GRSE - Garden Reach Shipbuilders & Engineers Limited Share Price

Management provided a robust outlook for Garden Reach Shipbuilders & Engineers Limited (GRSE) during the Q4 and FY26 earnings conference call. The Chairman and Managing Director, Cmde P. R. Hari, reported strong financial results for the quarter and the full year.

Key financial metrics revealed:

• In Q4 FY26, revenue from operations reached INR 2,119 crore, marking a 29% growth year-over-year, while profit after tax rose by 24% to INR 303 crore.
• For the fiscal year, GRSE recorded total revenues of INR 7,002 crore, reflecting a 38% increase, with profit after tax climbing by 42% to INR 748 crore.

The order book stood at INR 15,324.13 crore, comprising nine projects and 39 platforms. Execution plans are on track for major projects, with significant progress reported:

• P-17 Alpha ship is at 74% completion and is expected to deliver this year.
• Four Anti-Submarine Shallow Water Craft ships have successfully completed trials, and are scheduled for delivery in the mid-year.
• The Next-Generation Offshore Patrol Vessel project is also progressing satisfactorily.

Management highlighted upcoming opportunities, stating that they are the L1 bidder for the Next Generation Corvette project valued at around INR 33,000 crore, with contract signing anticipated soon. There is also potential for additional contracts valued collectively around INR 150,000 crore, including various naval and commercial projects.

Regarding expansion, GRSE's shipbuilding capacity is set to increase from 28 platforms to 32 by the end of 2026, supported by government initiatives worth INR 69,725 crore aimed at revitalizing shipbuilding.

Overall, management conveyed optimism regarding future growth driven by a strong current order book, ongoing project execution, and expanding capacity that aligns with government demands in the shipbuilding sector.

Q&A Section Highlights from the Earnings Transcript

1. Question: "Considering the current warfare that is there and the TCPR of the Government, where there is a lot of focus on autonomous vessels, on drones, on new age electronics. So, where do you think the traditional platforms like corvettes and destroyers stand? Isn't the relevance of these traditional platforms declining?"

   Answer: Autonomous vessels are definitely gaining attention, but traditional platforms will continue to hold value. They offer heavy armament and endurance unmatched by new technologies. GRSE has initiated its journey into this domain three years ago, focusing on both surface and subsurface autonomous vessels, and we anticipate significant market demand in this area over the next five years.

2. Question: "Could you please give us the order book breakup which you generally give across the ship?"

   Answer: Our total order book is INR 15,324 crores, with about 95% from shipbuilding, approximately INR 14,730 crores. Specifically, P-17 Alpha has INR 5,868 crores remaining, Anti-Submarine Water Craft is INR 2,035 crores, and Next Generation Offshore Patrol Vessel stands at INR 5,168 crores, totaling INR 11,361 crores in warship orders.

3. Question: "On the NGC order, if you remember, you were very confident that probably we would be getting this order in... where is the hiccup? Where is the delay, sir?"

   Answer: The price negotiations for the NGC have been completed, and we expect contract signing to occur in this June quarter. The completion of negotiations was delayed beyond our expectations but remains on track without significant red flags.

4. Question: "Are there two winners, or will it be a single winner for smaller projects like the 22 water jets?"

   Answer: The Multipurpose Vessels project and the Coast Guard's OPV project are likely to be awarded to a single shipyard. However, for the 120 Fast Interceptor Craft, the contract will be split between two shipyards, 80 and 40.

5. Question: "How do we look at the focus of the government in the near term on warships and survey vessels that is our core area?"

   Answer: The government remains focused on warship building, evidenced by various approved projects. The INR 18,900 crore figure you mentioned reflects anticipated fund outflow rather than a lack of interest. Major projects continue to progress, ensuring ongoing partnerships.

6. Question: "Will spare revenue from platforms we delivered start reflecting in our numbers in the next two to three years?"

   Answer: Yes, we anticipate revenue from spares for the ships delivered over the past two to three years to begin contributing positively to our margins. The projects are high-value, allowing us to maintain good margins based on previously fixed prices, unaffected by current market fluctuations.

7. Question: "Given that there are inquiries from European companies due to our pricing advantage, do we have enough capacities to take large orders from them?"

   Answer: Our current capacity aligns with market demands, and we are strategically positioned to pursue higher margin projects. Although commercial shipbuilding looks attractive, our focus will remain on essential orders within the warship sector where margins are stronger.

8. Question: "What are the expected EBITDA margins for the next financial years?"

   Answer: We aim to maintain margins similar to the recent fiscal years. While exact figures can't be guaranteed in the early stages of this quarter, we foresee strong performance due to ongoing project completions and expected contracts solidifying our financial position.

9. Question: "When can we expect revenue booking for NGC to start?"

   Answer: If the contract is signed this quarter, revenue recognition is expected to commence in the latter half of FY28 as construction progresses. Major revenue recognition will begin when physical construction is significantly underway, especially during FY29.

10. Question: "Can you elaborate on the electronics content within the overall NGC program?"

    Answer: Approximately 65% of the project's cost relates to equipment and systems, with about 55%-60% of that being electronics, including weapons and sensors. Discussions with downstream vendors, including Bharat Electronics, are ongoing to strategically place orders soon after the contract signing.

These insights reflect our strategic focus and confidence in our growth trajectory despite market uncertainties.