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Execution pickup expected in FY22E

Garden Reach Shipbuilders & Engineers (GRSE) signalled significant YoY improvement in execution while maintaining margins for FY22E. Rs250.8bn orderbook with meaningful capacity upgrades to speed up execution and smart outsourcing/in-house mix allows for the management confidence. We maintain BUY with a target of Rs 255/share.

Execution details for FY21.

FY21 revenue break consists of i) Rs 10.1bn in shipbuilding including Rs140mn of refits and repairs ii) Rs500mn from Bailey bridges iii) Rs170mn from Deck Machinery & Pump and iv) Rs180mn from Engine division. Shipbuilding revenue has seen contribution of i) Rs630mn from P17A ii) Rs1230mn from survey vessels (large) iii) Rs1660mn from ASWSWC iv) Rs410mn from FPV and v) Rs318mn from LCU.

Execution scheduled for FY22/23E allows management optimism for meaningful increase in execution over the next two years.

P17A and Survey vessel construction are expected to contribute materially to FY22E revenues along with Phase 1 construction of ASW SWC. 1st ship of P17A has seen meaningful maturity of outfitting, while the second ship will be commissioned by July, ’22 with a much higher percentage (35%) of outfitting and onboarded equipments. Management expects to witness commissioning of the first survey vessel in August/Sept, ’21, with significant outfitting/equipment onboarding and consequently addition to revenues. Second survey vessel will be commissioned in the LnT shipyard by Dec, ’22 with an even higher percentage of outfitting. Construction of the first ASWSWC has started in Dec, ’21. The remaining 3 ASWSWCs were expected to start in May, ’21 but has been delayed to June, ’21. The execution for the ocean going vessel for the government of Guyana is also expected to start in Nov, ’21.

Significant capacity augmentation across facilities will help in faster execution of the orderbook.

Current orderbook stands at Rs 250.8bn comprising of 17 ships. The CNC Plasma cutting facility in the Rajabagan dockyard (RBD) set up at a cost of Rs.41mn will enhance the plate cutting capacity by 30%. The modern Hull block fabrication complex in RBD, constructed at a cost of Rs190mn will enable concurrent construction of large sized (40 te) hull blocks in a covered environment. This will facilitate modular integrated construction of warships with an enhancement in production capacity of hull blocks by 25%. Blocks thus fabricated in the RBD, will be moved through river to be assembled at the main shipyard. Thus, a concurrent in-house process of plate cutting, fabrication and assembly have allowed throughput to increase from 1000tpa to 1500tpa.

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