Mazagon Dock Shipbuilders Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Record FY24, delivery-led margin boost: FY24 was the best performance since inception, helped by an ahead-of-schedule destroyer delivery that saved period costs and ~₹400 crores of additional interest income.
• FY25 set as peak revenue year: Management targets three deliveries (one destroyer, one frigate, one submarine) and expects FY25 to be the highest revenue year on the current order book, though it declined to quantify.
• Order book poised for a step-up: The INR38,000 crores order book should see a substantial increase if the three additional P-75 submarines are finalized during FY25, with cost discussions ongoing.
• Margins face a known unknown: Current margins benefit from nomination-based contracts with predefined margins; the basis for future orders (nomination vs competitive) is not yet known, making the medium-term margin outlook uncertain.
• What to watch next quarter: Finalization of the three add-on submarine order, the P-75I evaluation outcome, and any clarity on whether next-generation destroyers and frigates will be awarded on nomination or competitive basis.

Delivery Pipeline & Revenue Trajectory

• Three deliveries targeted for FY25: One destroyer (4th P-15B, contractual delivery Feb'25, targeted significantly ahead), one frigate (first of Project 17A), and one submarine (last of P-75). If the frigate program stays on plan, a second frigate delivery within FY25 is possible.
• Revenue already booked on undelivered assets: Of the INR27,000 crores frigate order value, INR10,000 crores is already recognized as revenue though no ship has been delivered. The pending destroyer value of INR11,000 crores includes base/depot spares and warranty for the entire project, not just the one remaining vessel.
• Submarine residual work extends beyond delivery: The INR3,500 crores pending on submarines will not be fully booked upon delivery of the last submarine; some activities may take a year or more to complete.
• Revenue trend seen continuing upward: Revenues have increased every year from FY22 through FY24, and management expects the same trend to continue into FY25, though it declined to assign a specific figure when an analyst suggested INR14,000-INR15,000 crores.
• Liquidated damages crystallizing: LD refunds were received for one submarine in FY23 and two in FY24. Of the two remaining submarines, one case is at maturity stage and one is still under analysis. One ship's LD is nearly crystallized for FY25.

Singhal: "Incidentally, this was our 250th year. So on 14th of May, 2024, we have celebrated our 251st Foundation Day. This has been a long and phenomenal journey, starting from a small dry dock in 1774 and today, reaching to these heights, when our revenue from operations is significantly higher than \$1 billion."

Order Pipeline: The Next Wave

• Three add-on P-75 submarines (with AIP): Cost discussions are ongoing and not yet finalized, but management expects the order to be finalized during FY25. If it lands, the order book should see a substantial increase.
• P-75I (six next-gen submarines): MDL's bid with TKMS has completed successful field evaluation trials. The L&T/Navantia bid's trials are still underway. Management expects the award in the normal course during FY26; anything beyond that would be a delay.
• Next-generation destroyers (four ships): Under discussion at a very preliminary stage; the Navy's requirements are not fully crystallized. Whether awarded on nomination or competitive basis is unknown.
• Project 17 Bravo (follow-on frigates): Likely a repeat order of seven ships shared between a couple of yards, possibly on nomination. Tenders are not yet out but discussions are underway.
• Next-gen corvettes: RFP is out and MDL is participating in the bidding. MDL is not bidding for landing platform docks. Survey vessel RFP is not yet out and will take more time.
• ONGC: The first order (₹1,142 crores, received Dec'23) is under execution and targeted for completion this financial year. A second ONGC order is under discussion and expected to materialize anytime soon.
• Exports: Discussions are ongoing with Malaysia, Brazil, Indonesia, and the UAE. Management expects these to be primarily commercial orders, strategically important for establishing a foothold but not comparable in scale to destroyers or submarines.

Singhal: "Both have a totally different scenario with respect to how many players are there in competition or if the order is on nomination, then the margins are predefined. So, lot many factors would come into play when these orders actually crystallize."

Margins: Current Strength, Future Uncertainty

• Current margin drivers are structural: Nomination-based contracts carry predefined margins. Ahead-of-schedule deliveries save period costs, providing a significant positive impact, as seen with the destroyer delivered five months early in Oct'23.
• Near-term outlook stable: Management expects margins to remain in a similar range, with a possible slight increase if the government proposes it for MoU rating purposes.
• Medium-term margin visibility is low: Future orders (next-gen destroyers, P-17B frigates, P-75I) may shift from nomination to competitive bidding, which would bring a "totally different scenario" for margins. The basis for award is not yet known.
• Profit booking is conservative early: A clear cost and margin picture emerges only later in project execution. Initial stages use conservative profit booking, with more clarity as the project progresses.
• Non-operating income boosted FY24: Approximately ₹400 crores of additional interest income was earned in FY24 vs FY23, driven by improved interest rates and higher deposits.

Capacity Expansion & Capex

• Three-facility footprint taking shape: MDL recently acquired a 15-acre parcel adjacent to its existing premises and is developing the Nhava yard. When all three facilities are in place, capacity will at least double.
• Capex plan: INR2,500 to INR3,000 crores over the next three to four years, depending on crystallization of reports and order placement. Significant capex will be incurred on both the adjacent land and Nhava yard over the next two to three years.
• Consultant being appointed: A consultant will assess the existing facility, map future business opportunities, and plan infrastructure development, including determining the maximum vessel dimensions and draft the facilities can accommodate.
• Ship repair remains a small slice: Currently 5% to 7% of total revenue, with focus remaining on new build. Ship repair infrastructure development will take three to four years.

Balance Sheet & Cash

• Cash is not all free: A substantial amount of the cash on the balance sheet belongs to the Navy against ongoing projects. Free cash attributable to MDL is approximately ₹4,000 crores.
• Budget not seen as a constraint: Management stated that budgets have never been a constraint for defence and naval requirements; funds are provided as requirements crystallize and orders are placed.

Singhal: "A substantial amount of this cash which is visible in our balance sheet belongs to Navy against the project. So, this is not free cash. Free cash which belongs to MDL would be around INR4000 crores."

Guidance & Commitments

Key Metrics