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Efficient player primed for growth We hosted Mr Madhu S Nair, Chairman & MD and Mr V J Jose, Director (Finance) from Cochin Shipyard Ltd (CSL) through virtual call on our defence conference. CSL is a 50?year?old PSU dealing in ship building and ship repairs having a largest shipbuilding and maintenance facility in India with capacity to build ships up to 110,000 DWT and repair ships up to 125,000 DWT. CSL developed India’s first indigenous aircraft carrier – INS Vikrant, which started sea trials in August’21 and is scheduled for delivery by July’22.  Further, the company’s customer segments like defence sector and other commercial sector provides stronger business growth considering GoI’s impetus towards these sectors through ‘indigenisation’ and ‘Blue Revolution’

Over FY17?22, given its industry expertise, healthy order book and huge capacity, CSL has been able to deliver Revenue/Adj. PAT CAGR of 9%/13% respectively. At CMP, the stock trades at a PE of 7.3x on FY22 EPS.

Key Highlights:  

* Management guided for flattish growth in FY23E largely due to the nature of the order backlog, however for FY24E it was confident of achieving 10?12% topline growth.

* On the shipbuilding side, it expects the Indigenous Aircraft Carrier to be delivered in July'22 to the Navy after which certain post?commissioning work will be pending which is as per the terms of the contract

* The large naval project of 8 ASW Corvette vessels worth Rs64bn is on track with 5 vessels in various stages of construction. The first vessel is expected to be keel laid in July'22.

* The company is also in the process of building four bulk carriers for JSW Steel and four Floating Border Outposts (FBO) to the government

* In terms of order inflows, the company has secured orders for medium size vessels from German short sea clients for the first time which has helped it to break into the niche segment and it expects further traction from the same. It has also received an order for a large dredger from Germany initially for one unit, but it is expected to go up to three and will be executed by FY24E

* In Norway, it has received orders for two fully autonomous vessels. This won't significantly add to the topline, but it will help the company gain a foothold in the Norwegian market where there is a strong emphasis on green shipping projects ? FY23E revenue guidance is flattish while blended EBITDA margins should be in the region of 16?17%

* By FY24E, the company aims to achieve Rs40bn revenue out of which Rs12bn will come from shipbuilding and an order book of Rs200bn

* Ongoing capex projects: a) new drydock in Kochi which is being developed by L&T on a turnkey basis will come on stream by FY24E at a cost of Rs~18bn and b) Kochi international shiplift cum repair facility is 78% complete

* The company has a long?term strategic plan named 'Cruise 2030' which has been designed in collaboration with Boston Consulting Group under which a new division has been created 'CSL Strategic & Advanced Solutions'. This division will provide end?to?end defence solutions to Ministry of Defence and DRDO. The company intends to venture into green energy, batteries, e?mobility, etc. and has already developed an electric vessel with a capacity of 500 tons and 1800kW battery which is currently imported

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