Mazagon Dock Shipbuilders Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Mazagon Dock reported a strong Q3 FY25, driven by robust order execution and a significant provision reversal for Scorpene submarine 5. The order book remains healthy at ₹34,787 crores, with key orders like three additional P-75 submarines and the P-75(I) project expected to materialize soon. While normalized PBT margins are projected at 12-15%, the company anticipates higher margins in FY26 due to existing orders. However, increased provisions and environmental clearance hurdles for CAPEX projects were noted as areas of concern.

Highlights

  • The company posted a good set of numbers, consistently performing well, with a substantial contribution from Project 15 Bravo.

  • Order book remains strong at ₹34,787 crores as of December 31, 2024, providing good revenue visibility.

  • Reversal of ₹142 crores provision for Scorpene submarine 5 significantly contributed to the quarter's profit.

  • AIP order for approximately ₹1,768 crores was received in December, adding to the order book.

  • Management is confident about securing the order for three additional P-75 submarines before March 31, 2025.

Concerns

  • Other expenses, including provisions and project-related expenses, increased substantially in Q3 FY25.

  • Provisions were created for inventories with completed warranty periods and for liquidity damages related to an ONGC offshore project.

  • Environmental clearance for major CAPEX projects (new dry docks, Nhava Yard) is a long process, introducing uncertainty.

What they filed

Q1 FY27: revenue up 12.1%, net profit up 21.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,757 3,144 3,174 2,626 2,929 +6%3,601 +15%3,850 +21%2,943 +12%
EBITDA511 817 119 302 695 +36%887 +9%543 +356%447 +48%
Net profit585 807 325 452 749 +28%880 +9%674 +107%550 +22%
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

₹34,787 Cr

as of 2024-12-31 quantified

Inflow this quarter

₹1,768 Cr

Execution

existing orders executable over approximately 2-2.5 years

Pipeline

deal pipeline tcv

Pipeline includes P-75(I), three additional P-75 submarines, Next Generation Corvette, 17 Bravo, and next generation destroyers.

The order book as of December 31, 2024, includes all three deliveries (two in December, one in early January) and provides good visibility for the next 2-2.5 years.

Source: Q&A

Capital allocation

high confidence
  • Capex ₹5,000 Cr
    • Development of adjacent land with a graving dry dock
    • Development of Nhava Yard (near Nhava Sheva) into a full-fledged shipyard with a graving dry dock
    • Floating dry dock ₹500 Cr
    Okay. Alright. And you mentioned a fairly comprehensive CAPEX program. Can you give us how you will be spending it? I think you indicated Rs. 5,000 crore over the next 4 or 5 years. How will be the CAPEX budgeted on an annual basis starting next financial year? We have two CAPEX programs. One for the adjacent land which we need to be developed with a graving dry dock. And also near Nhava Sheva, we call it as the Nhava Yard, that also has to be developed as a full-fledged shipyard with a graving dry dock. The marine consultants, their reports would be ready by, the DPR should be ready by mid of this year. And then we will be tendering out the EPC contract. There is the uncertainty of environmental clearance which are there. So it's a slightly long process for coming to fruition. ... It is around Rs. 500 crores CAPEX is there, approximately. So that balance will get realized completely in the next financial year. Rs. 350 crores will get realized at that time. ... As far as the budgetary allocation is concerned for the CAPEX, there is an increase of around 5% on an overall basis, considering all the three wings.

Guidance & targets

Profitability

  • Normalized PBT Margin Profitability · long-term · High confidence 12-15%
    No, this is, we have earlier also indicated that this is based on the orders, which were legacy orders continuing for quite some time. The order profile is changing, and a normal margin for this kind of industry would be in the range of 12% to 15%. So we have always given this kind of a projection that a sustainable margin would be something around 12% to 15%. ... Yes, this is at PBT level.

    — Sanjeev Singhal

  • PBT Margin for next financial year Profitability · next financial year · Medium confidence higher than 12-15%
    Next financial year is primarily the existing orders where the margins are comparatively higher, better. So next financial year would be not 12% to 15%, but at the same time difficult to assign any kind of a number. But we expect healthy margins next financial year also.

    — Sanjeev Singhal

Revenue

  • Revenue growth for next financial year Revenue · next financial year · Medium confidence marginal growth
    We are not saying that next year growth is not projected at 20%. We are saying that there would not be a decline in next year revenues. Growth numbers have not been worked out. There could be a marginal growth.

    — Sanjeev Singhal

Order Inflow

  • Order for three additional P-75 submarines Order Inflow · before 31st March this year · High confidence fructified
    Additional submarines, we are quite hopeful that we are confident that it can be done before 31st March this year. ... We are quite confident about it, because from our side, everything has been done. So now it is only the final approvals which is pending with the MOD and government. There is sufficient time is there. We are quite hopeful that before 31st March, the order should be in place.

    — Sanjeev Singhal

  • P-75(I) order Order Inflow · next financial year · Medium confidence in place
    We expect that anytime soon the negotiations or the discussions should start. I would not say negotiations because there would be discussions with respect to commercial also. We are quite hopeful that if the process goes as per the normal pace, next financial year the order should be in place.

    — Sanjeev Singhal

  • 17 Bravo and next generation destroyers orders Order Inflow · between 2 to 3 years from now · Medium confidence fructifying
    Large order is not there, but discussion is there with regard to 17, follow on of 17 Alpha, that is 17 Bravo, and with respect to next generation destroyers. So a firming up at the Naval end has not taken place, but we expect between 2 to 3 years from now, these two projects should be fructifying.

    — Sanjeev Singhal

  • Scorpene refit order decision Order Inflow · next financial year · Medium confidence decision
    As far as the refit order is concerned, it is still with Navy to decide. So we expect next financial year, there should be a decision.

    — Sanjeev Singhal

What to watch in Q4 FY25

Order for three additional P-75 submarines

before 31st March this year
Current Final approvals pending with MOD and government
Target Order in place

Why it matters

Securing this order is crucial for near-term order book growth and revenue visibility.

Additional submarines, we are quite hopeful that we are confident that it can be done before 31st March this year. ... We are quite hopeful that before 31st March, the order should be in place.

Risks & concerns

  • Increased provisions for inventory and ONGC project liquidity damages

    medium

    Provisions created for inventories with completed warranty periods and for liquidity damages on an ONGC offshore project, with potential for reversal if time extension and waiver are received.

    Management acknowledged

  • Environmental clearance for CAPEX projects

    medium

    The process for obtaining environmental clearance for new graving dry docks and Nhava Yard is described as 'slightly long', introducing uncertainty to project timelines.

    Management acknowledged

Q&A highlights

8 direct
Sustainability of current margins and future margin profile Direct
No, this is, we have earlier also indicated that this is based on the orders, which were legacy orders continuing for quite some time. The order profile is changing, and a normal margin for this kind of industry would be in the range of 12% to 15%. So we have always given this kind of a projection that a sustainable margin would be something around 12% to 15%. ... Yes, this is at PBT level.

Clarifies the company's long-term PBT margin expectation for the industry, indicating a potential normalization from current higher levels, but also suggests higher margins for the next FY.

Asked by Atul Tiwari

Status and timeline for P-75(I) submarine order Direct
The price bids have been opened, so a decision has already been taken that only one bid is technically suitable, that is the one submitted by Mazagon Dock Shipbuilders Limited. Price bids have been opened. We expect that anytime soon the negotiations or the discussions should start. I would not say negotiations because there would be discussions with respect to commercial also. We are quite hopeful that if the process goes as per the normal pace, next financial year the order should be in place.

Provides an update on a significant potential order, indicating MDL is the sole technically suitable bidder and expects the order in the next financial year.

Asked by Atul Tiwari

Other large orders in the pipeline, specifically additional P-75 submarines Direct
Additional submarines, we are quite hopeful that we are confident that it can be done before 31st March this year. ... So now it is only the final approvals which is pending with the MOD and government. There is sufficient time is there. We are quite hopeful that before 31st March, the order should be in place.

Highlights the imminent award of three additional P-75 submarines, providing near-term order book growth and revenue visibility.

Asked by Atul Tiwari

Substantial increase in other expenses, including provisions Direct
Yes, certain provisions have been created with respect to the inventories which are lying with us and where the warranty period of the ship is complete. So considering that there is no clear visibility with respect to their utilization, although the items are good, and we expect that going ahead in future these items may be required on the ships which have already been commissioned or on other projects. As and when they are utilized, the provision would be reversed, but for the time being, provisions have been created with regard to the excess inventory and with regard to the offshore project of ONGC, the first one which we had received the order in the month of December. Although the timeline has been extended by up to 31st of March, for the time being the timelines have been extended without waving the LD. The LD issue remains open. So we have provided the liquidity damages for the project. As and when the time extension is received with the waiver of liquidity damages, this provision may be written back.

Explains the reasons behind the increase in other expenses, detailing specific provisions for inventory and the ONGC project, and clarifies potential for future reversals.

Asked by Gagan Thareja

Impact of D-448 liabilities reversal on current quarter profit Direct
Yes, we have completed the Project 15 Bravo, all the deliveries are done. D-448 liabilities of the first one is done and second ship is expected soon. So as far as this quarter profit is concerned, a substantial contribution is from Project 15 Bravo. ... SM5, we have reversed around Rs. 142 crores.

Confirms that the completion of Project 15 Bravo and the reversal of ₹142 crores for submarine 5 significantly boosted Q3 profits, indicating a one-time gain.

Asked by Gagan Thareja

Comprehensive CAPEX program and budget Direct
We have two CAPEX programs. One for the adjacent land which we need to be developed with a graving dry dock. And also near Nhava Sheva, we call it as the Nhava Yard, that also has to be developed as a full-fledged shipyard with a graving dry dock. The marine consultants, their reports would be ready by, the DPR should be ready by mid of this year. And then we will be tendering out the EPC contract. ... It is around Rs. 500 crores CAPEX is there, approximately. So that balance will get realized completely in the next financial year. Rs. 350 crores will get realized at that time.

Outlines the company's long-term CAPEX plans for capacity expansion, including new dry docks and a full-fledged shipyard, with a total outlay of ₹5,000 crores over 4-5 years.

Asked by Gagan Thareja

Goa Shipyard's status and potential listing Direct
Goa Shipyard is not our subsidiary, they are our associate company. We are holding 47.21%. Currently, there is no management control, it is just an investment in Goa Shipyard. We don't participate in their production programs or any kind of decision making. They are an independent company.

Clarifies MDL's relationship with Goa Shipyard, stating it's an associate company with no management control, dispelling any speculation about its strategic direction or listing.

Asked by Anirudh Murarka

Rationale for P-75 submarines without AIP despite upgrades to existing ones Direct
You see, after making the AIP, it has to be integrated with a submarine and then tested. Eventually, all nine will have this AIP, but as of now, since the AIP is not yet integrated, they have not considered it for the moment. It is kept as an additional item, add-on item later.

Explains the technical and integration challenges of AIP, clarifying why new P-75 submarines are initially ordered without it, with AIP planned as a later add-on.

Asked by Gagan Thareja

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Mazagon Dock reported a 'good set of numbers' for Q3 FY25, indicating consistent strong performance. The company highlighted a 'substantial contribution' to profit from Project 15 Bravo. While specific revenue and profit figures were not detailed in the call, management expressed satisfaction with the overall results.

Order Book and Pipeline Update

As of December 31, 2024, the order book stands at ₹34,787 crores, providing strong revenue visibility for the next 2-2.5 years. The company received an AIP order worth approximately ₹1,768 crores in December. Management is highly confident of securing an order for three additional P-75 submarines before March 31, 2025. The P-75(I) order is expected to be in place by the next financial year, with MDL being the sole technically suitable bidder. Discussions are also ongoing for 17 Bravo and next-generation destroyers, expected to fructify within 2-3 years.

Margin Outlook and Sustainability

Management projects a normalized PBT margin for the industry in the range of 12-15%. However, for the next financial year (FY26), they anticipate 'comparatively higher, better' margins than this range, driven by existing orders. While no specific growth numbers have been worked out for next year's revenue, a 'marginal growth' is expected, with no envisaged decline.

Capital Expenditure Plans

Mazagon Dock has comprehensive CAPEX plans totaling ₹5,000 crores over the next 4-5 years. Key projects include developing adjacent land with a new graving dry dock and establishing a full-fledged shipyard at Nhava Yard, also with a graving dry dock. The DPR for these projects is expected by mid-2025. A floating dry dock, costing approximately ₹500 crores, is expected to be ready in FY26, with ₹350 crores of this realized in the next financial year. Overall budgetary allocation for CAPEX has seen a 5% increase across all three wings.

Provisions and Exceptional Items

The company recorded increased other expenses in Q3 FY25 due to provisions for inventories with completed warranty periods and for liquidity damages related to an ONGC offshore project. The provision for submarine 5 (SM5) was reversed by approximately ₹142 crores, contributing significantly to the quarter's profit. Management noted that the ONGC project provision could be written back if a time extension with a waiver of liquidity damages is received.

Indigenization and Export Potential

Indigenization efforts are not expected to significantly impact overall margins, as initial investments will be balanced by new opportunities. The company is actively pursuing export orders, with some small-scale exports already underway to Malaysia for submarine support. Management emphasized that while exports take time due to bilateral issues and complex processes, they are consistently working towards converting leads into orders.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Capital Goods earnings calls