MAZDOCK - Mazagon Dock Shipbuilders Limited Share Price

The management of Mazagon Dock Shipbuilders outlined a cautiously optimistic outlook, emphasizing execution of current orders, upcoming projects, and sustainable margins. Key points include:

1. Margins: Current elevated margins (~20-21% PBT) are attributed to legacy orders. Sustainable margins are projected at 12"“15% PBT for the industry long-term, but near-term FY26 margins are expected to remain healthy due to existing high-margin orders.

2. Order Pipeline:

   • P-75(I) Submarines: Price bids opened; negotiations expected soon, with order finalization anticipated in FY25. Deliveries to start ~6 years post-order.
   • Additional Scorpene Submarines (3 units): Confident of order finalization by March 2024.
   • Next-Gen Corvettes (NGC): Bid submitted; price bids pending.
   • Future projects include P-17 Bravo destroyers and next-gen destroyers (2"“3 years out).

3. Execution & Deliveries:

   • No major deliveries expected in Q4 FY25. FY26 will see 1"“2 platform deliveries.
   • Project 15 Bravo completions contributed to Q3 profitability; potential reversals of D-448 liabilities in Q4.

4. CAPEX & Expansion:

   • Rs 5,000 crore planned over 4"“5 years for new dry docks and Nhava shipyard (post-environmental clearances).
   • Floating dry dock (Rs 350"“500 crore) to be operational in FY26.

5. Exports & Indigenization:

   • Exploring export opportunities (e.g., Brazil, Indonesia), but progress is slow due to bilateral processes.
   • AIP (Air-Independent Propulsion) integration for Scorpene submarines underway (Rs 1,768 crore order).

6. Growth Outlook:

   • FY26 revenue expected to remain stable or grow marginally; no decline anticipated.
   • Indigenization efforts to balance costs without near-term margin impact.

The focus remains on timely execution of defense orders, leveraging infrastructure expansion, and securing new contracts to sustain growth.

Question 1:
My first question is on the medium-term margin profile that the company can have. And sir the context is that over the past 3 to 4 years, your margins have expanded quite a bit. So are the current margins sustainable at about 20%, 21%? Could you share your thoughts on that?
Answer:
Sustainable margins for the industry are projected at 12"“15% PBT (pre-tax), based on legacy orders and evolving order profiles. Current elevated margins are due to older contracts and specific project reversals.

Question 2:
And sir, if you could comment on the media reports regarding P-75(I) order, where we are in the process and how long these negotiations could go on and when we could expect some kind of conclusion of these negotiations and award of the order?
Answer:
P-75(I) price bids are open, with MDL as the sole technically qualified bidder. Discussions on commercial terms are expected soon, with the order likely finalized in FY26.

Question 3:
And sir, my last question is on any other large orders that are in the pipeline over next 1 to 2 years, if you could highlight?
Answer:
Three additional Scorpene-class submarines (P-75) are expected to be ordered by March 31, 2025, pending final government approvals.

Question 4:
My question is the other expenditure for the Q3 results reported, which includes provisions and project related expenses, has gone up substantially. Can you elaborate on that?
Answer:
Provisions relate to excess inventory post-warranty periods and liquidity damages (LD) for delayed ONGC projects. Reversals are expected if LD waivers or inventory utilization occurs.

Question 5:
You also indicated that if you are able to deliver the orders ahead of schedule, there will be a reversal of the D-448 liabilities, and you will be able to save on costs. Has that manifested itself in this quarter?
Answer:
Project 15 Bravo completion contributed to Q3 profits via D-448 liability reversals. Further reversals in Q4 depend on expenditure alignment with provisions.

Question 6:
What are the deliveries due in the fourth quarter? You indicated Scorpene, you delivered one in January, so that will come into the fourth quarter? Any other deliveries pending for large platforms in Q4?
Answer:
No further deliveries are expected in FY25. Submarine deliveries (including January's) are accounted for in the current order book.

Question 7:
Next Generation Corvette, also, the order finalization, I think is due and fairly close to completion. Any updates there that you can provide?
Answer:
MDL has bid for the Next Gen Corvette (NGC), but price bids remain unopened. No clarity on timelines yet.

Question 8:
How will be the CAPEX budgeted on an annual basis starting next financial year?
Answer:
CAPEX for FY26 includes ~Rs.500 crore for dry dock development and Nhava Yard expansion, pending environmental clearances.

Question 9:
What will be the normalization of margin for FY26? Can you color on what will be that number look like?
Answer:
FY26 margins will remain above the industry average (12"“15% PBT) due to existing high-margin orders. No significant decline expected.

Question 10:
With respect to defense allocation, this budget, it has seen a flattish approach. Do we see a more push towards Indian Navy?
Answer:
Despite flat budget trends, naval projects face no funding constraints. Proposals are prioritized based on strategic needs.

Question 11:
Does any progress or potential for exports of submarines or our products to these delegations, like from Brazil, Indonesia?
Answer:
Exports require prolonged bilateral processes. MDL is supporting Malaysia's submarines and pursuing leads, but conversions will take time.

Question 12:
Next Gen Corvette approx 36,000 order, when the tender will going to open?
Answer:
NGC price bids are likely to open in FY26 after technical evaluations. No progress expected in FY25.

Question 13:
How much are we progressed in terms of indigenization and how much would that impact have on the overall margins?
Answer:
Indigenization efforts (e.g., AIP integration) involve initial costs but are margin-neutral. Future projects will determine long-term impacts.