MAZDOCK - Mazagon Dock Shipbuilders Limited Share Price

Management provided an optimistic outlook during the earnings call for Q4 FY25, emphasizing significant expected growth in order book and profitability. Key forward-looking points included the anticipation of signing contracts for additional submarines (P-75 and P-75(I)), which are expected to raise the order book from approximately Rs. 32,000 crores to over Rs. 1.25 lakh crores.

The chairman highlighted that these large projects are crucial for Mazagon Dock Shipbuilders to leverage economies of scale and enhance margins. The company is projecting an average annual revenue growth of 8% to 10% moving forward, reflecting the expected challenge in maintaining high growth rates due to project execution timelines.

Management indicated that significant orders, including the P-75 submarines, could contribute approximately Rs. 30,000 to Rs. 40,000 crores, with the total order book potentially reaching around Rs. 1.25 lakh crores by the end of FY26. Furthermore, they expect PBT margins to stabilize around 15%, which is a conservative estimate considering the current profitability levels achieved during certain project phases.

It was noted that despite current high margins, historical margins in shipbuilding worldwide average around 15%. Additionally, the company plans considerable CAPEX, approximately Rs. 4,000 crores, to augment capacity, enabling simultaneous construction of 10 major warships and 11 submarines.

The management's emphasis on maintaining a prudent approach to margin expectations while aligning production capabilities reinforces their strategic focus on ensuring sustainable growth amid evolving market dynamics.

Here are the major questions and their respective detailed answers from the Q&A section of the earnings transcript for Mazagon Dock Shipbuilders Limited:

1. Question: Over the next 2-3 years, what kind of EBITDA margin should we expect? Will the current level be maintained or increased?

   • Answer: We expect margins and profitability to improve significantly as major orders come in, particularly the P-75 additional submarines and the P-75(I) contract, boosting our order book from Rs. 32,000 crore to over Rs. 1.25 lakh crore. This will enhance profitability through economies of scale and efficiency initiatives under Shipyard 4.0, leading to improved margins.

2. Question: Should we not work with the previous guidance of 12%-15% PBT margin, given the higher margins achieved recently?

   • Answer: Yes, while we have achieved high margins, globally, shipbuilding margins average around 15%. It is prudent to guide towards this figure as revenues and profits correlate closely with the order book and project life cycles. High margins of 26% should not be expected consistently across all periods.

3. Question: Can we expect similar 20% revenue growth over the next 2-3 years or will it slow down?

   • Answer: While we have seen 20% growth previously due to a steady order book, new P-75 and P-75(I) orders are slightly delayed, requiring time for design and execution. Therefore, a more realistic growth expectation would be around 8%-10% annually moving forward.

4. Question: Are there plans for listing Goa Shipyard Limited in the future?

   • Answer: The decision on listing is up to the Department of Investment and Public Asset Management (DIPAM), as we are only a shareholder according to government guidelines. We do not make decisions regarding their listing.

5. Question: How much cash do you currently hold?

   • Answer: Our cash on hand is approximately Rs. 11,000 crores to Rs. 12,000 crores, out of which Rs. 6,000 crores is our margin, and the remainder consists of advances.

6. Question: What is the expected capacity increase over the next 3-4 years?

   • Answer: We are increasing our capacity from constructing 6 to 11 submarines and expect to construct 10 major warships simultaneously. We have significant CAPEX plans in place, aiming for substantial capacity growth by the time the new facilities are operational.

7. Question: Will you take on any debt for this CAPEX?

   • Answer: Currently, we have a healthy balance sheet and do not foresee the need for debt, but it will depend on our economic performance.

8. Question: What kind of cash flow or revenue should we anticipate from the recent major orders won?

   • Answer: Depending on contract execution speed, we expect at least 10% revenue contribution by FY'28 from large orders, especially if the P-75 additional submarine orders are finalized as anticipated.

9. Question: For fixed-price contracts, do you get raw material cost escalations?

   • Answer: Yes, raw material costs are part of the overall project cost we manage. We undertake procurement and negotiate early but maintain staggered delivery to control inventory and minimize costs.

10. Question: What is the export potential for Mazagon Dock in the next 1-2 years?

• Answer: We already have a contract for 6 vessels worth Rs. 715 crores and see potential for more orders, contingent on timely delivery of existing contracts. Our collaboration with international entities also opens avenues for future export orders.

These summarized questions and answers encapsulate the key discussions from the earnings call.