Garden Reach Shipbuilders & Engineers Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Garden Reach Shipbuilders & Engineers Ltd. reported strong Q3 FY25 results with significant revenue and profit growth, driven by robust execution. The company maintains a healthy order book and pipeline, with major projects like the Next-Generation Corvette and P-17 Bravo ships on the anvil. While facing challenges in supply chain and manpower, GRSE is focused on capacity expansion, technology adoption, and increasing its commercial and export footprint, aiming for sustained growth and margin improvement.

Highlights

  • Revenue from operations registered a 38% growth over the last corresponding quarter from ₹923 crore to ₹1,271 crore.

  • PAT has gone up by 11% from ₹88 crore to ₹98 crore, and operating profit has gone up from ₹37 crore to ₹62 crore.

  • Current order book stands at ₹23,877 crore as on 31st December, comprising 40 platforms from 10 projects.

  • Secured new order for 13 hybrid ferries from the Government of West Bengal (World Bank-funded project).

  • Declared L1 for 2 Coastal Research Vessels for the Geological Survey of India, with contract signing expected by March 31, 2025.

Concerns

  • Order book is currently depleting due to execution, despite new orders, from ₹22,600 crore last year to ₹23,877 crore currently.

  • PAT margin and EBITDA margin have come down in Q3 FY25 compared to the last result, though management expects to correct it by the financial year-end.

  • Challenges exist in the supply chain system and availability of skilled manpower, which could impact future project execution.

  • Delays in the Ministry of Defence's budget utilization, leading to surrender of funds, could impact project timelines.

Key financials

2 periods

Q3 FY25

  • Revenue from Operations
    ₹1,271 Cr
    YoY +38%
  • PAT
    ₹98 Cr
    YoY +11%
  • Operating Profit
    ₹62 Cr
  • Operating Profit Margin
    4.8%
  • EBITDA
    ₹147 Cr
  • EPS
    ₹8.57

9M FY25

  • Revenue from Operations
    ₹3,434 Cr
  • EBITDA
    ₹421 Cr
  • PAT
    ₹283 Cr

What they filed

Q1 FY27: revenue up 38.5%, net profit up 44.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,153 1,271 1,642 1,310 1,677 +45%1,896 +49%2,119 +29%1,815 +39%
EBITDA69 75 221 112 156 +126%172 +129%355 +61%149 +33%
Net profit98 98 244 120 154 +57%171 +74%303 +24%173 +44%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

high confidence

Total value

₹23,877 Cr

as of 2024-12-31 quantified

Execution

Current order book will last up to 2029, including new signed projects.

Composition

  • Navy (client type)
  • Ministry of Earth Sciences (client type)
  • DRDO (client type)
  • German Client (Export) (client type)
  • Friendly Foreign Nations (Export) (client type)
  • Government of West Bengal (client type)
  • Exports (client type) ₹970 Cr 4%

Pipeline

L1 awaiting loa

L1 for 2 Coastal Research Vessels, bids submitted for Next-Generation Corvette, AoN for 7 P-17 Bravo ships, 31 Waterjet FACs, 120 Fast Interceptor Crafts, 6 NOPVs, 18 New-Generation Fast Patrol Vessels, 2 Multi-Purpose Vessels, 5 Next-Generation Survey Vessels.

The order book is currently depleting due to execution, but significant new orders are expected in the near future, particularly from the Next-Generation Corvette and P-17 Bravo projects. The company is confident in its ability to secure these high-value orders due to its expertise and competitive bidding.

Source: Prepared remarks

Capital allocation

high confidence
  • M&A Elbit Israel (Naval Surface Guns) Joint venture · Integrated

    For manufacture of Naval Surface Guns, good margins, certain components manufacturing, project management, installation.

    MoU translated into an order.

    Like I'll give you one example. We have a collaboration with Elbit Israel and their joint venture partner in India for manufacture of Naval Surface Guns, very attractive project. Our role in that is certain components manufacturing, project management, installation, but the margins are good. So, we decided to go in for that. So that was an MoU, which started off as an MoU, which translated into an order.
  • M&A Apollo Micro Systems (Moored Mines) Joint venture · Integrated

    For moored mines, which Navy requires in large numbers.

    MoU translated into an order.

    We recently signed an MoU with a firm called M/s Apollo Micro Systems, it's a listed company, very, very good company. We had an interaction with them. We understood their business. We got into an MoU with them for moored mines, which Navy requires in large numbers. So, it has been translated into an order at this juncture, but opportunities exist.
  • M&A Rolls-Royce (MTU Marine Diesel Engines) Joint venture · Pending regulatory

    For co-production of marine diesel engines, leveraging government policy for 50% indigenous content.

    Agreement for co-production, focusing on 50% indigenous content.

    We have live MoUs with Rolls-Royce for MTU Rolls-Royce for marine diesel engines. ... We have just transformed that into co-production, because we found that is not attractive. What is value-addition for us there, it's nothing. But now we have gone for an agreement. It's called a license agreement for co-production, where as per the government policy, at least 50% indigenous content should be there for every project.
  • Liquidity Cash ₹3,214 Cr Owned fund is ₹577 crore.
    Cash and bank balance, this is as on 31st December, 2024 is 3,214 crore. Out of that, our owned fund is 577 crore.

Guidance & targets

Revenue

  • Revenue CAGR Revenue · 5-year period · Medium confidence 20-25%
    But we'll be able to maintain a CAGR between 20% to 25% over a 5-year period.

    — Cmde PR Hari

Profitability

  • PAT Margin Profitability · by financial year end · Medium confidence above 8%
    I have been consistent in my views on this, that we'll be able to maintain PAT margin above 8%. This time, we have dropped in this particular quarter. It is 7-point something. But on the whole, by the end of the financial year, we'll be able to correct that.

    — Cmde PR Hari

Exports

  • Export Order Value Exports · within one year · Medium confidence two-fold increase
    So, I'll say on a conservative basis, we'll be looking at a twofold increase within one year, and at least a fourfold increase from the current value in the next four years.

    — Cmde PR Hari

  • Export Order Value Exports · in the next four years · Medium confidence four-fold increase

    — Cmde PR Hari

Capacity

  • Shipbuilding Capacity (number of ships) Capacity · by end of calendar year 2025 · High confidence 28 ships

    From 24 ships today

    Right now, we have got 3 fully usable shipyards in Kolkata, GRSE, plus we have hired some facility. All put together, our shipbuilding capacity last year, when we met last year, it was 20 ships. We have increased it to 24 ships already. With what we have by end of this year, that means the end of the calendar year 25, we'll be increasing to 28 ships.

    — Cmde PR Hari

Ship Repair

  • Ship Repair Revenue Ship Repair · in a year or so · Medium confidence double
    In a year or so, we'll be able to double the revenue that we are getting from ship repairs.

    — Cmde PR Hari

Fleet Expansion

  • Coast Guard Fleet Size Fleet Expansion · by 2030 · Low confidence double
    Coast Guard wants to double their fleet by 2030.

    — Cmde PR Hari

  • Navy Fleet Size Fleet Expansion · next 7-10 years · Low confidence threefold
    Navy wants to go threefold in the next 7 to 10 years, maybe too ambitious.

    — Cmde PR Hari

Market context

  • Global Commercial Shipbuilding Market Share Market Share · by 2047 · Low confidence 20%

    From single-digit figures today

    The stated target of the government is to increase this to 20% by 2047. It's a long-drawn process.

    — Cmde PR Hari

What to watch in Q4 FY25

Next-Generation Corvette (NGC) Price Bid Opening

next quarter (March end to April)
Current Technical evaluation completed, price bid pending
Target Price bid opened, L1 determination in progress

Why it matters

This is a high-value order (₹25,000-30,000 crore for L1) that will significantly boost the order book and future revenue visibility.

The technical evaluation has been completed, and we expect the price bid to be opened in a couple of months. ... Conservative estimate is 3 months. Optimistic, 2 months. That means as early as March end to April.

Risks & concerns

  • Supply chain system reliance and challenges

    medium

    Heavy reliance on supply chain, with cascading effects from events like COVID still impacting firms, posing challenges.

    And the last point is there's a huge reliance on the supply chain system, because ours is an industry where shipyards are primarily platform integrators. ... We say COVID is over. COVID is not over. There are still firms who are reeling from the cascading effect. So, there are challenges, but I think we are more or less tided over or tiding over these issues. Challenges very much exist.

    Management acknowledged

  • Skilled manpower availability

    medium

    Skilled manpower available in the country is limited, and GRSE is implementing measures like training to address this.

    The third is the resources, the skilled manpower. As a strategy, all the shipyards are adopting to outsourcing for noncore jobs. But the skilled manpower available in the country, the whole of specialist shipbuilders, is limited. ... We are putting in measures to correct that also, maybe training through our own funds, picking up from some particular area, which is known for a particular skill.

    Management acknowledged

  • Capacity constraints for ship repair

    medium

    Current ship repair facilities are not adequate to meet demand, leading to hesitation in taking more orders.

    But when we started getting orders, we found that itself is not adequate for us. ... Now the demand is very high, but the capacity is limited. ... we are actually hesitant to take more orders at this juncture, because of the capacity constraints.

    Management acknowledged

  • Delays in Ministry of Defence project processes and fund utilization

    medium

    Ministry of Defence had to surrender ₹13,000 crore, indicating process delays rather than execution delays, which affects fund expenditure.

    And my second question was with regards to the budget. So, we did see that this time, the Ministry of Defence had to give back somewhere around ₹13,000 crore back to the Ministry of Finance. So, I just wanted to know, like why is there so much delay in the process? ... The fund expenditure is not, because of the delays in execution of the project, it is perhaps in the delays in the process itself.

    Analyst acknowledged

Q&A highlights

6 direct, 1 evasive
Expected value and timeline for new orders (NGC, P-17 Bravo) Direct
The Next-Generation Corvette, the AoN was taken for 36,000 crore, which means the L1 shipyard, purely by the calculation, should get around 22,000 crore. But my assessment is that it could be well beyond that, which means it could be between 25,000 crore to ₹30,000 crore for the L1 shipyard. ... P-17 Bravo, we expect the RFP to come out only by this year-end... the L1 shipyard, as per the AoN taken, will get order around 40,000 crore and the L2 shipyard will get order of 30,000 crore.

Quantified the potential value of major upcoming orders, providing significant insight into future revenue visibility and order book growth.

Asked by Ramesh Damani

Export potential and strategy for increasing export orders Direct
Right now, as on date, just about 4% of GRSE's order book is coming from exports. ... I'll say on a conservative basis, we'll be looking at a twofold increase within one year, and at least a fourfold increase from the current value in the next four years.

Provided current export contribution and clear targets for future export growth, indicating a strategic focus on international markets.

Asked by Divyesh Shah

Growth plans for the ship repair vertical Direct
We have taken over that. That is a facility which we have created dedicatedly for ship repairs. But when we started getting orders, we found that itself is not adequate for us. ... In a year or so, we'll be able to double the revenue that we are getting from ship repairs.

Highlighted the rapid growth and capacity constraints in the ship repair segment, along with a target to double revenue, showcasing a new growth vertical.

Asked by Vijay Bhayani

Impact of government's shipbuilding clusters and GRSE's expansion strategy Direct
So, there is the need to expand beyond Kolkata. ... Now the states which have shown interest in creation of shipbuilding clusters are what I mentioned, Gujarat, Maharashtra, Karnataka, Tamil Nadu, Andhra and Orissa, because all of them have got adequate depth... We are good with what we have in Kolkata. But if you really want to expand to a global shipyard where we can construct vessels of, let us say, 300 meters length commercial vessels, then you need areas.

Explained the strategic rationale for expanding beyond Kolkata due to draft limitations and the potential benefits from government-backed shipbuilding clusters.

Asked by Vijay Bhayani

Margins for new contracts (NGC, P-17 Bravo) and current margin pressure Direct
Margins would be plus 8%. ... Our operating profit has really gone up, but our PAT margin, EBITDA margin has come down when you compare to the last result. There's a drop in that. But it's like a sine wave. I have been consistent in my views on this, that we'll be able to maintain PAT margin above 8%.

Clarified expected margins for upcoming high-value projects and addressed the temporary dip in current quarter margins, reassuring on long-term profitability targets.

Asked by Ramesh Damani

Comparison of GRSE's capacity with other shipbuilders and potential acquisition plans Partial
Okay. 24 was just to place on record, 24 was enhanced from 20 till 2000. If you are looking at the other 2 shipyards, in case of Mazagon Docks, they have capacity to build large ships. Their dry docks and building infrastructure is larger than ours. ... So, this number exactly, I will not be able to tell because it's not an apple-to-apple comparison. But different types capacity, in terms of numbers, we definitely have the largest. But in terms of size, we don't.

Provided a qualitative comparison of GRSE's capacity relative to peers, emphasizing its strength in numbers of ships but not necessarily size, and hinted at greenfield expansion rather than immediate acquisition.

Asked by Sagar

Indigenization percentage in ships and reasons for Ministry of Defence fund surrender Direct
The last 3 projects that we have completed, that is including the Survey Vessel Large, I considered completed, because the equipment ordering, everything is over. Survey Vessel Large project, the Landing Craft Utility and the Anti-Submarine Corvette, all 3 projects, we have 85% plus indigenization. ... The fund expenditure is not, because of the delays in execution of the project, it is perhaps in the delays in the process itself.

Provided specific indigenization figures for recent projects and clarified that MoD fund surrender is due to process delays, not execution delays, which is a key sector-wide concern.

Asked by Krishna Doshi

Perception of slowdown in government decision-making for Defence projects Evasive
Sir, but I would not like to consider that any decision is slow, because if you watch 2025-2026, rather calendar year onwards, multiple projects, RFPs are going to come out. Only when you see the RFPs coming in, you will see some momentum. ... I don't think any decision-making delays are there.

Addressed a common investor concern about government decision-making, asserting that multiple RFPs are expected soon, indicating no slowdown from management's perspective.

Asked by Divyesh Shah

3 min read 6 chapters

Detailed narrative

Strong Financial Performance in Q3 & 9M FY25

Garden Reach Shipbuilders & Engineers Ltd. reported a robust Q3 FY25, with revenue from operations growing 38% year-over-year to ₹1,271 crore. This marks the tenth consecutive quarter of growth in both top line and bottom line. Profit After Tax (PAT) increased by 11% to ₹98 crore, while operating profit surged from ₹37 crore to ₹62 crore, improving the operating profit margin to 4.85%. For the nine months ended December 31, 2024, the company recorded a revenue of ₹3,434 crore, EBITDA of ₹421 crore, and PAT of ₹283 crore.

Healthy Order Book and Significant Pipeline Opportunities

As of December 31, 2024, GRSE's current order book stands at ₹23,877 crore, comprising 40 platforms from 10 projects, including 17 warships for the Navy and various export orders. The company has secured a new order for 13 hybrid ferries from the Government of West Bengal. Key pipeline opportunities include being declared L1 for 2 Coastal Research Vessels, with contract signing expected by March 31, 2025. Additionally, GRSE is a strong contender for the Next-Generation Corvette project (potential ₹25,000-30,000 crore for L1) and the 7 P-17 Bravo ships (potential ₹40,000 crore for L1), with RFPs expected soon for these high-value orders.

Strategic Focus on Commercial Shipbuilding and Exports

GRSE is actively pursuing commercial shipbuilding, having signed a contract for 6 Multi-Purpose Vessels with a German client and secured 2 more export orders. Exports currently constitute 4% (₹970 crore) of the order book, with a target to achieve a two-fold increase within one year and a four-fold increase in the next four years. The company is leveraging government initiatives like the Maritime Development Fund (₹25,000 crore corpus) and Shipbuilding Financial Assistance Policy to boost its commercial shipbuilding ventures, aiming for a 20% global market share by 2047.

Capacity Expansion and Infrastructure Development

To address current capacity constraints and limitations of its Kolkata facilities (due to riverine draft), GRSE plans to expand beyond Kolkata, exploring greenfield facilities in states like Gujarat, Karnataka, and Andhra Pradesh. The company's shipbuilding capacity has already increased from 20 ships last year to 24 ships, with a target to reach 28 ships by the end of calendar year 2025. The ship repair vertical, though small, has stabilized and is expected to double its revenue in the next year or so, with plans to acquire another dry dock to augment capacity.

Technology Adoption and Indigenization Efforts

GRSE is focused on technology augmentation for new product creation and process improvement, including robotic building machines and advanced painting processes. The company has successfully achieved over 85% indigenization in recent projects like the Survey Vessel Large, Landing Craft Utility, and Anti-Submarine Corvette. Strategic collaborations, such as the license agreement for co-production of MTU marine diesel engines with Rolls-Royce, are aimed at meeting indigenous content requirements and enhancing capabilities.

Management Outlook and Risk Management

Management is confident in maintaining a revenue CAGR of 20-25% over the next five years and a PAT margin above 8%. The company employs a robust, Board-level risk management system to assess environmental and financial risks for all bids. While acknowledging challenges in supply chain and skilled manpower, GRSE is implementing measures to mitigate these. The cash and bank balance as of December 31, 2024, stood at ₹3,214 crore, with owned funds of ₹577 crore, providing strong liquidity.

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