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H1FY22 witnesses record execution

Garden Reach Shipbuilders & Engineers (GRSE) reported better-than-expected Q2FY22. A strong Q2FY22 has allowed 20% growth in H1FY22 top line over H1FY20. H1FY22 gross margin is up ~19% over H1FY20 and H1FY22 EBITDA (including exceptional expenses) is up 7x over H1FY20. This makes H1FY22 the best reported H1 ever for the company. Q2FY22 EBITDA margin is 13%. GRSE now needs to follow it up with a strong H2 performance as H2 revenue ask is steep. Execution appears to be shifting to FY23E. Overall, GRSE is well placed with ~20x book to bill with Rs262bn orderbook to be completed by CY27; pick-up in execution cycle will likely help unlock value. Having modernized its infrastructure facilities, GRSE is in a position to construct 20 warships concurrently using advanced modular integrated shipbuilding technology. We downgrade to HOLD from BUY with a target of Rs 255/share.

Trying to increase repair and refit revenues. GRSE signed a concession agreement with Syama Prasad Mookerjee Port, Kolkata (SMPK), to undertake the development & utilisation of the three existing dry docks of SMP at Khidderpore, Kolkata. This collaboration will also contribute to the future strategy of GRSE to take on additional shipbuilding activities including repair & refit of ships, which will aid in the feasibility for execution & expansion in and around Kolkata.

Naval group ties up with GRSE for surface ships. GRSE has signed a Memorandum of Understanding (MoU) with Naval Group France, to collaborate in the field of surface ship that caters to fulfil the requirement of India and International naval forces. Highlighting the importance of collaboration CMD, GRSE said, “Our association with Naval Group of France aims to set a new benchmark in capitalising export market in the Indo Pacific region.” Naval Group commented “This extension of cooperation with GRSE, with whom we had worked for the propulsion system of Kamorta Class ASW Corvettes clearly highlights our long-term investment in India and emphasises the potential of strategic relations between France & India in the Indo-Pacific region”. It appears Naval group France is diversifying away its presence in India by tying up with GRSE (Naval group has an existing deep relationship with Mazagon Dock).

GRSE has laid the keel of 3rd survey vessel large (SVL) and 1st ASWSWC in Q2FY22. GRSE bagged both the contracts for construction of SVLs & ASWSWCs on competitive bidding and design for both has been accomplished by the in-house design team of GRSE. The survey vessel is the 3rd of the four ships being built by GRSE under the SVL project. The vessels are capable of full scale coastal & deep water hydrographic survey with their advanced survey equipment.

GRSE has started Production of the Ocean Going Passenger cum Cargo Ferry Vessel for the Republic of Guyana in Q2FY22. GRSE bagged the order for this vessel on competitive bidding, and the contract was signed with the Transport and Harbours Department of Govt. of Guyana, on 13 Jan 2021. Plate cutting signifies successful completion of pre-production activities and the same has been achieved amidst the Covid pandemic with its share of lockdowns & restrictions. This fuel efficient vessel has been designed for carrying passengers & cargo in the coastal and riverine area of northwest district of Guyana. The ship is designed to carry 276 passengers & 14 crew members along with 14 cars, 02 trucks, 10 containers and 04 refrigerated containers. GRSE was the first Indian shipyard to export a warship, an OPV to Government of Mauritius in 2015. The shipyard delivered a fast patrol vessel to Government of Seychelles in CY21 and also bagged a contract from Bangladesh for six patrol boats, again on competitive bidding.

GRSE laid the keel of Fast Patrol Vessel. This vessel is being constructed for Indian Coast Guard as a replacement for the recently exported FPV SCG PS Zoroaster, which was handed over to Govt. of Seychelles. GRSE also started production of second and third ship (Yard 3030 & Yard 3031) of the eight ASWSWC project on 14 Jul 2021. ‘Start Production’ is the first ‘Milestone’ in shipbuilding and signifies commencement of vessel construction after design engineering phase. The platforms will be packed with state-of-the-art weapons and sensors like hull mounted sonar, towed sonar, torpedo launchers and rocket launcher to interdict and destroy sub-surface targets in coastal waters.

GRSE bagged an order to build 06 Patrol Boats for sustainable coastal and marine fisheries project under Department of Fisheries, Government of Bangladesh for US$1.82mn in Q2FY22. The order has been awarded to GRSE through an international competitive bidding where other international players from Europe and Asia were in the fray. The 13m surveillance patrol boats for Marine Fisheries Surveillance Checkpost (MFSC), Government of Bangladesh will be used in surveillance activities, shallow water operation and patrolling fishing grounds day and night for illegal fishing gears & retrieval of survivors. The patrol crafts will be fitted with water jet drive, suitable for shallow water operation up to 0.6m.

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