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Cochin Shipyard
Our verdict on Cochin Shipyard isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →Does management do what it says?
The timeline has been refined to August 2024 as gantry crane commissioning is currently in progress. (2 revised, 2 met across 4 tracked commitments)
“The New Dry Dock is expected to be fully operational after completion of above work by 31 Oct 2024.”
The completion timeline has been shifted from June 2024 to October 2024. As of the report date, 15 vessels have been delivered with 8 remaining. (1 revised, 1 in progress across 2 tracked commitments)
“Target Completion : Dec 2023 – Nov 2024”
As of May 31, 2024, 14 vessels have been delivered, leaving 9 still under construction. This indicates a slight delay from the June 2024 completion target for the full fleet. (5 revised across 5 tracked commitments)
“Planned to complete by June’24”
The company is pursuing a massive shipbuilding order pipeline across defence and commercial segments. — target: Rs. 2,85,000 Crs. (+2 more commitments)
“Shipbuilding Order Pipeline – Rs. 2,85,000 Crs. (Approx.)”
Launching of ASW SWC Corvette Vessel No. 4 & 5 for the Indian Navy. — target: 2 vessels (+1 more commitment)
“BY 526-527: Vessel No.4 & 5 :- Keel laid on 08 Dec’23, Launching planned in Sep 24”
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How durable is the business?
The order book has grown to INR 22,000 crores, providing multi-year revenue visibility. Defense remains the core at INR 15,000 crores (68% of backlog). (2 expanding, 1 stable)
“our current order book position is healthy, with approximately INR22,000 crores of unexecuted orders... about INR15,000 crores is the defense part”
The regulatory moat is reinforced by the inauguration of major infrastructure projects like the New Dry Dock and International Ship Repair Facility (ISRF) by the Prime Minister, aligning with national maritime goals. (2 expanding, 1 stable)
“The government policies have never been this supportive... help to achieve the targets envisioned in the Maritime India Vision 2030.”
The company's scale moat is expanding with a total order book now at approximately Rs. 22,000 Cr, providing high revenue visibility. Defence remains the anchor at 73% of the total order value. (2 expanding, 1 stable across 1 engine)
“The balance out of the Rs.21,100 crores is the shipbuilding order book which is about Rs.19,600 crores across 75 vessels... ship building margin is around 10% to 12% normally.”
Shipbuilding revenue grew significantly by 62% on a consolidated basis, driven by execution on the Indigenous Aircraft Carrier (IAC) and other projects. It remains the dominant engine, contributing 72% of total operating income. (4 expanding, 1 contracting)
“On a consolidated basis, the turnover in 2023-'24 stands at INR3,830.45 crores compared to INR2,364.55 crores in '22-'23, representing an increase of 62 percentage... CSL derived 72 percentage of its total operating income from shipbuilding activities”
International commercial exports are expanding with new high-value contracts for Hybrid Service Operation Vessels (SOVs) from European clients, totaling INR 1,000-1,200 crores. (1 expanding, 1 shifted)
“signing of the contract with a prominent European client for the design and construction of Hybrid Service Operation Vessel... Both these contracts put together is in the range of INR1,000 crores to INR1,200 crores.”
See the full cited Business Model analysis of Cochin Shipyard
Where does growth come from?
Cochin Shipyard is positioning itself for the future of sustainable shipping, with a significant portion of its commercial order book dedicated to 'Green' vessels.
“Green compliment Commercial Segment... Green Vessels: 3600; 61%”
Standalone turnover for Q3 FY24 grew by 62% compared to the same quarter last year, indicating a sharp acceleration in execution pace. (2 accelerating, 1 steady across 3 signals)
“Around 15% on a PAT margin level.”
The company is aggressively pursuing the global merchant vessel market through a strategic partnership with the world's leading shipbuilder from South Korea.
“With HD KSOE of South Korea, we intend to jointly explore new shipbuilding opportunities, share technical expertise, and work together to scale up productivity, capacity utilization, and workforce skills.”
The company has a massive future project pipeline, particularly in the Defence sector, which is currently in various stages of bidding and inquiry.
“Shipbuilding Order Pipeline – Rs. 2,85,000 Crs. (Approx.)”
The company is facing some delays in completing a dredger project for the Dredging Corporation of India, which could impact short-term delivery schedules.
“In fact, we are facing some challenges in the delivery timelines on that vessel. But in the next one month, we are launching that vessel.”
See the full cited Future Growth analysis of Cochin Shipyard
What could break the thesis?
The risk remains STABLE/INSUFFICIENT_DATA as management declined to provide a specific timeline, stating it is the prerogative of the Ministry of Defence, though they estimate a 8-10 year execution cycle once awarded. (5 stable, 2 high-severity)
“The defense ship building, as we are speaking, it is only for the Indian Navy. So, it is 100% Indian.”
The risk is INTENSIFYING due to a confirmed upcoming increase in depreciation expenses. The commissioning of the International Ship Repair Facility (ISRF) and the new dry dock will add INR 125-150 crores in annual depreciation, which will 'temper' the Profit After Tax (PAT). (3 intensifying, 2 easing, 1 high-severity)
“The last year we had the aircraft carrier repair also. So, both the margins were on slightly higher side. But this year, we do not have such large projects. So, the EBITDA will be around 20%, that is what we guide overall.”
The risk is INTENSIFYING in terms of scale, as the 'RFI/Mid Stage' pipeline has grown to a massive Rs. 50,000 Cr. While this shows long-term potential, the conversion of these early-stage proposals into firm contracts remains a timing risk for revenue continuity. (3 intensifying, 1 easing, 1 stable)
“But generally, we say a guidance of 10% to 12%, which is what we have seen in this industry. This industry has got a cyclical nature.”
The project remains in the 'under discussion' phase with no concrete order placement in the current fiscal year, maintaining the uncertainty for long-term revenue visibility. (1 stable)
“IAC-2, again, we are not in a position to convey anything. I can say that there are no fresh developments to report... we are not in a position to hazard a guess on the timelines.”
The risk is EASING as several major projects are moving from design into production and outfitting. For example, 3 of 8 ASW-SWC vessels have been launched, and the new dry dock/ISRF facilities are nearing full operation (August 2024). (1 easing, 4 stable)
“In fact, we are facing some challenges in the delivery timelines on that vessel. But in the next one month, we are launching that vessel.”
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Cochin Shipyard analysis by filing period
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