INDUSTRY OVERVIEW AND OUTLOOK
The ship-building industry is currently on a downturn with excess capacities globally.
The Indian Shipbuilding and Ship Repair industry primarily comprises firms that develop,
build and repair - ships, underwater equipment and naval architectures for the shipping
industry, fishing industry, naval defence and extraction of ocean resources. India
currently has around 28 major shipyards, with 6 under the Central Government, 2 under
State Governments, and the remaining under the private sector.
In India, private players hold the majority of the Shipbuilding capacity has the
required infrastructure and capacity to build large vessels. Private Shipyards, other than
ABG Shipyard Limited and few others are mostly restricted in terms of the capacity and
size of ships that they can build.
A growing Indian economy, favorable government policies and incentives framework, a
long coastline and growing sea borne trade present a huge business opportunity within the
Indian Shipbuilding and Ship Repair industry. Bulk carriers (within large sea going
vessels segment) and offshore vessels (within medium size specialized vessels segment)
hold maximum demand as per the current order book of the major Indian Shipbuilding
companies. The growth drivers for this sector include low labor cost, availability of a
skilled workforce, robust domestic demand and a growing steel industry in the country.
The Indian Shipbuilding industry is of strategic importance to the Indian economy and
plays an important role in employment generation, development of manufacturing and related
industries and national security. The Government of India has set ambitious plans for the
Shipbuilding and Ship Repair Industry in the country. It has taken several positive
initiatives like "Ease of doing Business", "Make in India" and changes
in defence procurement policy to encourage Indigenization of defence and requirements
including offset policy. These initiatives will open up a huge opportunity for Indian
Shipbuilding Industry. Followings are the key points of Govt.s initiatives taken in the
last year:
• Infrastructure status has been provided to Shipbuilding Industry. This will make
the Industry eligible to avail/restructure long term loans upto 25 years.
• Financial Assistance (Subsidy Scheme) to Shipbuilding Industry to the tune of
Rs.4000 crores over 10 years
• Policy for subcontracting from PSUs to Private Shipyards Rs.50000 crores
• Preference to Indian built ships : Right of first refusal for "Indian make
Indian Flag" vessels
• Setting up of National Infrastructure Investment Fund (NIIF) with a corpus of
Rs.20000 crores. The idea is to revive commercially viable including stalled
Infrastructure projects.
• Indirect Tax Exemptions announced - Excise Duty and Customs Duty OPPORTUNITIES
& THREATS
Indian Ship Building market has high potential and consequent benefits to the economy.
Indias hinterland connectivity is mainly based on road and rail with domestic
waterways, both coastal shipping and inland waterways playing a limited role. India has an
extensive network of inland waterways in the form of rivers, canals, backwaters and
creeks. Of the total navigable length of 14,500 km, 5200 km of the river and 4000 km of
canals can be used by mechanized crafts. Freight transportation by waterways is highly
under-utilized in the country as compared to countries and regions like the United States,
China and the European Union. India has recognized 106 waterways of which 6 are declared
as national waterways. Economic viability of a waterway to carry traffic as an alternative
to rail and road depends on its length which should be a minimum 500 km and 250 km for
both cases respectively. Apart from this, it should have a large hinterland coverage area
and potential in order to generate enough traffic on routes.
Globally domestic waterways are found to be cost effective as well as environmentally
friendly means of transporting freight. This is also true in India for instance, the cost
of moving coal via coastal shipping is one-sixth of the cost of moving it by the currently
preferred means of railways.
Government initiative to develop inland waterways is big business opportunity for
Indian Ship Building Industry in the form of future order of building dredgers, small bulk
carriers vessels etc.
Indias crude oil import expected to increase by ~90MMTPA by 2024-25 driven by refinery
capacity expansion of HPCL, IOCL & other petroleum companies and higher fuel demand in
the economy. The Indian oil companies are estimated to require ~57Mn DWT fleet to meet
2025 import projections; hence current fleet capacity would need to increase by ~1.8x by
2025.
PSU refiners plan to add ~23 million tonnes of refining capacity in the next 10 years.
Products exports from India are expected to grow by 20-25 mT by 2025 with Australia,
Latin America and Europe being the key long haul export destinations.
Indias imports of LNG have grown 12% over last decade. The momentum is expected to be
sustained with5-7% YoY growth driven by power and fertilizer industries. 43 LNG projects
with capacity of ~300 MTPA is under construction. This will create demand for ~250-300 new
vessels.
Indian LPG imports in last decade have grown rapidly and are expected to grow in the
future as well.
Offshore sector is an increasingly important market segment for the ship building
industry. There is high level of correlation between supply of offshore vessel and the oil
price. In the last few years, there was a decrease in offshore vessel deliveries driven by
falling oil prices. But, with the recent increase in oil price, demand for offshore vessel
will have upward trend.
Detailed offshore vessel demand medium to long-term forecasts by market segment
(2014-2025)
• Offshore support vessel (OSV). The anchor handling tug supply (AHTS)
market is driven by a combination of large assets supporting deep water drilling and
smaller multi-purpose service vessels. The Platform supply vessel (PSV) market is expected
to see the strongest growth out of all offshore support vessel types as a result of
increased demand for floating production systems and drillships. The Emergency Response
and Rescue Vessel (ERRV) market is less subjected to industry cyclicality given the
greater exposure to longer term life of field contracts and a relatively consolidated
supply chain.
• Mobile Offshore Drilling Unit (MODU). Significant growth is expected in
the shallow water jackup drilling market before stabilization between 2020 and 2025.
Demand for drillships is expected to see robust growth, driven by the deepwater triangle -
West Africa, Latin America and North America.
• Floating production unit (FPU). The floating production, storage and
offloading (FPSO) market is project-driven. Asian yards are expected to continue supplying
floating storage and offloading (FSO)s.
• Construction vessel demand. The increasing volume of subsea installations
and of Inspection, Repair & Maintenance (IRM) activities is expected to drive demand
for subsea vessels particularly from Latin America and Africa. Subsea, Umbilicals, Risers,
Flowlines (SURF) vessels are expected to benefit from the increasing volume of subsea
installations, particularly in Africa and Latin America. Increasing water depth and size
of wind turbines is expected to drive higher requirements for larger cranes and deeper
operational capabilities.
Ship Repair business is linked with healthy shipbuilding industry. Ship repair is even
more labor intensive and profitable than shipbuilding. India, with its labor advantage and
its ideal position on international trade route, is well placed to wrest this business
from competitors, once the shipbuilding industry is developed. This can create additional
revenue and employment opportunities with marginal increase in investment. Finally,
domestic shipbuilding industry would also provide the much needed domestic capability
which can be accessed for future needs of the Navy and Coast Guard and help realize the
goal of indigenization in defence production.
RISK AND CONCERNS
In India, ship building and ship repair industry is governed by Ministry of Shipping.
The shipbuilding industry seems to take off in near future majorly because of Government.
support. Thus, political instability and changes in Government. policies would be a cause
of concern. Other challenges include:
• Overcapacity & lower realization
• Financing of new orders
• Changing ship economics, ship design and regulations
• Reduction in crude oil price
• Changes on statutory levies
• Increased financing cost
Sales Tax, Customs Duty, Octroi etc. are some of the levies applicable to shipyards.
Several shipbuilding nations have relaxed these levies to encourage shipyards.
Finance costs assume greater significance in ship building. Shipyards are required to
provide bank guarantees to protect ship buyer. These guarantees comprise performance
guarantee (for timely delivery), refund guarantee (for stage payments) and post
construction guarantee (towards defects). Cost of bank guarantees is higher. Typically,
shipyard requires a working capital of around 25-35 percent of cost of the ship during the
entire construction period. Interest rate on working capital is 11% on an average. If
comparison is made with other countries in ship building like China, the China Government.
provides sovereign refund guarantees for certain class of vessels, thus removing any
related burden on shipyard. Interest rates on working capital presently offered to
overseas ship building yards are significantly lower like in Korea and China. Indian
shipyards face systemic disadvantages in several area which negate their natural
competitiveness and adversely impact their chances of succeeding in a globalized
shipbuilding industry.
INTERNAL CONTROL SYSTEM
The Company has in place an adequate system of internal control commensurate with its
size and nature of its business and ensures proper safeguarding of assets, maintaining
proper accounting records and providing reliable financial statements. The financial
statements are audited by an Independent Statutory Auditors on quarterly and annual basis
with regard to financial effectiveness of operations, financial reports, taxation,
accounting standards, statutory compliance etc. The Audit Committee reviews the financial
reports and the internal control systems with the Management and the auditors and suggests
improvement for strengthening the systems. The finance and accounts functions of the
Company are well staffed with qualified and experienced professionals.
The Companys effective control system is supported by an Enterprise Resources Planning
(ERP) platform i.e. SAP for its main business processes.
FINANCIAL AND OPERATING PERFORMANCE
Financial performance of the Company for the FY 2015-16 is as under:
| Particulars |
2015-16 |
2014-15 |
| Sales and Other Income |
37.76 |
401.67 |
| Profit/(Loss) before Interest, Depreciation & Tax |
(1866.53) |
(361.82) |
| Less: Interest (Net) |
801.49 |
724.89 |
| Profit/(Loss) before Depreciation & Tax |
(2668.02) |
(1086.71) |
| Less: Depreciation |
81.51 |
99.18 |
| Profit/(Loss) before Tax |
(2749.53) |
(1185.89) |
| Exceptional/Extraordinary Items |
974.56 |
- |
| Less: Provisions for Taxation |
(19.38) |
(288.19) |
| Net Profit/(Net Loss) after Tax |
(3704.71) |
(897.70) |
During the financial year ended 31st March 2016, the Company reported
revenue from operations of Rs 37.76 Crores and EBDIT of Rs. (1866.53) Crores. Net loss
after tax is Rs 3704.71 Crores. Major reasons for increased losses are low level of
business activity resulting into low turnover, impairment of inventories and increased
interest cost. Exceptional items include foreign exchange losses and reversal of profits
on account of cancellation of contract / invocation of bank guarantees.
Your Company has delivered a Pollution Control Vessel to the Indian Coast Guard,
however, during the period under review, the Company could not deliver any other ship as
its Dahej yard was closed from June, 2015 and Surat yard was partially operational.
Progress of construction of vessels was affected due to the factors like unavailability of
working capital etc. In Surat yard, ship repair activity is going on at present but with
low volume. The Company has undertaken repair of Coast Guard Vessels and other commercial
vessels in the period under review.
HUMAN RESOURCES DEVELOPMENT AND INDUSTRIAL RELATIONS
The Company recognizes the Human Resources as its most important assets and is
constantly engaged in enriching the value and developing competencies of Human Resources
through various development strategies.
The relationship between the management and the employees is very cordial and there are
no outstanding industrial disputes. The management also has well laid down HR Policies for
its employees. Welfare and health & safety of employees are high priority areas.
INTELLECTUAL PROPERTY RIGHTS
Innovation is an on-going process in the Company. It is the endeavor of Company to
encourage inventions of new products and processes in order to increase IP Assets of the
Company.
The Company has developed an effective internal system to protect its Intellectual
Property Rights.
CAUTIONARY STATEMENT
The report may contain certain statements that the Company believes are, or may be
considered to be "forward looking statements" that describe our objectives,
plans or goals. All these forward looking statements are subject to certain risks and
uncertainties, including but not limited to, government action, economic development and
risks inherent in the Companys growth strategy and other factors that could cause the
actual results to differ materially from those contemplated by the relevant forward
looking statements.
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