GRSE - Garden Reach Shipbuilders & Engineers Limited Share Price

In the Q4 & FY25 earnings conference call of Garden Reach Shipbuilders & Engineers Limited (GRSE), management provided a strong outlook reflecting the company's best-ever financial performance. For Q4 FY25, GRSE reported revenue growth in operations from Rs.1,015 crores to Rs.1,642 crores, hitting a 62% increase. EBITDA more than doubled from Rs.166 crores to Rs.335 crores (101% growth), while profit after tax surged 118% from Rs.114 crores to Rs.244 crores. For the entire financial year, revenue crossed the Rs.5,000 crore mark, reaching Rs.5,075 crores, a 41% increase from the previous year. The profit after tax for FY25 grew by 46% from Rs.360 crores to Rs.527 crores.

The management highlighted a robust order book of Rs.22,680 crores as of March 31, 2025, comprising nine projects, including 40 platforms for the Indian Navy. Key projects include three P-17 Alpha frigates and seven Anti-Submarine Shallow Watercraft. GRSE successfully delivered the first Anti-Submarine Shallow Watercraft and a Survey Vessel Large, reflecting efficient project execution.

Key forward-looking points from the management include:

1. Anticipated delivery timelines for projects"”one P-17 Alpha ship in FY26 and two in FY27, with significant revenues expected from these deliveries.
2. An expected increase in shipbuilding capacity from 24 to 28 ships by the end of FY25, with plans for future expansion beyond 30 ships through greenfield facilities outside Kolkata.
3. Upcoming bids for several high-value projects, including the Next Generation Corvette project (estimated value around Rs.40,000 crores), and further opportunities in mine countermeasure vessels and follow-on projects for the P-17 class.

Overall, management is optimistic about GRSE's growth prospects amidst a robust pipeline of defense projects, improving operational capacity, and a commitment to innovation in shipbuilding.

Question 1: "Currently, how many naval ships do we have in the Indian Coast Guard and the Indian Navy, and how much is the Ministry of Defence (MoD) planning to add to the respective fields?"

Answer: Currently, the Indian Navy operates around 150 platforms and the Coast Guard has nearly 100 platforms. Both forces are looking to expand their numbers significantly, with the Navy potentially increasing to over 200 and the Coast Guard to around 150. As of now, 61 platforms are under construction, with 60 being built by Indian shipyards.

Question 2: "Can you provide the order book breakup project wise and the tentative order sizes for the projects on the anvil?"

Answer: Our order book of Rs.22,680 crores is primarily from the P-17 Alpha project at Rs.11,435 crores, followed by Rs.3,946 crores from the Anti-Submarine Watercraft. Upcoming project orders are estimated at Rs.40,000 crores for the Next Generation Corvette, Rs.3,500 crores for Next Generation Survey Vessels, and Rs.3,000 crores for Next Generation Fast Patrol Vessels.

Question 3: "Are we in a weakish kind of execution phase given our current order backlog?"

Answer: I don't believe we are at a peak revenue point; rather, we are at an execution phase where we maximize revenue from mature projects. With our current order book remaining stable at Rs.22,680 crores, which has allowed us to generate over Rs.5,000 crores in revenue, I anticipate FY 2025-26 will actually be our peak year.

Question 4: "What is your plan for enhancing shipbuilding capacity considering competitors' expansions?"

Answer: We've increased our capacity from 20 to 24 ships, with plans to reach 28 by year-end 2025. However, recognizing future demands, we are also exploring greenfield facilities outside Kolkata. We're negotiating with various agencies and expect further clarity on these plans within the next 6-9 months.

Question 5: "What can we expect regarding the Next Generation Corvette project in terms of timeline for contract award?"

Answer: We expect the L1 declaration to happen soon, followed by contract negotiations. Given the project's complexity, I optimistically anticipate contract conclusion by December 2025; however, a more conservative timeline would be by March 2026.

Question 6: "Will there be a retention amount withheld by clients as a guarantee on the ships delivered?"

Answer: Yes, in warship building contracts, as per the DAP guidelines, a retention of 10% of the project cost is withheld until the ship passes its guarantee refit, typically one year after delivery. This ensures accountability and quality over the warranty period.

Question 7: "What is the provision write-back of Rs.433 crores related to, and when will it be accounted for?"

Answer: The Rs.433 crore provision write-back is associated with the P-17 Alpha project. As we have clarity on the cost to completion, this provision will be recognized as profit over the next one to two years as the remaining ships are completed and delivered.

Question 8: "What is the status of supply chain issues amid geopolitical tensions?"

Answer: As of now, we are not facing direct impacts on our supply chain. We import some components, but our suppliers have not been affected by geopolitical tensions. Our procurement processes remain stable, ensuring timely execution of current projects.

Question 9: "Can you quantify deliveries for FY'26 and FY'27 in terms of number of ships?"

Answer: For FY 2025-26, we plan to deliver 1 P-17 Alpha, 2 Survey Vessel Large, and 4 Anti-Submarine Shallow Watercraft, totaling 7 ships. In FY 2026-27, we will deliver 2 P-17 Alpha, 3 more Anti-Submarine vessels, and 1 Next Generation Offshore Patrol Vessel, totaling 6 ships.

Question 10: "What is the ratio of revenue recognition from the P-17A project across FY'26 and FY'27?"

Answer: From the remaining Rs.11,400 crores in the P-17A project, we expect revenue recognition to be distributed at approximately 40% in FY 2025-26 and 60% in FY 2026-27 as we deliver one ship this year and two next year.