A visit to Mazagon Dock Shipbuilders offers a stunning view along the city’s 17-kilometre freeway with the sea forming the backdrop. Top that up with a history that goes back to 1774, and it really cannot get any better.
Chairman & Managing Director Sanjeev Singhal feels obvious joy while talking about the business. Just think about it. MDL, as it is known, started as a dock to service the ships of the East India Company merely 17 years after the British got a serious foothold in India by seizing control of the province of Bengal in the famous Battle of Plassey. Incorporated in 1934, the well-known name in the business of shipbuilding and submarines was acquired by the government in 1960. The storied company has since built 805 ships and is the only shipyard in the country that builds destroyers and submarines at the same location.
A major milestone for MDL was going public in October 2020 which, Singhal says, transformed the “shy company” into one that is tracked with a lot of interest. “It was a new experience for us,” he says. The public offering, right in the middle of the pandemic, was a resounding success. It was subscribed 157 times. The stock has not disappointed. From an offer price of Rs 145 per share, it hit a peak of Rs 2,930, and was trading around Rs 2,249 on March 6.
Getting it together
Not that the ride has not been smooth. The pandemic, for instance, completely disrupted the supply chain. “It hit us when four destroyers and an equal number of frigates (a warship) and submarines were at the fag end of execution,” says Singhal. This triggered major changes post listing. He outlines, among other things, the focus on timely deliveries and convincing the workforce that MDL was now in a new environment. “Having a strong foundation helped. We have adapted well. We worked hard on procurement, reviewed human resources policies and filled a lot of vacancies,” he adds.
The company did not have big orders while going public. This became a big problem as its projects are usually long-term. “We started looking for smaller projects and many times lost out in the tender process,” says Singhal. The tide turned in October 2023 when MDL won an order for a coast guard training ship, followed by two in quick succession, before an order to make multipurpose cargo vessels for a Danish company. “The overseas break was big. We anticipate more such orders,” he says.
Samco Securities research analyst Divyam Mour says MDL operates in a specialised segment. “Submarine and warship projects involve immense technological complexity and have high entry barriers,” he says. This places the company in a strong position. Submarine projects are high-value and high-margin in nature, says Mour.
As these are government contracts, advance payments ensure positive cash flows. “This kind of financial strength sets MDL apart from peers. Besides, it operates under a cost-plus contract model, which safeguards it from cost overruns and potential losses during project execution.”
The Story Sustains
Going forward, MDL’s growth will be helped by the Rs 25,000 crore Maritime Development Fund that aims to provide long-term, low-cost financial support for domestic shipbuilding and maritime infrastructure projects. “The increasing focus on naval modernisation, combined with a strong pipeline of defence projects, augurs well for MDL. The strong presence in ship repair and maintenance contracts also provides a stable and recurring revenue stream,” says Mour.
The business model has found favour with analysts. A Nirmal Bang Institutional Equities report in February raised its rating from “hold” to “buy” on “timely implementation of platforms, strong revenue visibility over three years and a growing order book.” MDL’s order book stood at Rs 34,800 crore as of December 2024. Shipbuilding accounted for 74% share (the rest was submarines). Operating in a specialised space calls for strong skillsets. “If you look at defence markets, we operate expensive platforms, with the smallest destroyer costing Rs 5,000-6,000 crore. If you want to go for a cheaper version, competition is stiff,” says Singhal.
MDL has over time earned the trust of its partners. A case in point is the Shishumar-class submarine. The first two were made in Germany. MDL made the other two in Mumbai. “After 30 years, we brought back the first one here, cut it open and reassembled it to extend the life. In the case of the Scorpene class (in partnership with the French government), the construction of an air independent propulsion plug (a technology that allows submarines to operate without surfacing for oxygen) and integration was a major job. We handled it,” he says.
No Dearth Of Ambition
Shipbuilding offers many opportunities. “It is like many slices in a pizza and we operate in just one,” says Singhal, who retired on February 28. The entry of private players is increasing competition. “There is a lot that we can do, for instance in exports. Domestic defence is 98% of our business and we would like that to be 80% in five-six years,” he says. Take offshore, an area where MDL was a serious player 20 years ago. “We have started that vertical all over again with orders of Rs 7,500 crore from ONGC,” he says. This will reduce the dependence on government defence projects. “MDL has been diversifying revenue through initiatives such as revival of the offshore business. It has also expanded into maintenance, repair and overhaul of helicopters,” says Samco Securities’ Mour.
Profitability is decent as defence orders have margins of 8-10%. “These are long-gestation orders. If they are for over 10 years, there are many avenues for innovation,” says Singhal. The company has its own design house. “In that kind of a timeframe, it is possible to improve efficiencies, work around costs and protect margins. Those efforts will continue,” he says.
“The export market has been about penetrative pricing since we need to prove ourselves. Our experience suggests clients looking for high quality are not that price-conscious, with a preference for a good shipyard,” says Singhal. In late 2023, Prime Minister Narendra Modi spoke about how India will be among the top-five shipbuilding and repair nations of the world in the next decade. Singhal says that is a clear opportunity for MDL. “If you look at the global scenario, there is a demand-supply gap in shipbuilding. It is possible for MDL to double revenues in the next five years.” The capex outlay for the period is Rs 5,000 crore. “We are exploring a larger footprint outside India through M&As,” he says. The growth engine just keeps purring.
@krishnagopalan
