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Mazagon Dock is getting into ship repair, exports: Rakesh Anand

IPO-bound Mazagon Dock Shipbuilders Ltd sits on a massive order book of Rs 52,000 crore, which includes different kinds of warships and Scorpene submarines. Commodore (Retd.) Rakesh Anand, chairman and managing director, talks to Ateeq Shaikh about diversification and the recent competition the company has started facing from private shipyards in the areas of naval shipbuilding and ship repairs.

Most shipyards in India are under the Ministry of Shipping, but Mazagon Dock comes under the Ministry of Defence. What makes Mazagon Dock different?
After being taken over by the government in 1960, we were the shipyard of interest for the government and the Indian Navy to start the construction activity of major warships in the country after the independence. It all started with the Leander-class frigates – six of them. Nilgiri’s construction started in 1966 and we delivered it in 1972. With that started the history of major warship construction in the country. That is where our shipyard stands and our expertise lie with the niche-end of destroyers and conventional submarines. There is no one who can match our skill set in the country, no one can build destroyers and conventional submarines, no other shipyard. This is a prized possession of Ministry of Defence. The ‘Make In India’ campaign that is ongoing, for the Indian Navy it started in 1955 when they took a decision that India will become shipbuilder’s Navy and not a ship buyer’s navy. Later, we had the three shipyards in India – Mazagon Dock Shipbuilders, Garden Reach Shipbuilders & Engineers (GRSE) and Goa Shipyard. Later, Hindustan Shipyard was added under the fold of Ministry of Defence. Now, we are nearly 75% indigenous in our shipbuilding.

With shipbuilding and ship repair being opened for private firms, Mazagon Dock has more competition.
We are equally competitive, we have an edge over all others. Shipbuilding is not infrastructure building. It is driven by passion and skill set. I have got fourth-generation workers working here. It has taken us 60 years to reach where we are. If you build a huge infrastructure at a place and expect to start building ships there and think that you can leapfrog from nowhere to start building destroyers, it can happen like that. It is hugely skill-driven.

Is there any strategy shift in the offing to continue to bag orders?
Why should we change our strategy? We are diversifying. The reason why we were not doing that until now is that our USP in the country is destroyers. No other shipyard in India can build destroyers and we have a proven track record for the same. Nobody has done conventional submarines till now as they require three to four times more skill set.

Scorpene-class submarines are under construction with the first one already commissioned. When will you deliver the remaining?
The first one – INS Kalvari has already been delivered. The second one (Khanderi) will be delivered in October this year as it is already in the final stages. Thereafter, there will be delivery of one submarine every year.

Khanderi was to be delivered much earlier.
Yes, it is behind schedule. It will start sailing from September and will be delivered to the Navy by October-end or early November.

Larsen & Toubro (L&T) has opposed the government’s plan to reserve P75I for Mazagon Dock. What’s your stand?
There is a strategic partnership model. We are very clear that we will be considered for the Request For Proposal. Tell me, other than Russia, which other country in the world has two lines of submarine construction? Mazagon Dock has two lines. UK maintains a single line and both nuclear and conventional submarines are built there. The nation, as a whole, is on a learning curve in shipbuilding. We still have not learned in 60 years. We are still getting into the grips and nuances of shipbuilding and submarine construction. Today, if Mazagon Dock has to chop it off here on the learning curve and start drawing a new sapling, saying a new line is needed, it is like robbing Peter to pay Paul. Shutting down one line where you put in so much of an effort and so many years and wanting to grow another line just because they have built some shipyards or acquired some infrastructure. They will need to take baby steps to where we are today. That is why I said that shipbuilding is not equipment-intensive process, it is labour and skill intensive even today.

But private shipyards are of the opinion that they can deliver ships on time or before time. That is where Mazagon Dock Shipbuilders lag. Usually, with Mazagon Dock, the delay has been a year or even more.
We should look back at our history. It is very important to look where we have come from and where we are headed to. We had nothing to start with. We have taken baby steps, thanks to the visionaries back then. The private sector never existed then. No one had the money to start building ships. We gave Rs 6 crore then for the creation of Goa Shipyard and are a 47% shareholder. We must bear in mind why we get delayed in the shipbuilding process. There is an industrial ecosystem in the country. We are aggregators, we are integrators. We haven’t been making so many equipment in our country. The warship design is not frozen because the Navy gives us the basic design and we do detailed designing and there are a lot of iterations. The problem is because of the telescopic design. Today, on two major platforms we don’t know which gun is going to be installed. Some other equipment will come on the ship three years into the project. We build the lower part of the ship, the top part is left like that. This is the way you do shipbuilding. We are progressing, we are evolving. Why they (Navy) can’t decide is because they want the best and latest gun for the ship. Technology is evolving by leaps and bounds every year. This has an impact on shipbuilding, that is where we lose time. Let them get this kind of order that is weapon-intensive, equipment-intensive. Secondly, the mandate that we have includes enhancing indigenisation on the live projects and this has a cascading effect on the timeline and we pay a penalty on that. We are imposed late delivery penalties because the biggest of the engineering companies in the private sector also delay projects and equipment that they are to give by three-four years, and that impacts the timeline. Will the private sector carry this indigenisation mandate with them? The private sector pays a certain amount of late delivery penalty on Rs 100 crore, but because of the delays that accrue, we pay late delivery penalty on a Rs 5,000 crore project.

How do you intend to cut down on delays?
In the history of shipbuilding in the country, for the first time, Project 17A is being built using the modular construction methodology. The design of Project 17A of stealth frigate is from the Navy and seven ships are being built - four are with us and three with GRSE. The process of integrated construction will be given to us for the first time by Fincantieri of Italy. We are going to cut down on the time from about seven to eight years for the first of class being done in five-and-a-half years. Now, to achieve this modularity, the Navy has to be very clear on what it wants to put on the ship from the word go. In modular construction, everything goes on concurrently.

What’s the order book position and guidance?
We have a remnant order book of Rs 52,000 crore. It includes all the naval orders of 15B (four warships), 17A (four warships) and the five remaining Scorpene submarines.

What about diversification plans and commercial orders?
At the moment, we are not into commercial shipbuilding. The last merchant ship orders were for the purpose of exports and the last merchant ship was exported to Mexico and Bahamas in 2014. Now, we are getting into ship repair. At Nhava (Navi Mumbai), 40 acre land has been secured. We now have infrastructure available there. We have capacity constraints at the existing shipyard. We are also in discussion with the Mumbai Port Trust for contiguous land, right next door of about 13 acre. In these areas, we will be looking for additional export business. At Nhava, shipbuilding is underway, another unit will come for our diversification into exports and ship repairs. We already have an order from the Navy for medium refit of the SSK-Class submarine, we will be starting that from October. Profit as well as churning in ship repair business is higher/faster as compared to shipbuilding.

How much revenue do you expect from ship repairs?
Maybe, in this diversified portfolio of exports and ship repairs, it should be around Rs 1,500 crore to Rs 2,500 crore of an additional turnover. For submarine repair business, we have already got Rs 1,100 crore order starting October, for two years. We are venturing into the export business. We foresee that in a year we should get at least Rs 500 crore to Rs 700 crore. The export orders would mostly be for warships for South-East Asia. Many South-East Asian countries as well as African countries (Philippines, Vietnam, Myanmar, Kenya, Senegal, Algeria, etc,) have expressed interest in getting warships made from India.

What would be the size of the IPO?
We are divesting 10%, as per the mandate. The price band would be decided by the book-running managers.

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