Garden Reach Shipbuilders & Engineers Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from Garden Reach Shipbuilders & Engineers Limited (GRSE) Q1 FY23 Earnings Concall

Q&A Highlights:

• [00:12:55] Bhagyesh Kagalkar of HDFC Mutual Funds asked about the margin guidance for FY23 and for next two years. P R Hari MD replied that 1Q23 margin are in the range of 10.35% PBT and 8.08% PAT. GRSE added, it is confident of maintaining similar margins going forward.

• [00:13:03] Bhagyesh Kagalkar of HDFC Mutual Funds also asked that looking into next 2-3 years, which big orders the company is going to bid for. P R Hari MD answered that in FY23 two proposals of Ministry of Defence have been cleared by the Defence Acquisition Council. And the second one is a Naval project. The order value expected from fast patrol vessels is about INR3,000 crores. And the Naval order value is INR36,000 crores.

• [00:17:15] Rohit N from Antique Stock Broking enquired about the physical progress of the first, second and third P17 Alpha. P R Hari MD answered that the first ship is currently plus 40% physical progress. The second ship is at [31%], catching up fast. And third is approx. 14% physical progress.

• [00:19:10] Rohit N from Antique Stock Broking also enquired if it’s fair to assume that GRSE will be moving to the INR5,000 crore of revenue trajectory soon. P R Hari MD clarified that the company has a plan to complete the project by 2027. So revenue accrual will be during the next 5 years. In ’23, ’24, ’25, GRE added that the revenue will peak.

• [00:25:29] Yash Shah with Vedant Securities asked about the cash on books and the part of advances received from the clients. P R Hari MD answered that the present cash on book is INR3,270 crores. Of this there are no advances; the company doesn’t get paid advances. GRSE gets paid as per the project milestones. Of the INR3,270 crores, the project milestone cash is INR3,140 crores and own cash is INR130 crores.

• [00:26:43] Yash Shah with Vedant Securities asked about the target on the ship repair side. P R Hari MD said that currently GRSE would like to focus on its own captive facility for ship repair plus the augmented capability GRSE has currently with Kolkata Port Trust three drydocks and it covers the Eastern seaboard requirements.

• [00:34:33] Harshit Kapadia of Elara Capital asked about the update on the L2 project. P R Hari MD answered the order value is about INR9,000-9,500 crores. As per the tender condition, the orders will be split between L1 and L2; L1 will get 7 and L2 will get 4. Therefore, GRSE will get 4 ships. GRSE expects this contract to get concluded during FY23.

• [00:37:30] Harshit Kapadia of Elara Capital enquired that with revenue rising every year, how much margin bump up GRSE expects in FY24-’25. P R Hari MD replied that the best margin GRSE can get in shipbuilding for projects that are won on competitive bidding is hovering around 7.5% PBT. And till now GRSE has been above this threshold.

• [00:40:12] Venkatesh Subramanian from LogicTree enquired about the margins in ship repairs in engineering division and the diesel engine conversions business. P R Hari MD replied that vs. shipbuiliding the volumes are very low in ship repairs. In ship repair the margins are high, which is about 20%.

• [00:45:16] Venkatesh Subramanian from LogicTree asked about the cash balance as per GRSE’s internal working capital management at FY23 end. P R Hari MD said the cash balance is going to be around INR3,000 crores.