cochin shipyard ltd share price Management discussions

Forward Looking Statements

1. Statements in this Management Discussion and Analysis of financial condition and results of operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include governments strategy relating to acquisition of naval platforms, changes in government regulations, tax laws, economic developments within the country and such other factors globally. The financial statements are prepared under historical cost convention, on accrual basis of accounting and in accordance with the provisions of the Companies Act, 2013 and comply with the Accounting Standards specified under Section 133 of the Act. The Company has used estimates and judgements relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs for the year.

2. The following discussions on our financial condition and result of operations should be read together with our audited financial statements and the notes to these statements included in the annual report.

Shipbuilding Industry

Global Shipbuilding Industry

3. Global economic activity experienced a general slowdown with inflation reaching levels not seen for several decades. Conflict Russia/ Ukraine and the lingering effects of the COVID-19 pandemic including regular, localized lockdowns in China all weighed heavily on the global macroeconomic backdrop. Accordingly, after a deep recession in 2020

(-3%), a spectacular rebound in 2021 (+6%), global growth slowed down in 2022 to 3.2% and is expected to decelerate further to 2.7% in 2023. The overall world merchandise exports increased more than 3.5% in 2022 compared to 2021 which translates to more cargo volumes for the sea transportation.

4. 2022 had been a good year for the shipbuilding industry and saw about 89 m dwt (1,447 ships) of new orders placed, which was slightly above deliveries (78.5 m dwt). Last years orders help to extend the order book of major yards into 2025, thereby maintaining the three-year horizon beyond which both ship-owners and shipbuilders feel uncomfortable to commit. The container ships order books hit 10 year high last year with most orders booked by Korean and Chinese yards.

5. As a consequence of this firm shipbuilding activity, new building prices continued to steadily increase, following the trend which began in 2021. They only started to run out of steam in the last quarter of the year when they plateaued, although, as always, this depended on the type and size of vessels ordered.

6. The three Asian shipbuilding giants China, Korea and Japan together accounting for about 95% of the global order- book by deadweight, continued to fight fiercely while trying to focus their efforts on high value transaction. The order book of India was negligible with the total order book accounts for 30 ships with GRT less than 0.5 Million. Consolidation has been an ongoing process, as the number of shipyards dropped steeply from about 700 in 2007 to about 300 by 2022. This saw the active global shipbuilding capacity contract so that about 1,200 to 1,300 vessels can currently be built and delivered annually compared with the capacity for the construction and delivery of 2,000 vessels per annum in the years 2005 to 2010.

7. However, the fleet growth continued below 3% by dwt vs. 4.1% ten year average, due to lower order intakes in the past years. The new building investment is skewed towards container ($42bn) and gas ($21.6bn) in traditional shipbuilding segments. The focus on "Green & Tech" ships in post-COVID planning intensified, with decarbonisation as the major talk point across maritime segments.

8. Fitch Ratings has revised its outlook for shipping to "deteriorating" from "neutral", reflecting the challenges facing shipping mainly in Container Shipping. The main risks include the potential for a harsher recession than expected and the continuation trade restrictions and political conflicts, pandemic-related lockdowns in China etc., that could lead to further weakness in demand and manufacturing.

9. The overall new shipbuilding prices on an average rose over 30% and is still on the upward trend but at the same time may not result in better profits for the yards as the inflationary levels of various major commodity costs such as power, petroleum products, steel, copper, aluminium etc., persisting and thus eroding the profit margins.

Main Theme of the year - Transition towards Green

Shipping/ Low-carbon Shipping

10. To accelerate efforts on climate change mitigation, the IMO has started work on a revised GHG Strategy for consideration in 2023, as well as on mid-term measures, including some that are market-based. In addition, there are proposals to establish an International Maritime Research and Development Board, and a related fund which could finance the development of zero-GHG technologies to be available to all countries. Other proposals for market-based measures include the use of generated funds for financing climate change adaptation investments, especially in the most vulnerable economies. At the EU level, regulatory proposals are under consideration to extend the EU Emission Trading Scheme to maritime transport activities; if and when adopted, these could have potentially important implications for both intra and extra EU trade. With developments at IMO and the EU amongst others, the regulatory and policy framework being evolved reflects in 34% of new build orders (by GT) is with alternative fuelled technology. Developments in International Maritime Organization (IMO) or EU emissions regulations could affect the medium-term outlook for cost structures or the earnings capacity of some shipping segments. The fillip due to the prospects of large ageing fleet replacements and new regulatory restrictions generated great interest and likely to impact positively on long term basis driving new ship acquisition investments. CSL is strongly engaged in this segment and with the completion of pioneering project of two nos. of Autonomous Electric Vessels for ASKO Maritime AS, Norway, CSL is ready with the offerings of various types of advanced green technology vessels with low emission, which would be ideally suited for the short sea, Inland Waterways and coastal shipping. CSL was successful in bagging orders from European clients for construction of new generation green technology vessels. This is a sunrise segment opening multiple opportunities for the Company.

Indian Shipbuilding Industry and Government Initiatives

11. The healthy order book positions in the international market resulted in build-up of enquiries to Indian yards. But with the diminished capacity due to collapse of many private shipyards and with no shipbuilding financing mechanism in place, India still is not considered as a serious contender in the main merchant fleet ships. However, on the smaller short sea market, the country could make some inroads with some overseas contracts bagged by Indian yards.

12. The published vision document of Ministry of Ports, Shipping and Waterways (MoPSW), Maritime India Vision 2030 (MIV 2030) has put ambitious targets and if this needs to be achieved, then more accelerated and co-ordinated efforts have to be put in.

13. The Ship Building Financial Assistance (SBFA) policy provides some assistance for the Indian yards to be in the level playing field to compete with International market. Similarly, the new policy towards the chartering/ procurement of tugs (2020) also has resulted in interest building up for the construction of harbour tugs in Indian yards. The new DG Shipping order to put a restriction of the operation of older vessels in Indian coast as well as acquisition of older vessels above 20 years to Indian flag will have an impact on the scrapping of older tonnage and replacement with new acquisitions.

14. Vision 2030 envisaged action plan to make India one of the top 10 shipbuilding nations in the world needs further build up towards initiatives such as channelizing the cargo to improve demand, improving the ecosystem for ancillary industries, generate standardised designs for better productivity, Governmental interventions to create level playing fields to make the industry competitive in International arena etc. The proposed creation of a Maritime Development Fund to provide easy access to working capital and long-term finance needs across marine sectors is yet to be implemented which otherwise can give access to Indian ship owners to improve their capacity and shipyards to improve the infrastructure.

Some Key Sectors focused by CSL

Defence Shipbuilding

15. The shipbuilding industry is dependent on the defence requirements and CSL concluded the largest ship building contract for the construction of six (6) nos. of Next Generation Missile Vessels (NGMV) for the Indian Navy thus adding good order book value to the Company.

Short sea/ Coastal and Inland

16. Hooghly Cochin Shipyard Limited (HCSL), the wholly owned subsidiary of the Company in West Bengal is fully operational and bagged orders in this segment. The Company is fully focussed and equipped to tap this potential segment.

17. The new transition of the ships towards zero carbon emissions drive the market to embrace new technologies and use of alternate fuels, electric vessels, autonomous vessels etc., in line with the new hydrogen policy announced by the government in 2021. The Companys pilot project of a hydrogen fuel cell powered catamaran boat project is progressing well and expected to complete its tests and trials in the coming months. Once successful, similar projects can be undertaken and it is expected to generate huge demand.

18. The new generation vessels with alternate fuels and green technologies are indicating huge potential in the replacement market of ageing short sea European shipping segment. Company was successful in bagging such projects with innovative technologies to meet the new regulations.

Tugs, Dredgers and Port Craft

19. The Government is focussed on improving the port and inland water infrastructure. This enhances the opportunity for the Indian yards to participate in this market with improved demands. The contract signed by the Company to build the countrys largest Trailer Suction Hopper Dredger (TSHD) of 12000 cubic metres for Dredging Corporation of India (DCI) in partnership with the market leader IHC, Netherlands is a major milestone in this market and can bring more such projects in the future.

20. The policy of the Ministry of Ports, Shipping and Waterways (MoPSW), which stipulates all the service requirement of Tugs for the major ports to be reserved to Indian Built Indian Flag Tugs only continued to show improved demand for the building of harbour tugs and the Company through its wholly owned subsidiary Udupi Cochin Shipyard Limited (UCSL) won one more new contract for building 2 Tugs indicating further growth.

Offshore Wind Segment

21. The renewable energy mix in the overall power generation is expected to increase exponentially in the world energy segment due to the compelling reasons to meet the sustainable non fossil green energy mix targets. Huge investments are happening around the globe for creating large offshore wind farm infrastructure in deep ocean. This translates to greater demand for various types of vessels to support the development, operations and maintenance

of infrastructure for offshore wind farms. The Company with proven track record on building offshore support ships for oil and gas in the past gives a good advantage to seamlessly penetrate this market. With focussed attention, Company managed to enter this high potential market by bagging a prestigious contract to build two (2) nos. of high end Construction Support Operation Vessels (CSOV) with an option for four (4) more such vessels from an European client.

Fishing Segment

22. The Pradhan Mantri Matsya Sampada Yojana (PMMSY) could generate moderate interest and the Company through its wholly owned subsidiary Udupi Cochin Shipyard Limited (UCSL) delivered ten vessels in this segment. Company is expecting more attention on this segment with various coastal states showing interest and thus could bring in the momentum to the segment which can have a larger economic impact to the fishing community.

Ship Repair Industry

India & the Global Ship Repair Industry

23. Global ship repair market is currently dominated by shipyards in China, Singapore, Korea and Middle East largely due to the availability of skilled workforce and latest technology. The global market for ship repair and maintenance service is expected to witness significant growth, reaching a market value of USD 40 Billion by 2030 supported by developments in the markets in South East Asia and India. Though Indias share in global ship repair is currently less than 1%, the country is favourably located in respect of the major trade routes / shipping routes with 7 to 9% of the global trade passing within 300 NM of the coastline. Additionally, India is poised well to offer repair services to Indian Navy and the allies US Navy for its 5th and 7th fleet deployed in Indian ocean & Arabian sea.

24. Ship repair industry being labour intensive, India has got the advantage of having strong work force to cater for the requirement. However, the untapped potential in the Indian ship repair market can be attributed to the presence of competing international ship repair yards on major trade routes and a capability gap of Indian yards in repairing certain kinds of vessels. Other reasons of cost disadvantages include high cost of financing, lack of supply of ship spares in India, ancillary support and technology related issues increasing ship repair execution cycle time.

25. To address the above gaps, under MIV 2030, Government of India is giving a strong forward thrust to the industry with multiple initiatives including channelising of domestic

demands leveraging AatmaNirbhar Bharat Policy, infrastructure development through better access to financial instruments, providing better opportunities for overall development and enhanced business in the Industry by creating free trade depots, maritime clusters etc.

26. CSL Ship repair business has grown leaps and bounds. In addition to the ship repair facilities at Kochi, the Company has also established ship repair units at Mumbai, Kolkata and Port Blair. The Ship Repair Division is focusing on

increased business volumes. The Yard is also focussing on entering new areas of ship repair market such as weapons platforms, offshore fabrications, conversions etc.

CSL initiatives in Ship repair

27. CSL is in the final phase of completion of work at International Ship Repair Facility (ISRF) at Willingdon Island, Kochi which would host a state-of-the-art Ship Lift System with six independent work stations. This new greenfield facility, in close proximity to the Southern Naval Command in Kochi is scheduled to be up and running shortly and would be capable of accommodating vessels up to 130 Mtrs. length & 6000 T displacement. The Yard is also setting up a new dry-dock within its main premises at Kochi to cater for the shipbuilding and ship repair activity which includes building of larger capacity vessels and repair to offshore rigs. CSL has also expanded its foot prints across the Indian coast by setting up ship repair units at Mumbai, Kolkata and Port Blair to cater to the demand in ship repair segment.

28. With GOI, MIV 2030 in place and fuelled with various initiatives including MoPSWs initiative for setting up of ship repair clusters in India, CSL is well poised for vibrant ship repair business times in the future.

Operations

29. The total turnover of the Company is Rs2330.46 Crores as against the previous year of Rs3190.00 Crores. The shipbuilding income during the year is Rs1766.45 Crores as against the previous year income of Rs2511.48 Crores. The ship repair income during the year is Rs564.01 Crores as against the previous year income of Rs678.52 Crores. During the year 2022-23, CSL delivered the first indigenously built Aircraft Carrier, INS Vikrant to the Indian Navy. INS Vikrant was commissioned into the services of the Indian Navy by the Honble Prime Minister of India, Shri Narendra Modi on September 02, 2022 in a grand event organised in CSL, Kochi. Further, CSL delivered two nos. of Autonomous Electric Vessels, viz., "Marit" & "Theres", for Norway based ASKO Maritime AS. The 67 Mtr. Long vessels were delivered as Full-Electric Transport Ferries powered by 1846 kWh capacity battery. Further, CSL delivered one no. of 500 Pax vessel viz., "Nalanda" for Andaman and Nicobar Administration. CSL had also delivered the third and final lot of three Floating Border Out-Post (FBOPs) vessels out of nine FBOPs built for Ministry of Home Affairs, Government of India. Furthermore, CSL had also successfully delivered seven nos. of Hybrid Electric Catamaran Hull vessels to Kochi Metro Rail Limited (KMRL). During the financial year 2022-23, the Company delivered a total of fourteen vessels under defence as well as commercial segments.

Financial Information

30. The financial information of the Company pertaining to the last decade is given below:

(Amount in Rs Crores unless otherwise stated)

Year	Paid up capital	Nominal value of shares (W per share)	Capital employed	Net worth	Profit Before Tax	Tax on Profits	Net Profits	EPS (W)	Dividend	Payout ratio
22-23	131.54	10	4480.05	4423.42	448.51	114.02	334.49	25.43	223.62	0.67
21-22	131.54	10	4355.75	4359.18	794.39	207.82	586.57	44.59	220.33	0.38
20-21	131.54	10	3964.27	3977.57	810.59	200.49	610.10	46.38	203.89	0.33
19-20	131.54	10	3748.78	3731.80	863.43	225.74	637.69	48.48	218.75	0.34
18-19	131.54	10	3327.72	3332.08	751.38	270.20	481.18	35.72	171.00	0.35
17-18	135.94	10	3271.03	3255.87	604.86	208.11	396.75	31.03	163.12	0.41
16-17	113.28	10	2062.02	2028.58	493.40	171.85	321.55	28.39	101.61	0.32
15-16	113.28	10	1749.31	1814.33	419.65	145.86	273.79	24.07	86.65	0.32
14-15	113.28	10	1585.68	1561.07	367.56	132.49	235.07	20.75	16.99	0.07
13-14	113.28	10	1401.52	1352.53	290.96	96.71	194.24	17.15	16.99	0.08

Key Financial Ratios

Sl. No.	Particulars	FY 2022-23	FY 2021-22	Change (in %) as compared to FY 2021-22	Detailed explanation for change of 25% or more
1.	Debtors Turnover	4.75	6.72	29.32	Due to reduction in Net credit sales
2.	Inventory Turnover	7.30	8.76	16.72	NA
3.	Interest Coverage	14.29	18.09	-21.00	NA
4.	Current Ratio	1.39	1.69	17.82	NA
5.	Debt Equity Ratio	0.03	0.03	-	NA
6.	Operating Profit Margin (%)	18.04	26.36	31.56	Due to reduction in Profit before tax
7.	Net Profit Margin (%)	14.35	18.39</td>	21.94	NA

Return on Net Worth

Particulars	FY 2022-23	Change (in %) as Detailed explanation FY 2021-22 compared to FY 2021-22 for change
Return on Networth (%)	7.56	13.46 -43.83 Due to reduction in Net profit after taxes

Proposed / Declared Dividend

31. As per Office Memorandum F.No.5/2/2016-Po[icy dated May 27, 2016 issued by Department of Investment and Public Asset Management (DIPAM), every CPSE have to pay a minimum annual dividend of 30% of PAT or 5% of the net-worth, whichever is higher. Accordingly, your Directors are pleased to recommend a final dividend of Rs3/- per share on the 13,15,40,390 fully paid equity shares of Rs10/- each. Earlier, interim dividends of Rs7/- each , aggregating to Rs14/- per equity share had been paid to the shareholders during 2022-23. Thus, the total dividend for the year 2022-23 is Rs17/- per equity share (170%), amounting to Rs223.62 Crores.

Segment-wise/ Product-wise Performance

32. The Company is engaged in two major activities viz., shipbuilding and repair of ships/offshore rigs etc. Segment wise analysis has been made on the above basis and amounts allocated on a reasonable basis. The segment wise performance is given below:

(Rs Lakhs)

Particulars	As at 31.03.2023	As at 31.03.2022
Segment Assets
Shipbuilding	405583.60	251516.16
Ship Repair	282191.99	287038.89
Unallocated	303128.91	293292.23
Total	990904.50	831847.28
Segment Liabilities
Shipbuilding	315680.43	155888.80
Ship Repair	48998.81	64318.72
Unallocated	183883.39	175721.79
Total	548562.63	395929.31
Segment Revenue
Shipbuilding	176645.19	251148.16
Ship Repair	56400.69	67852.09
Unallocated	20648.88	26641.68
Total	253694.76	345641.93

(Rs Lakhs)

Particulars	As at 31.03.2023	As at 31.03.2022
Segment Result
Shipbuilding	20777.90	57749.03
Ship Repair	9548.18	12041.89
Unallocated	14524.58	9648.14
Total	44850.66	79439.06

33. The Company has two major business segments - "shipbuilding" and "ship repair". Revenue under shipbuilding

includes Rs155800.89 Lakhs (previous year: Rs204473.56 Lakhs) from one customer (previous year: one customer) having more than 10% revenue of the total revenue, and for ship repair includes Rs193571.56 Lakhs (previous year: Rs40786.31 Lakhs) from two customers (previous year: two customers) having more than 10% revenue of the total revenue.

SWOT

Strengths:

(a) Highly trained, motivated and knowledgeable manpower with an average of 15 years of experience at all levels of hierarchy resulting in extremely high quality workmanship;

(b) State-of-the-art facilities with well planned and laid out shipyard enabling smooth work flow and efficient production;

(c) Shipyards at multiple locations (7 facilities), thus providing more flexibility to meet the market demands;

(d) A modern state-of-the-art design centre manned by highly trained, experienced and competent naval architects/ engineers, draftsman etc;

(e) Highly evolved shipbuilding processes and practices permitting modular construction of ships;

(f) A very good product mix compatibility comprising of defence ships, commercial ships and offshore ships;

(g) Availability of quality sub-contractors and good supply chain network.

Weaknesses:

(a) Virtually non-existent indigenous ancillary industries and consequently non-availability of major equipment/raw materials in India;

(b) Difficulty to arrange long term project finance to ship owners which is offered by other overseas shipbuilding countries;

(c) Higher finance costs and logistics costs resulting in higher input costs for production;

(d) Comparatively higher social and employee overheads and certain restrictive labour practices especially for contracting labour; and

(e) Governmental system induced procedural delays.

Opportunities:

(a) Projected increase in requirement of ships for the domestic commercial segment, owing to the new GoI policy to encourage "Make in India"/ restrictions on older ships;

(b) Projected demand in the defence sector;

(c) New generation vessels with green technology to meet new regulations;

(d) Vessels to support offshore wind industry;

(e) Emerging opportunities in the inland waterways and coastal shipping sector in India;

(f) Fishing vessels for both domestic and overseas market; and

(g) Huge demand - supply gap for the repair of commercial and defence ships and virtually no competition in India.

Threats:

(a) Distress pricing policies of competitors;

(b) Adverse reputational impact on the Indian shipbuilding industry due to under performance by Indian yards;

(c) Rising cost of labour and materials;

(d) Non-flexible government regulations on procurement policies delaying the product delivery timelines and cost; and

(e) Resurgence of contagious diseases like COVID-19 pandemic, natural disasters.

CRUISE 2030

34. CSL has embarked on a bold transformation programme, CRUISE 2030 in March 2019 to achieve breakout growth along with globally competitive operations to profitably achieve the growth. CRUISE 2030 exercise clearly mandates the need to tap new revenue generation streams beyond the current Shipbuilding & Ship Repair portfolios and a new division by name C-SAS (CSL Strategic & Advanced

Solutions) has already been formed. CRUISE 2030 had focused strongly on building the new businesses such as deep sea fishing vessels and electronic control systems, strengthening the operations maturity through Shipyard 4.0 and Project Management initiatives. The programme also focused on CSLs breakthrough into the Dredging and Inland Barges, and structured cost reduction initiatives across fishing vessels and other businesses. The Company is also working towards building capability in advanced technologies to tap business potential in new emerging vessel segments such as autonomous, hybrid/ electric vessels and alternative fuels. CSL has formed a dedicated Centre of Excellence team to drive digital transformation across the value chain, i.e. Planning, Design, Procurement and Operations.

CSL Strategic & Advanced Solutions (C-SAS)

35. In order to tap new revenue generation streams beyond the current Shipbuilding & Ship Repair portfolios, a dedicated division named CSL Strategic & Advanced Solutions (C-SAS) was formed to enable the Company to venture into the arena of strategic and knowledge driven future technologies in the maritime sector. C-SAS has been actively engaged in identifying and developing sustainable and future oriented business models. Various innovative initiatives undertaken by C-SAS Division during the financial year 2022-23 are as follows:

(i) Integration Jigs with Wheeled Stools

An innovative tool was designed in-house for integration of underwater vehicle, which is a combination of integration jig and wheeled stools. This tool reduces approximately 50% of crane lifts and can save approximately 87.5% integration floor space compared to presently used integration tools.

(ii) Implementation of Hydrogen fuel cell technology for maritime application

C-SAS has also carried out the gap analysis of the fuel cell stacks, balance of plants, its control system etc. and discovered the gaps and implemented solutions for bridging those gaps to meet the class requirements.

The fuel cell along with BoP is also being marinized as per I EC standards thereby ensuring that the equipment meets the IRS class requirements. In doing so fuel cell technology which will be delivered will be a totally marine compliant solution.

A Design FMEA was also performed by C-SAS team

together with Fuel cell partner to identify the potential

failures and take corrective/ preventive measures to identify and mitigate any such hazardous scenarios not only at the local level (component level) but also at the global level (ship level). This methodology also covers fuel cell control system, power management, propulsion control and vessel automation system.

(iii) Fuel cell technology in marine segment

A white paper was published to determine the appropriate Fuel cell technology applicable in marine segment using Analytical Hierarchical Process (AHP). AHP is a method for organizing and analysing complex decisions using mathematical tools for arriving at the best solution from among multiple available options. The same was ratified by industry experts.

(iv) Failure Mode and Effects Analysis (FMEA) of underwater vehicle

C-SAS conducted a detailed system level FMEA on all the subsystems for the underwater vehicle from the productisation perspective. Through a comprehensive analysis of all subsystems, our study has revealed probable system failures and gaps in the technological development of underwater vehicle.

Risks and Concerns

36. The risks for the Company arise from the inherent nature of the shipbuilding industry. An indispensable portion of the Companys revenue over the years is from the commercial shipbuilding which is highly cyclical in nature. The commercial shipbuilding industry prospects are dependent on world trade and the cyclicity of oil, natural gas, shipping, transportation and other trade related industries. The pandemic situation had created concerns world over and the situation are on watch for the probable indications towards the tectonic shifts in the international economy with significant impact in the shipbuilding & repair industries too.

37. Substantial portion of the Companys activities involve the fabrication and refurbishment of large steel structures and its erection which would entail the operation of cranes and other heavy machinery and other operating hazards. The operational risks faced by the Company also could result in fires and explosions etc. Though the losses caused on such eventualities are covered under a standard fire and special perils policy, CSL do not have insurance for business interruption. These risks could expose the Company to substantial liability for personal injury, wrongful death, product liability, property damage, pollution and other environmental damages.

38. Another high risk area for the Company is the availability and price fluctuations of major raw materials. The major raw materials include steel (the grade and quality of which, in each project, depends on the applicable classification rules) and other materials, equipment and other components such as pumps, propellers and engines. In fiscals 2021,2022 and 2023 respectively, the Companys material consumption costs constituted 55.39%, 60.67% and 51.29% of its total costs, respectively. In particular, bought out components accounted for around 95% of our total raw material cost in these recent fiscals.

39. Shortages in the supply of raw materials may result in an increase in the price of these raw materials. For example, there are supply-side constraints in relation to steel in India which we expect will continue in future. The Indian steel industry has been unable to compete globally due to which the GoI has imposed significant duties on the import of steel from other countries such as China to protect the domestic steel industry. This has adverse impacts when CSL is unable to source steel economically. In addition, the cost of certain raw materials, such as steel, aluminium, copper etc., may fluctuate in line with any changes in their global supply and demand and thus impacting the material cost.

40. In the event that the price of the Companys raw materials increase, the Company will not be able to pass these price increases to its customers on its existing fixed contracts and its business, financial condition and results of operations can be adversely affected.

41. Changes in currency exchange rates may influence our results of operations. Globally, a substantial part of all worldwide ship sales transactions and purchase of offshore structures is generally conducted in USD. To mitigate this risk, the Company hedges the net forex exposure on the export receivables. However, in the case of import components in respect of shipbuilding/ ship repair contracts denominated in Rupee terms, CSL is exposed to exchange rate fluctuation risk unless the contract with the ship owner provides for an exchange variation reimbursement clause. Currently, some of the shipbuilding contracts do not contain such provision. Hence, adverse fluctuation in the currency rates will affect and influence our results of operations.

Product Diversification

42. As the Company is presently on the cusp of transformational growth, CSL is undertaking transformative efforts on the innovative and new technology front including that on green energy, alternate fuels, autonomy, etc. Towards this, CSL is building 23 Hybrid Electric Catamaran Hull vessels for the Kochi Water Metro Project, which is one of its kind, modern, technologically advanced, energy efficient and environment friendly boat and is expected to integrate the urban water transport system for the seamless transportation requirements of the Kochi citizenry. A total of nine boats for the Kochi Water Metro Project have been delivered as on the date of this report. Further, CSL also delivered the order for two nos. of Autonomous Electric Vessels for ASKO Maritime AS, Norway.

43. During the financial year, CSL has bagged an international order for constructing 2 nos. of Commissioning Service Operation Vessels (CSOV) from a European Client, with an option to build 4 more of such vessels to be exercised by the owner within a period of one year. These vessels are intended for the services of offshore wind farm installations towards its commissioning and maintenance. These specialized vessels are being contracted for the first time in the country. CSL also bagged order from another European client for design and construction of two nos. of Zero Emission Feeder Container Vessels with an option for two more vessels. These ships can carry about 365 Nos. of 45-feet long high cube containers and are intended to serve the European Market where sustainable transportation solutions are in high demand.

44. CSL in collaboration with indigenous partners and under the aegis of the Ministry of Ports, Shipping and Waterways (MoPSW) is implementing a pilot project for design, development and construction of Hydrogen Fuel Cell Vessel based on Low Temperature Proton Exchange Membrane Technology (LT-PEM) also called Fuel Cell Electric Vessel (FCEV). Taking into consideration the growing impetus on hydrogen economy and hydrogen-based fuel cell technology both nationally and internationally, it is only prudent to explore its use case in the marine segment, especially in India, where there is vast possibility for its use on coastal & inland vessels. Also, the Company is planning to develop an indigenous Autonomous Surface Vessel (ASV),

SWAYAT to demonstrate CSLs capability in autonomous domain. The Board of Directors at their 271st Meeting held on April 29, 2023 has set aside an amount of H35 Crores towards Research & Development/ Innovation initiatives fund for the development of the pilot ASV Project.

45. CSL has also conceived a start-up engagement framework which was unveiled by the Honble Minister for Ports, Shipping & Waterways at the inaugural function of the Companys Golden Jubilee celebrations held on April 30,

2022. With this framework CSL has committed to invest an initial corpus of H50 Crores in start-up companies engaged in maritime sector. The start-up framework is envisaged to augment Government of Indias initiatives to develop an ecosystem in India to support maritime start-ups from technical, regulatory, financial and marketing point of view by bringing stakeholders together. The framework will provide a platform for the young and talented entrepreneurs to develop the products/ services in the marine space with financial support provided by CSL. One of the key parts for operationalization of the framework is engaging appropriate Review and Recommending Agencies (RRA) who shall inter alia be involved in selection of start-ups for investment, mobilising various stakeholders for the selected start-ups, monitoring and reviewing their progress etc. CSL has appointed Indian Institute of Management Kozhikode LIVE (IIMK LIVE) and Indian Institute of Technology Madras (IITM) as the Review and Recommending Agencies under the framework.

Internal Control

46. The Company has promulgated an internal control and internal audit manual and has in place adequate internal control systems. The internal audit function is carried out by an independent firm of Chartered Accountants who carry out an in-depth review of internal control systems in critical areas based on the audit programme approved by the Board level Audit Committee headed by an Independent Director. During the financial year 2022-23, the Company had engaged M/s. Krishnamoorthy & Krishnamoorthy, Chartered Accountants for reviewing and installing adequate Internal Financial Controls and to ensure proper and adequate systems for compliance with the provisions of all applicable laws. Such controls were tested and no reportable material weakness in the design or operation was observed.

Human Resource Development and Industrial Relations

47. The details regarding Human Resource Development and Industrial Relations are more specifically covered in the Directors Report.

Women Empowerment

48. CSL has constituted an Internal Complaints Committee in accordance with the guidelines and norms prescribed by Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act). A senior woman executive is the Chairperson of the Internal Complaints Committee. The Certified Standing Orders applicable to workmen include sexual harassment as an act constituting misconduct. The Internal Complaints Committee is empowered to enquire into such complaints as per the procedure laid down in the Certified Standing Orders and Industrial Employment (Standing Orders) Acts and Rules.

49. The talents of the women workforce were showcased as part of celebration of the International Womens Day in CSL on March 08, 2023. The Company has a woman Welfare Officer specifically to promote women empowerment activities and to formulate and implement welfare measures according to the needs of women employees of the Company. CSL has commemorated the 9th anniversary of POSH Act on December 09, 2022 by organizing a session on POSH Act.

50. The Company ensures the participation of women in various forum including Joint Council, Shop Council, Central Safety Council, Shop Safety Council, Employees Contributory Provident Fund Trust, Employees Cochin Shipyard Recreation Club, Employees Cochin Shipyard Consumer Society etc.

Micro, Small and Medium Enterprises (MSME) as per the Public Procurement Policy 2012

51. The Company is making all out efforts to increase the procurement/ availing services from MSMEs. The Company has achieved a target of 54%, against the required target of 25% procurement of goods and services from MSMEs, out of total indigenous procurement for the financial year 2022-23. SC/ ST and women MSME entrepreneurs are also getting benefitted due to CSLs initiatives.

52. With a view to promote procurement/ avail services through MSMEs as per the Public Procurement Policy 2012 promulgated by the Government of India (GoI), CSL, jointly with MSME Development & Facilitation office, Thrissur conducted a vendor development programme viz., National Vendor Development Programme - 2022 on November 17 & 18, 2022 at Kochi.

53. In accordance with the directives of HQSNC, Centre for Indigenization and Self Reliance, Coimbatore, organized a visit of 30 personnel, representing 25 firms along with the office bearers of Coimbatore District Small Scale Industries Association (CODISSIA) on January 23, 2023. CODISSIA representatives interacted with Senior Management of CSL and familiarized themselves with the present-day challenges and scope/ potential of indigenization.

54. Other initiatives include, making CSL website user-friendly for MSME vendors, regular uploading of procurement data and other details in "MSME SAMBANDH" portal, ensuring no vendor complaint is pending in "MSME SAMADHAAN" portal on delayed payment monitoring system which implies payments to MSME vendors are effected without delay, on boarding of around 180 vendors in TReDS platform etc.

Other Information

55. The details regarding the Companys CSR activities, environment protection and conservation initiatives, technology absorption and upgrdation efforts, forays into renewable energy, foreign exchange conservation etc., are provided in the Directors Report and the Annexure thereon.

Cautionary statement

56. Statement in this Management Discussion and Analysis Report describing the objectives, expectations, assumptions or predictions of the Company may be forward looking statements within the meaning of applicable rules and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the operations of the Company include economic conditions affecting demand/ supply, price conditions in the domestic and international markets, Government policies and regulations, statutes and other incidental factors.

For and on behalf of the Board of Directors

Madhu Sankunny Nair Kochi Chairman & Managing Director May 19, 2023 DIN: 07376798