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Cochin Shipyard is sitting pretty with Rs 10,000 crore order pipeline

In an interview with ET Now, Madhu S Nair, CMD, Cochin Shipyard, says that in the next 24 to 36 months, most of their capex will be done and once that is complete, revenue will start flowing in.

Edited excerpts:

Naval capex in the next decade is expected to rise three-fold to about Rs 3 lakh crore, out of which Rs 1.1 lakh crore is the opportunity pie. How are you positioning for it?
We are today one of the few active players in the defence space. We are not looking at the big numbers that you are referring to because at the stage we currently are in, we have this aircraft carrier which we are doing. We have picked a substantial order of Rs 5400 crore for the ASW Corvette and while I would not want to paint a big picture with a Rs 1 lakh plus crore figures, but we are pretty clear that we will be there at the appropriate time, picking in orders which would stand the company in good stead. There is enough in the pipeline that is coming in.

The Indian Navy and the Coastguard account for bulk of your business. In the last three years, they accounted for 85% of your revenue pie. What kind of order inflows are you expecting over the next couple of years and which are the large tenders and contracts?
Today, our order book is worth about Rs 10,000 crore. This is a signed order book and things are expected to come in phase III. Our indigenous aircraft carrier project will come this year. The ASW Corvette projects where we have already become L1, the contracts will come in. That is another Rs 5400 crore. Right now, these are the things that will get converted into contracts

In the last five years, CAGR growth rate has been in late teens -- almost 19%. Can I safely assume that that kind of an CAGR growth rate is now the base which you will report for next four or five years?
Looking at CAGR growth rate, I would say 16% plus is something which we would look at.

As you expand your operations, somewhere business efficiencies would also kick in and that could lead to operating leverage. You are indicating a CAGR growth of about 16% but at the PAT level, which is profit after tax, can it be 20%?
My new capex is already underway. We are putting in almost Rs 2800 crore of capex in a new ship repair yard in Cochin a new dry dock and expansion programmes, primarily in Mumbai and a little bit in Kolkata. That is why I have taken a little bit of a conservative approach but then it still would be upwards of 16%.

While Indian defence will continue to dominate your growth prospects, what are the opportunities from commercial and coastal shipping that can reduce the dependence and concentration risk?
We are looking at the commercial and non-defence space. Five years back, we had a substantial business in that space and a major part of this was export orders. Due to the general dullness in the international shipbuilding market, this space has actually come down but we are keeping all our cards open.

We are talking and as we move forward, we expect to be successful in those phases because we have seen some pick up happening in the merchant and commercial shipbuilding space especially in the front running countries like Japan, Korea and China.

We feel, it is probably getting a little bit more comfortable for people like us to pick orders over there.

Your capex plan is towards a dry dock and an international ship repair facility. When do you expect to complete the projects that will enable us to cater to LNG carriers, aircraft carriers and jack up for exist as well?
We are likely to award the dry dock contract in March only and the dry dock will be completed in 36 months. We have already started work on the ship repair facility in October of 2017 and it is to be completed in 24 months. In the next 24 to 36 months, we will see most of our capex getting ready and only when the capex is complete, revenue will start flowing in.

What is the nature of your contracts?
Typically, all shipbuilding contracts are progress and milestone-payment based contracts. When we get payments, bank guarantees are submitted against it and it is definitely linked to a firm delivery date on the ship building contracts. In this business, you need to deliver your projects on time.

Are you enjoying a certain amount of advantage because you are a government company and will that advantage get diluted because private sector now is seriously looking at defence manufacturing?
Being a government company, gives us a perceived comfort. Otherwise, we are on a level playing field and our confidence comes from the fact that if in the last decade or so, we have worked on standard international competitive ship building. We feel what we are picking up today is because we are a good company and know how to deliver on time and quality.

We are comfortable with competition but we would only wish that the competition stays ethical, clean and it is a good match. That is all.

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