Cochin Shipyard Q4 FY24 earnings call

What moved the numbers, as management explained it

• Q4 EBITDA margin lifted by execution of high-value ship repair contract (~₹400 cr) and IAC revenue recognition from aircraft carrier in dock; project-driven, not a one-off per management.
• FY24 turnover up 62% YoY on better execution across shipbuilding and ship repair, with IAC contributing 46% of shipbuilding revenue.
• FY25 PAT to be tempered by additional depreciation of ₹125-150 cr (8 months) from ₹2,800 cr capex on new dry dock and ISRF coming onstream in August 2024.
• Inventory rose to ~100 days in FY24 (from 45-50 days) as ASW and NGMV projects entered production stage, with high-value materials for NGMV arriving.
• Customer advances likely to come down as NGMV execution progresses.

The numbers management led with

• Total order book (unexecuted): INR22,000 crores including INR1,200-1,250 cr ship repair
• Capex on new dry dock + ISRF: INR2,769 crores (highest in CSL history)
• Hybrid SOV contracts with European client: INR1,000-1,200 crores (2 vessels + option for 2 more by end-2026)

Guidance on this call

Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.

By business

Balance sheet, capex and funding

• Long-term debt of only ₹23 cr after redeeming ₹100 cr tax-free bonds in December 2023; company is practically debt-free.
• Highest-ever capex of ₹2,769 cr (new dry dock and ISRF) commissioned; expects full operations by August 2024.
• Net worth crossed ₹5,000 cr for the first time.
• Inventory up to ~100 days in FY24 from 45-50 days, driven by ASW and NGMV projects reaching production stage.
• Customer advances likely to come down as NGMV execution begins.

The industry, as management sees it

Management sees a structural global shift toward green / hybrid vessels with European policy penalties accelerating replacement demand from 2027-28, alongside continued defense modernization in India (corvettes, next-generation carriers, LPD). On the commercial side, CSL is positioning itself as a specialist in wind construction, hybrid SOVs and short-sea replacement, while on the repair side targeting best-in-class turnaround times via a global operating partner and tapping the MSC sealift fleet.

Risks management named

• PAT in FY25 will be tempered by INR125-150 cr incremental depreciation from new facilities
• IAC-2 timing entirely under MoD/Navy control; if delayed, growth must come from non-IAC pipeline
• Inventory build-up due to material inflow for ASW-SWC and NGMV projects (~100 days vs 45-50 days historic)
• Green vessel competition from Japanese/Korean shipyards and European policy penalties by 2027-28

Not answered directly

• IAC-2 timing and execution roadmap
• Next corvette order qualification
• Landing Platform Dock (LPD) RFP status
• Quantum of business from US Navy MSRA
• Money values on ISRF ramp over 3-5 years

Asked for a number, answered without one

• ISRF 3-5 year revenue: Cater to 82 vessels/year of <130m length; in 3-5 years will touch that kind of numbers; would not want to put money values at this stage.
• US MSRA order timing and volumes: Full agreement, will push for earlier starts; no guaranteed volumes; expecting inquiries and offers.
• IAC-2 timing: Management declined to share specific timing, saying 'your guess should be as good as mine'.
• Additional employee/overhead costs from new facilities: Marginal additions on labour; core plant maintenance and electronics will be in-house; significant portion outsourced.
• FY25 PAT margin in detail: CMD did not directly confirm PAT margin; re-stated 20-25% top line growth for FY25.

Every question, with its answer

1. 1. EBITDA margin guidance and drivers

   Deepak Krishnan, Kotak Institutional Equities

   Question. You said EBITDA margin will be in the range of previous guidance — does that imply more closer to 18-19% on an annual basis EBITDA margin? What drove the high Q4 EBITDA margin — is it the INR400-odd cr ship repair contract extending to Q1 FY25 and IAC-1? When do orders come through the MSRA agreement? Can you break the INR22,000 cr order book across defense, commercial and commercial exports?

   Answer, Madhu S Nair, Chairman and Managing Director. Yes, EBITDA margin guidance is 18-19% on consolidated basis (later refined to 17-19% blended for FY25). Q4 high margin is not one-off — driven by good project execution, ship repair aided by aircraft carrier in dock, and IAC revenue flowing in. MSRA is a formal agreement; company evaluated by 17-member US Navy team over 3 days in January with excellent feedback. No guaranteed volumes, but the company will push for earlier starts. Order book split will be uploaded in the presentation immediately after the call.

   Partly answered.

2. 2. Pipeline, corvette qualification, ISRF ramp, depreciation, working capital

   Umesh Raut, Nomura

   Question. What are the key projects you expect in the next couple of years on shipbuilding and ship repair? Has Cochin Shipyard qualified in the next corvette order (4 shipyards shortlisted by MoD)? How do you plan to ramp revenue from the new ISRF facility over 3-5 years and what margins are sustainable on ship repair? Can depreciation be closer to 6% / INR50 cr incremental on FY24 base? Why did inventory jump to 100 days and will customer advances continue to drop?

   Answer, Madhu S Nair, Chairman and Managing Director. On ship repair (Rajesh Gopalakrishnan): secured firm orders for almost full year from Navy, weapon platform refits, one major conversion, plus MoU projects with Lakshadweep Administration. On shipbuilding: defense side has to wait; international side has good traction on similar Hybrid SOV vessels from Europe with more contracts expected 'all going well'. Won't comment on corvette qualification (Navy prerogative). ISRF commissioned, operational from August '24; global operating partner tender coming shortly; facility caters to 82 vessels/year of size under 130m — in 3-5 years will touch those numbers but won't put money values. Jose V J: both new capacities ~INR2,800 cr; additional depreciation INR125-150 cr for ~8 months of FY25. Inventory up due to material inflow for ASW-SWC and NGMV (high-value equipment). Customer advances will come down as NGMV execution begins. Ship repair EBIT margin guided at 22-23%; blended EBITDA 17-19%.

   Follow-up. Is the 22-23% margin at blended company level or ship-repair only?

   Answer. Jose V J: blended EBITDA you can expect 17-19% for the company; Madhu S Nair: ship repair 22-23% specifically. We want to be conservative.

   Not answered directly.

3. 3. Green vessels, decarbonization opportunity, competition

   Pritam, Wealth Way

   Question. How big is the opportunity for hybrid / zero-emission vessels and green tugs, including against Japanese/Korean competition and the European policy penalties by 2027-28? Do you see replicas of Kochi Water Metro coming up in other parts of India?

   Answer, Madhu S Nair, Chairman and Managing Director. CSL has good footing in European market on green vessels; many companies looking to talk to CSL and orders expected. On Indian side, green tug policies expected to generate 8-10 vessel orders over next year or so from major ports/private entities; CSL actively parked in those processes. Not a great worry on technology/competition — CSL has methods for appropriate partnerships. On Kochi Water Metro replicas, Bengal government is talking projects and CSL is actively involved; other states also in play. Green ferries not yet significant business but CSL will be a frontrunner.

4. 4. Order book split and disclosure

   Vivek, Shanti Financial

   Question. What is the breakup of the order book — defense vs non-defense, shipbuilding vs ship repair? And will a call transcript or presentation be posted on your website?

   Answer, Madhu S Nair, Chairman and Managing Director. INR22,000 cr order book from both shipbuilding and ship repair — about INR15,000 cr defense and balance non-defense. Ship repair component ~INR1,250 cr (vs INR600-700 cr historically). Detailed presentation with order book slides will be uploaded immediately after the call.

5. 5. PAT guidance, growth confidence, MSRA upside

   Viraj, Jupiter Finance

   Question. If revenue grows 25% and EBITDA is 19-20% margin, should PAT be 12-14%? What factors give confidence in 20-25% growth? And any sense on ship repair growth given US Navy connection and European clients?

   Answer, Madhu S Nair, Chairman and Managing Director. 20-25% overall turnover guidance for FY25 is based on contracts in hand and current execution status, both shipbuilding and ship repair. MSRA-related figures not factored in — ship repair story based on current pipeline over next 12-24 months. US Navy MSRA is a very significant step — CSL cleared after detailed assessment; first order will tell more. Won't put figures on MSRA yet. IAC-1 execution is additional to all the guidance.

   Follow-up. So IAC coming through will be additional to all the guidance?

   Answer. Yes, that is correct.

6. 6. IAC-2 timing, peak revenue concern, new shipbuilding facility

   Sagar Gandhi, Invesco Mutual Fund

   Question. On IAC-2, if it has to come, will it be '26 or '27? In absence of IAC-2, will FY25 or FY26 still see peak revenue? When is the new shipbuilding facility getting commissioned?

   Answer, Madhu S Nair, Chairman and Managing Director. On IAC-2 timing: won't be able to share details, CMD's guess no better than analyst's. On peak revenue: company doesn't want to talk about peak — wants continual growth with steady-state margins. IAC-2 would be welcome but is not under company control; nevertheless confident of growth for next 5-6 years. Shipbuilding new facility also commissioning August 2024 — crane halfway through, work to follow.

   Not answered directly.

7. 7. R&D, IP, C-SAS division

   Dhiraj, Samvad Financial Services LLP

   Question. Request to pre-circulate presentations before con calls. What is the status of R&D, IP, patents — given the path-breaking work being done?

   Answer, Madhu S Nair. Agreed on pre-circulating presentations. On R&D/IP — historically CSL has been a shipbuilder/ship repairer with limited R&D focus, but the new CSL Strategic & Advanced Solutions (C-SAS) division was set up in 2021 (deliberately called a 'division' not a group) to signal growth area. Within C-SAS: hydrogen fuel cell vessel, fully indigenous autonomous surface vessel (24-month project, 6-7 months in), teaming up with DRDO, IITs and at least 7 startups. IP and knowledge documentation being strengthened; C-SAS will be the vehicle going forward. Annual report FY24 will include what can be disclosed.

8. 8. Fixed asset turnover, hybrid vessel pipeline, ship repair execution, ISRF operating partner

   Gagan, ASK Investments

   Question. On INR2,800 cr gross block addition, what could be peak fixed asset turnover? Can you give pipeline colour on hybrid vessels from Europe/Scandinavia? Is the INR1,250 cr ship repair order book executable in less than 12 months? What additional employee and overhead costs come from new facilities? Can you elaborate on the ISRF operating partner — is it the operator of CSL's facility?

   Answer, Madhu S Nair, Chairman and Managing Director. Jose V J: fixed asset turnover on new gross block will be around 2x once operations stabilise — so safe to assume INR5,500-5,600 cr contribution to sales at full utilisation. Madhu S Nair on hybrid vessel pipeline: CSL is choosy — about client, project, risk; not just about grabbing orders. Enough in Europe for CSL. Ship repair order book spreads beyond 12 months — CSL will pick up new orders throughout year as it goes. On employee/overhead costs: new dry dock is contiguous to main unit so marginal labour additions; ISRF will use core own people for plant maintenance and ship lift/electronics, rest outsourced. Operating partner: not just to do the work but to make CSL best-in-class — turnaround times need significant improvement; partner brings ecosystem (Singapore, Middle East-style supply chain) and clients; modelled on leading Indian airports that partnered with international operators. Tender in ~1 month.

   Follow-up. Can you elaborate on the partner business contents — is the partner the one who will operate the ship repair facility owned by you?

   Answer. Partner is to make CSL best-in-class globally; turnaround times and ecosystem are the focus. Tendered within ~1 month. Compared with the Indian airport model where Indian operators partnered with the best international operators.

9. 9. IAC execution timeline, LPD outlook

   Deepak Krishnan, Kotak Institutional Equities

   Question. What is the IAC execution timeline given past guidance — how many years from order to final delivery? Any incremental positive outlook on the Landing Platform Dock (LPD) project — originally indicated RFP in next 2 years?

   Answer, Madhu S Nair, Chairman and Managing Director. IAC execution: if next carrier is largely based on same/similar platform as Vikrant, then around 8-10 years as previously stated. Won't elaborate further — MoD/Navy prerogative. On LPD: not yet seeing incremental positive traction; maybe after elections and new government comes in, traction may build.

   Not answered directly.

Topic by topic, in the order it was spoken

In their words