currently company debt is 9.45 cr, cash & cash equivalent of 22.7 cr and trading at 54 P/E. Almost trading near 3 year P/E. Waiting for price to correct make sense because at current price everything has been discounted.
Disclaimer : Not Invested, Not a recommendation.
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Krishna defence this order reported but not clear reg size
Hope the Company reaps reward as Navy work/ship building accelerates
no news on Mainboard Migration too since they told in last concell they have moved for Migration to Mainboard which will increase MF/visibility
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Some of my brief take from concall:
- They paid penalty due to delay in delivery of one of the projects
- Expanding on product portfolio gradually
- Quite positive outlook for the orders coming in, both from Navy as well as from other sectors.
- No direct exports themselves. But, their clients (cochin shipyard) has exported one vessel in which Krishna’s products are used.
- All their materials are sourced in India. No external dependencies.
- Margin improvements mainly due to operation leverage
- Capacity utilization about 65%
- Trying to diversifying products and also engaged in non-defense kind of projects (coast guard vessels)
- Only 2-3 peers are present in India. So, no competitive pressures as of now.
- Getting all qualifications from the likes of DNV, LR and other classifiers. This is just being proactive and not because clients asked for it yet. (preparing for commercial vessels I guess)
- Order book growth is a bit lumpy. The analysts asked if the mgmt is comfortable in having orderbook not covering 12 months revenue. The answer was more like thats how the order inflow is. For me, this is the only issue I am a bit concerned with. The order book growth got to pick up.
When I look at consolidated PE, it comes to about 40. If they can sustain the growth, then this seems to be a good bet.
Disc: Recently took a tracking position.
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Main board migration and some order inflow can rerate this counter
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Company also has around 1.2 million outstanding warrants plus ESOPs with price of 304 and some warrants at 140. will have some dilution impact once converted (should be less than 5% based on current price).
Any views on related party transaction with white gold technologies? This seems to be for the dairy portion - please correct if wrong.
Also, noticed late delivery charges of 5crs in FY25 and someone highlighting above as recent concall brief as well there is some late delivery charges - any details on the amount and the reason?
Disc: Not invested. studying.
1 Like
KDAIL Q226 Call - The Future Growth Drivers
Supply for Commercial Ships Building : India has identified commercial ship building as a growth engine and given it infrastructure status. A lot is happening in this sector and one can read about it online. For KDAIL though, it means, that the bulb bars which were so far supplied only for defense related platforms can now be supplied for commercial ship building. Roughly 10-15% of the ships weight is bulb bar. Company has proactively started working on the certifications like Bureau Veritas, ABS, DNV to be ready for the upcoming demand. They already supply to Cochin Shipyard for a commercial ship for export orders. Bulb bars are required at first stage of ship building, which is a multiyear effort. Bulb bars contribute 65-70% of current topline.
Weld Consumables : Contributes about 15% of topline. This is a very customized demand for specific requirements by navy. This import replacement product is developed by company by putting in lot of R&D. Some of these products are still imported and company is trying to indigenize as much as possible. Company sees a growth potential of 30-40% in this. This will also get a boost from commercial ship biulding.
VABO Composite doors : Production facility is ready, trial production has started. It’s in last leg and commercial production could start in FY27. Initially these will be for new naval platforms only, but overtime there could be replacement demand from old platforms. Market size could 100cr.
AUV Program : These are equivalent of drones for water. Unmanned & Autonomous. India is trying prototyping different platforms. KDAIL has bagged the largest of them. Other players are L&T, MDL, Adani Defense. This is more of a tech project than a commercial one. No revenue generation right now, there is no grant. This is about companies ambition and commitment to do things outside of its comfort zone. There is no binding agreement, only a commitment from navy to place further orders if thigs go well. Navy has allotted 1B$ for the AUV program. How much will go to which platform and how many will be built is not fixed now. This project is in line of ship building domain which has so many well established players. So for a company of KDAIL to be considered as a partner is a huge vote of confidence. If they crack this, it has potential to catapult them to a different league.
Casting Parts for Naval Program & aerospace industry: This is again an attempt to get into newer product categories. KDIAL has done successful trial of a very large casting part for Navy which is an import replacement product. General progression here is to start with small parts and then grow into larger & larger parts over time. Has also got a enquiry for an aerospace part and working on it (No purchase orders yet).
General Pattern in identifying growth drivers: Company tries to work on products/components that are currently being imported, which could be indigenised, where they could play some role and they already have 60% or some infrastructure. They need to add only a few equipment or few machinery to be able to get to that 100% . This is done, while keeping the addressable market in mind. Also as and when they get some specific requirement to work around, they come forward to develop the product (AUV/Weld Consumable are examples).
Capex : Operating at 60% capacity but not planning any major capex. Only ~5-10 cr. per year.
Competitive Intensity in key products: Bulb bars - 2 approved players for navy. Weld consumables - import replacement, no local players.
Investments: Conceptia (Ship & Submarine Design) did 40 cr. Topline with 2.5 cr. PAT in H1. Waveoptix(defense Electronics) did 18 cr. Topline with 5 cr. PAT in H1.
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