Mazagon Dock Shipbuilders Ltd. is gearing up to accommodate the substantial order inflows coming the industry's way in the next couple of years. The shipbuilding sector can expect an order-book of Rs 2 lakh crore over the next two years, distributed between three shipbuilders, Sanjeev Singhal, chairman and managing director of the Mumbai-based shipbuilder, told NDTV Profit.
The order pipeline is expected to include three Scorpene-class submarines, six Project-75I submarines, up to eight Project-17 Bravo class frigates, and next generation corvettes and destroyers is expected to be placed in the coming years, he said.
While orders may be bagged by single shipyards, some orders may be split between two shipyards, he added.
MDL continues to remain inherently confident about their prospects, Singhal said.
MDL is investing between Rs 4,000 crore to Rs 5,000 crore in a new facility, he said, a move indicative of confidence in continued growth and demand beyond 2027.
This expansion aims to increase the company's capacity to build and accommodate up to 1.5 to 2 times more ships and submarines compared to the current setup, he said.
Mazagon Dock’s current infrastructure, which can simultaneously handle 11 submarines and 10 ships, would be sufficient if the company was not optimistic about future prospects, Singhal said.
The substantial investment in the new location underscores its commitment to scaling up operations to meet both domestic and international needs.
MDL is also tapping into the export market, with a recent order for six ships from Denmark. This move aligns with its strategy of portfolio diversification, incorporating repair and maintenance services alongside primary focus on new builds.
Also Read: Garden Reach Shipbuilders Expects Margins To Improve With Rising Exports, Better Efficiency
Despite this diversification, revenue from refit and repair will remain minimal, with a projected contribution of less than 10% from these segments, Singhal said.
However, the long lifecycle of submarines—typically around 30 years, with an additional 10-12 years post-refit—ensures that the company will benefit significantly from ongoing maintenance and refit contracts, he said.
In terms of financial health, Singhal emphasised on MDL's strong position as a debt-free entity, which allows them to invest heavily in growth without the burden of significant liabilities. The company’s cost management remains a priority, with continuous efforts to optimise expenses and maintain a stable cost structure.
Singhal maintains that achieving a margin above 10% would be considered healthy for the shipbuilding industry.
Watch The Conversation Here
Here Are The Excerpts
Mr. Singhal, I know we spoke about four or five days back, but it's great to have you back, because just to try and clarify the air around some of the concerns. Now, one of the notes Mr. Singhal suggests that the margins of Mazagon Dock in particular have improved in recent times, led by ahead of time delivery of vessels, lower cost incurred, and so on, and so forth. All of that may not remain a constant, and therefore at some point of time, these very high operational metrics may not sustain. What would you say to that, sir?
Sanjeev Singhal: I would rather discuss the fundamentals of the company. As far as the company is concerned, you are well aware that we have been into this business for 250 years. We are a debt-free company. There are no loans, no advances and no liabilities, which are of any significant nature. As far as the company's outlook is concerned, we are very bullish with respect to the growth of the company, we have recently acquired additional 15 acres of land, addition to the existing location of Mazagon Dock Shipbuilders, and we are also into developing this land parcel, as well as 37 acres of land, which is at Nhava, approximately 10 nautical miles from our existing location.
We intend to spend approximately Rs 4,000-5,000 crores over the next four to five years. So, this is just a framework which I wanted to give considering the business outlook, which is internal to the company, which I am sharing that we believe that the company is poised to grow manyfold over the next couple of years.
Now coming to your query with respect to the future orders and the margins, yes, margins, we would not be able to commit, with respect to anything that what margins are sustainable. It's a business which evolves, and each project is a different project. But yes, what I can say with respect to costs, saving on cost is a continuous endeavour. We have been working on it and if you look at our wages ratio, the employee dole out, that has been consistently coming down in terms of the percentage.
There are no plans for any kind of a significant hiring, yes, some small hirings may be there based on the technical requirements. So we don't see any significant change in the cost structure going ahead. With respect to Project 75 which we are executing currently. These Scorpion Submarines, six in number. We have delivered five submarines. The sixth submarine is also slated for delivery probably in the third quarter of this financial year and moving ahead, we are expecting an order for another three additional Scorpion Submarines for which we have submitted all the details to the ministry, including the pricing and the two rounds of costing committee evaluations have already taken place.
We believe that the costing committee is close to firming up their recommendations and post this based on certain discussions, and in case any negotiations are required, we expect this order to be finalised anytime soon, apart from P75i which is six, number of submarines with AIP fitted and Lithium-Ion batteries, Where we are participating in collaboration with TKMS Germany and here also the positive news is that as far as the field evaluation trials are concerned, the offer submitted by the Combine of TKMS and Mazagon Dock Shipbuilders have been evaluated, and that evaluation is complete and successful. So this also is a positive development, and we expect, if things move as per the timelines, then by next year, there should be positive news on this front also.
Apart from the shipbuilding orders which I have indicated earlier, also project 17 Bravo, which is a follow on of 17 Alpha, four number of Frigates which we are executing right now. 17 Bravo, this could be seven numbers or eight numbers may be divided on two shipyards. So this also is being discussed, and likely to be this would be a requirement. Recently we have participated in next generation Corvettes, which, again, is a Corvette Project for eight Corvettes, which will be divided over two shipyards. So here also we have submitted our bids. So with the due course when the bids are opened and so Next Generation Corvettes are there, Next Generation Frigates are there, Next Generation Destroyers are there.
So we see a continuous pipeline, apart from, of course, the offshore projects, which we have recently, again revisited this area. So last year we got an order from ONGC for 1150 odd crores. This year, we have received Rs 4,600 crore. So, this also is a separate stream of revenue which we are developing.
So you're bagging a lot of contracts. There is no question on the book to bill ratio. Let's say so one of the things that is, or one of the concerns expressed, is that once you start executing the new orders, while its difficult to predict what will happen to cost, but your revenue recognition methodology, they say, is going to be likely to be milestone based, and hence margins could come off. Now, could you explain if this is indeed going to be the case?
Sanjeev Singhal: Revenue recognition is not milestone based. It is based on the cost to completion. What is our assessment with regard to the cost of completion and how the costs take shape. So, during the initial stages of the project, it is quite possible that until the orders have been formed up and placed, the revenue recognition or the cost to completion is calculated on a conservative basis.
But this has been our experience, and considering the learning curve which MDL has already crossed. We see and based on past experience, so there have been substantial savings in the cost and there are a lot of processes and methods and research and development which is regularly going on, which helps in bringing down the costs of execution. So I am not committing with respect to the margins, whether they will be 20% or 27% but yes, based on the past experience, and based on the order profile, we believe that the margins also continue to be reasonably healthy.
You know, while you're sitting on an order book of nearly Rs 40,000 crore as we speak, you have enlisted some of the projects where you've already bid in or you will be nominated over the next 12-18 months. Is it possible for you to, you know, give us a ballpark figure of the kind of prospective orders that will flow in, in the next 12-18 months.
You spoke about 17 Bravo, which is again, seven to eight numbers. Then there is, I think, if I'm not wrong, the acquisition, AOC has already approved eight Corvettes, which will be divided again between two shipyards and maybe possibly you and possibly Cochin Shipyard which would be nominated for that and then you have the Project 75i for additional three, Scorpion class, submarines which is coming in. What could be the prospective book that could come in over the next 12-18 months if, as and when the government releases these orders?
Sanjeev Singhal: I can say, as far as the current scenario is concerned, by and large, the orders are not on nomination basis. It is on a competitive basis. So I would not be able to predict how many orders Mazagon Dock Shipbuilders will be getting, but yes, what I can say based on the orders in which Mazagon Dock Shipbuilders would be interested and where we are a strong contender, we believe that during next couple of years, the order size would be approximately up to Rs 2 lakh crore, which would be available for the shipyards in totality.
So, what pie actually Mazagon Dock Shipbuilders is able to bag, this will depend upon what kind of bids we are submitting. We internally remain positive, very positive about it, considering our inherent strength in these particular segments.
Order which is 17 Bravo for frigates, and you said seven to eight. What would be the size?
Sanjeev Singhal: This includes three submarines of Scorpion. This includes 75i six numbers of submarines. This includes 17 Bravo. This includes Next Generation formats. This includes Next Generation Destroyers. So these are the orders which are likely to be finalised over the next couple of years. A broad value, which I can look today is could be the range of Rs 2 lakh crore.
That would be distributed between two to three shipyards. That's what you're saying, between you, Cochin and maybe Garden Reach?
Sanjeev Singhal: I am not saying which shipyards. These are on a competitive basis. Some of the orders are likely to be split between two shipyards. Some of the orders will go to a single shipyard, like in the case of six submarines, this will go to a single shipyard. The three submarines will go to a single shipyard. With respect to Next Generation Corvettes, with respect to the follow-on Frigates, 17 Bravo, with respect to next generation destroyers. Yes, they can be split between two shipyards.
If you look at the capability, as we speak, of shipyards, you are the most capable in terms of building submarines. You know, Cochin has that capability of indigenous aircraft carriers and Corvettes and others, which can be split between a couple of shipyards which are there.
So even if you look at it in the next 24–36 months as and when all these approvals come in, and your bids are scrutinised, financial bids are scrutinised. Is it fair to say that you are looking at between Rs 80,000 crore and Rs 1 lakh crore of additional order books coming into the books?
Sanjeev Singhal: I would not be assigning any figures, sorry for that. As far as MDL is concerned, I can discuss what is the expected value of the orders where we would be participating and where we would be focusing. Of course, we are not looking at the aircraft carrier. So, the orders which we are keenly focusing on, I can discuss about that, what is the expected value, or the size of the orders, what MDL is able to bag, this only time will tell.
So you know, is it fair to also say that you know that the concern that the market has that there is no visibility of orders beyond '27 or '28, it's ill-founded, because there is this order book which is coming in and which is the process, and it will come in over the next couple of years?
Sanjeev Singhal: See you have to understand, the viewers also have to understand the basic structure of this industry. If you really look at it, as far as the shipbuilding orders are concerned, they are always lumpy and they have a long gestation needed. Currently, the order book which I am executing, comprises three major orders. That is the P75i, six, number of Scorpion Submarines, which was awarded in 2005.
Subsequently, the 15 Bravo Destroyers, four numbers, of which we have delivered three. Now, the fourth one is slated for delivery this year. This was finalised and awarded in 2011 and the third major order, that is the Frigates order, was awarded in 2015. Four Frigates for which we'll be starting the delivery from this year. So, this is a typical nature of this industry.
These orders are large valued, these are lumpy, and there is a gestation period, between finalisation of these orders. So today, when I'm talking of at least four-to-five large-value orders, I see this is a very, very promising scenario for this industry. If I'm talking of three submarines under 75i, I'm talking of six submarines under 75i. I am talking about next-generation corvettes, eight numbers. I am talking of 17 Bravo follow-on frigates eight numbers. I am talking of next generation destroyers. So, I see a very, very promising scenario, and the orders getting finalised much, much earlier than what is typical for this industry.
How do you look at the capacity, because you said you only spent Rs 4,000-5,000 crore over the next couple of years, as we expand between Nhava and Mumbai Port. Once that happens, how much will your capacity go up for Corvettes or destroyers and submarines?
Sanjeev Singhal: See, capacity for a shipyard is in terms of numbers also, as well as the size also, with respect to what size of vessels you are able to accommodate. Right now, we have a capacity of accommodating 11 submarines and 10 ships simultaneously. So, 21 vessels we can accommodate at the existing location itself. With respect to the new location which we are developing, we are going for a significantly larger infrastructure, which can take vessels of much larger dimensions. So, this gives us better flexibility.
If you are looking in terms of capacity, maybe this would lead to a doubling of the capacity, one and a half to two times of the existing capacity. In terms of the dimensions of the vessels, many of the larger vessels which we are not capable of handling today, we cannot handle right now. So this would make the yard future proof with respect to the dimensions of the vessels. So any large vessel also we will be able to accommodate with comfort, once the infrastructure is in place.
There is a large set of orders coming in. I heard you say that some of these might get finalised earlier than what was maybe anticipated by the Street, and you're doubling your capacity in select spheres of work as well. Is it therefore wrong to think that post FY26 or FY27 when your revenue will see a significant uptick, let's say in the next two or three years, there will be a precipitous drop in both revenues as well as profitability. Is it wrong to think that? Would you reckon that there is a trending move higher, or trending move ahead for revenues, executions and profits for the next few years?
Sanjeev Singhal: See, internally, we remain positive with respect to the outlook and with respect to the future order, position of MDL.
Post FY27 as well. I mean, sorry to come in, but I'm saying everybody knows that until FY26-27 it's all good. I think the question is only coming for post FY27?
Sanjeev Singhal: In case we are not bullish post FY27, we would not be planning to invest Rs 4,000-5,000 crore. Then the existing yard capacity would be sufficient. In case I am not reasonably bullish with respect to the future order position.
That's true. Okay, so good to get that clarity. Just one quick follow up there. Would all of this be used for domestic purposes, or B to G India purposes or would you believe that there is a large export opportunity as well for you?
Sanjeev Singhal: Yes, export opportunities. also exist. We are trying to tap this market also. We have an export order right now for six numbers of ships to Denmark, and we definitely intend to expand this segment also.
So, export will also, we are also exploring other countries. This area definitely remains open and one of the reasons for expansion is to add to the capacity so that we can cater to repair maintenance. We can cater to commercials. We can cater to exports, apart from the Naval and Coast Guard requirements.
Give us a sense of the cash flows as well, because today, 85% of revenue comes from construction, 15% from repairs and maintenance. Will this ratio change as you go forward, because you get a higher margin on repairs and maintenance as compared to construction. So will that ratio also shift as you go beyond 2027 as you get more repair and maintenance? I guess the refit programme is also coming in for some of the Scorpion submarines.
Sanjeev Singhal: This, I would like to bifurcate it slightly. As far as shipbuilding is concerned. Yes, we, although we are eyeing at the repair and refit segment, primarily our focus will remain on the new build. So the new build will be a practical focus and this with respect to shipbuilding, is not likely to change significantly.
Maybe, I don't see revenue recognition of more than 10% from the rebuild and repair segment. But yes, as far as submarines are concerned, a submarine is an area where repair and refits this also is likely to contribute in a significant manner, because we have recently delivered five submarines, six, we are going to deliver another three of the same series, nine submarines and submarines have a typical life cycle of around 30 years.
Post that, after medium refit and life certification, we can add another 10 to 12 years to the life of the submarine. So during this period, there are periodic refits, like I say, take the case of 2017, we delivered the first Scorpion submarine. So, the refit of the first Scorpion submarine is falling due in 2025. So, in '25, we expected that first of the Scorpion submarines would be coming to us for refit and we delivered from '17 to '22, five submarines. So practically every year, every 12 to 16 months, 18 months, the second submarine, third submarine, fourth submarine and fifth submarine, sequentially, would be coming to us for refits, and by the time we complete the last submarine refill, the second refit of the first submarine becomes due.
So, this is a sort of continuous cycle. So, at any given point of time, once the cycle starts, we would be having multiple submarines with us for their refit cycle. So, if you look at the submarine business, once we are building submarines, it gives a continuous business cycle for the next 40 to 50 years. So, this is a very long drawn cycle and here the value of refits and overall, etc, is a significant chunk.
One last question from my end. I'm drawing it back to the first question, and you gave me a partial answer. I just wanted some clarity there, if you can. I understand you can't give commitments on margins, because it's a very moving piece, but I heard you say that the margins you expect will continue to remain healthy. Now how do I define healthy, sir, because healthy could mean around this 20-odd% mark that you are doing, healthy could mean slightly higher than that. Healthy could well mean 15% as well. What is healthy? Some range, if not an exact number?
Sanjeev Singhal: As far as the range is concerned, I can only say that for an industry of shipbuilding industry, margins, anything more than 10% is a healthy margin.
Sir, the problem is, for example, you've been operating at 15% in FY24 the expectations are that you go up to 21-22% in FY25 and 26. Could there be a drop back to 10% after that?
Sanjeev Singhal: A very, very precise projection into the future that would not be appropriate and that would not be feasible at this stage, particularly when we are in the process of finalising various orders. So, depending upon their timing, depending upon their size, depending upon when we actually get and how much we actually get. So, there are many variables and determinants. So, giving a number at this stage, because these are not the existing orders we can discuss with respect to the existing orders, but with respect to the orders which are yet to come. It would not be covered on my part to define these values at this stage.
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