Mazagon Dock Shipbuilders Ltd:Annual Report 2023-24 Analysis

Mazagon Dock Shipbuilders Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Mazagon Dock Shipbuilders Limited (MDL) was established in 1774. It started as a small dry dock facility and gradually evolved into a full-fledged shipbuilding yard. It was nationalized in 1960.

Headquarters Location and Global Presence #

MDL’s headquarters is located in Mumbai, India. While primarily focused on the domestic market (Indian Navy and Coast Guard), MDL has also undertaken some export orders, indicating a limited but present global presence.

Company Vision and Mission #

While the publicly stated vision and mission might vary over time, the core objectives revolve around:

• Vision: To be a world-class shipbuilding and submarine building company.
• Mission: To contribute to the maritime security and economic growth of India by designing, building, and maintaining high-quality naval vessels and submarines.

Key Milestones in Their Growth Journey #

• 1774: Establishment as a small dry dock facility.
• 1960: Nationalization and integration into a public sector undertaking.
• 1971: Construction of the Leander Class Frigates under license from the UK.
• 1980s-1990s: Construction of Godavari and Delhi class destroyers.
• 2000s-Present: Construction of Shivalik class frigates, Kolkata class destroyers, Scorpene class submarines, and Visakhapatnam class destroyers.
• 2020: Initial Public Offering (IPO).

Stock Exchange Listing Details and Market Capitalization #

MDL is listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Refer to financial websites like BSEIndia.com or NSEIndia.com for the most up-to-date market capitalization.

Recent Financial Performance Highlights #

Refer to MDL’s official website or financial news sources (e.g., Economic Times, Business Standard) for the latest quarterly and annual financial reports. Key metrics to watch include:

• Revenue from Operations
• Net Profit
• Order Book Value
• Earnings Per Share (EPS)

Management Team and Leadership Structure #

The leadership structure typically includes:

• Chairman & Managing Director (CMD)
• Directors overseeing various functions (Finance, Operations, HR, etc.)

Refer to MDL’s annual reports or website for details on the current management team.

Notable Awards or Recognitions #

MDL has received numerous awards and recognitions for its shipbuilding capabilities, including awards for indigenization, quality, and project management. Specific awards are announced periodically.

Their Products #

Complete Product Portfolio with Categories #

MDL’s product portfolio is primarily focused on naval vessels and submarines:

• Warships: Frigates, Destroyers, Corvettes
• Submarines: Conventional Submarines (e.g., Scorpene Class)
• Auxiliary Vessels: Patrol Vessels
• Commercial Vessels: Although naval vessels form the majority of the revenue, MDL undertakes Commercial Vessels and other engineering products.

Flagship or Signature Product Lines #

• Destroyers: Kolkata Class, Visakhapatnam Class
• Frigates: Shivalik Class
• Submarines: Scorpene Class

Key Technological Innovations or Patents #

MDL has focused on indigenization and technology absorption. Key areas include:

• Hull Design and Construction
• Weapon Integration
• Propulsion Systems
• Stealth Technology (in certain vessel classes)

Specific patents held by MDL would require dedicated research through patent databases.

Manufacturing Facilities and Production Capacity #

MDL has extensive shipbuilding and submarine building facilities in Mumbai. Production capacity is measured by the number and type of vessels that can be constructed simultaneously. Specific capacity details are best sourced from company presentations or reports.

Quality Certifications and Standards #

MDL adheres to stringent quality control processes and certifications relevant to the defense sector. This likely includes certifications related to:

• ISO 9001 (Quality Management System)
• Naval Standards and Specifications

Any Unique Selling Propositions or Technological Advantages #

• Experience: Long-standing expertise in naval shipbuilding and submarine construction.
• Indigenization: Strong focus on developing indigenous capabilities.
• Strategic Importance: Key role in India’s maritime security.

Recent Product Launches or R&D Initiatives #

MDL is continuously involved in ongoing shipbuilding and submarine projects. Specific recent launches and R&D initiatives are usually announced in press releases or annual reports. A current focus is on next-generation submarines and advanced warships.

Primary Customers #

Target Industries and Sectors #

• Defense: Primarily the Indian Navy and Indian Coast Guard

Geographic Markets (Domestic vs. International) #

Primarily domestic (India). Limited exports to international markets.

Major Client Segments #

• Government (Ministry of Defence)

Notable Government Contracts or Institutional Clients #

The Indian Navy is the primary client.

Distribution Network and Sales Channels #

Direct sales to the Indian Navy and Coast Guard.

Major Competitors #

Direct Competitors in India and Globally #

• Indian Competitors: Garden Reach Shipbuilders & Engineers (GRSE), Cochin Shipyard Limited (CSL), Hindustan Shipyard Limited (HSL)
• Global Competitors: Examples include ThyssenKrupp Marine Systems (Germany), Naval Group (France), Russia’s United Shipbuilding Corporation.

Comparative Market Share Analysis #

Market share data within the Indian naval shipbuilding sector is not always publicly available in a precise, consolidated format. Information may be available from research firms specializing in the defense industry.

Competitive Advantages and Disadvantages #

• MDL Advantages: Established expertise, strong relationship with the Indian Navy, focus on submarines and destroyers.
• MDL Disadvantages: Potential limitations in cost-competitiveness compared to some international players.

How They Differentiate from Competitors #

MDL differentiates itself through its focus on advanced warships and submarines and its commitment to indigenization.

Industry Challenges and Opportunities #

• Challenges: Meeting project timelines, managing costs, keeping pace with technological advancements.
• Opportunities: Increasing demand for indigenous defense equipment, expanding export opportunities, participating in the modernization of the Indian Navy.

Market Positioning Strategy #

MDL positions itself as a key strategic partner for the Indian Navy, focusing on building advanced and complex naval platforms.

Future Outlook #

Expansion Plans or Growth Strategy #

Expansion plans may involve:

• Increasing production capacity.
• Entering new product segments (e.g., advanced technology integration).
• Exploring export opportunities.

Upcoming Products or Innovations #

Focus areas likely include:

• Next-generation submarines.
• Advanced warships with enhanced capabilities.
• Indigenous technology development.

Sustainability Initiatives or ESG Commitments #

Publicly available information on specific ESG (Environmental, Social, and Governance) commitments should be reviewed on MDL’s website or annual reports.

Industry Trends Affecting Their Business #

• Increasing focus on maritime security.
• Demand for advanced naval capabilities.
• Emphasis on indigenous defense manufacturing.

Long-Term Vision and Strategic Goals #

To remain a leading shipbuilding and submarine building company, contributing significantly to India’s maritime defense capabilities and growing sustainably.

Financial Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Increased by 21% to ₹9,466.58 crore in FY24 from ₹7,827.18 crore in FY23 and ₹5,733.28 crore in FY22.
• Profit Before Tax (PBT): Increased significantly to ₹2,461.38 crore in FY24 from ₹1,429.33 crore in FY23 and ₹786.66 crore in FY22.
• Profit After Tax (PAT): Rose to ₹1,845.43 crore in FY24, up from ₹1,072.72 crore in FY23 and ₹586.47 crore in FY22.
• EBITDA: Increased to ₹2,549.63 crore from ₹1,511.28 crore and ₹868.33 crore.
• Net Worth: Grew to ₹5,570.68 crore in FY24 from ₹4,177.56 crore in FY23 and ₹3,321.36 crore in FY22.
• Working Capital: Increased to ₹3,153.84 crore in FY24 from ₹1,945.34 crore in FY23 and ₹1,345.50 crore in FY22.
• Return on Capital Employed (ROCE): Increased to 44.28% in FY24 from 34.37% in FY23 and 23.9% in FY22.
• Normalized EPS: Increased to 91.5 from 53.19 and 29.08.
• Book Value: Increased to 276.2 from 207.13 and 164.68.

Business Segment Performance #

The company operates primarily in two segments: Shipbuilding and Submarine and Heavy Engineering. The majority of revenue is derived from shipbuilding activities, with a small contribution from ship repair services.

Major Strategic Initiatives and Their Progress #

• Indigenization: Successfully localized 57 major items and systems for ships and submarines, aligning with the ‘Make in India’ and ‘AtmaNirbhar Bharat’ initiatives.
• Infrastructure Upgrades: Ongoing projects include the construction of a new Security Complex, renovation of existing facilities, and exploration of a greenfield shipyard at Nhava Yard.
• Export Market Expansion: Aligning with the new thrust on defence exports, such as partnerships with other small shipyards.

Risk Landscape Changes #

• Geopolitical Risks: Acknowledges the evolving geopolitical situation and its potential impact on the defense sector.
• Supply Chain Risks: Dependence on foreign OEMs for critical components and potential delays in deliveries.
• Competition: Increased competition from private sector shipyards.

ESG Initiatives and Metrics #

Environmental Sustainability #

• Installed a 1.85 MWp solar power plant, generating 50 Lakh Mega Joule of electricity, which is 11% of the total consumption.
• Reduced total electricity consumption by 7,129,663.66 KWH and total energy consumption by 8,512,455 MJ.
• CO2 emissions under Scope 2 were reduced.
• Implemented water conservation initiatives, including sewage and grey water treatment plants.

Social Responsibility #

• CSR expenditure of ₹22.30 crore in FY24, impacting over 338,648 lives, focusing on education, health, sanitation, skill development, and village development.

Human Capital Development #

• Employee attrition rate of 1.7% for permanent employees and 0.05% for permanent workers.
• Zero Lost Time Injury Frequency Rate (LTIFR) for employees and 0.29 for workers.

Governance #

• Compliance with Corporate Governance guidelines for CPSEs and SEBI (LODR) Regulations.

Management Outlook #

• Growth and Development: Focus on establishing a greenfield shipyard at Nhava Yard and enhancing shipbuilding and repair capabilities.
• Strategic Partnerships: Shortlisted as a strategic partner for Project 75 (I) and bidding for additional Scorpene class submarines.
• Diversification: Exploring the Maintenance, Repair & Overhaul (MRO) sector and offshore projects, including an order from ONGC for wellhead platforms.
• Order Book: Strong order book of ₹38,561 crore as of March 31, 2024, including major projects for the Ministry of Defence and international clients.
• Navratna Status obtained.

Detailed Analysis #

Financial Position Analysis of Mazagon Dock Shipbuilders Limited (MDL) - FY 2023-24 #

Balance Sheet Analysis #

3-Year Comparative Analysis (Standalone) #

(₹ in lakhs)

Significant Changes in Major Line Items (>10% YoY) (Standalone) #

• Non-current Assets: Increased by ₹19,245 lakhs (6.88%) due to an increase in Deferred Tax assets, and other non-current assets, particularly capital advances.
• Other Equity: Increased by ₹139,312 Lakhs (35.03%).
• Deferred tax assets (net): increased by 33.25%
• **Other non-current assets:**Increased by ₹28,066 Lakhs(33.49%).
• Current assets: Decreased by ₹29,700 Lakhs.(-1.14%).
• Current Invesments:Increased by ₹9,019 Lakhs(15.32%).
• Trade Receivables: Increased by ₹84,460 Lakhs(84.26%).
• Cash and Cash Equivalent :Increased by ₹ 1,65,506 Lakhs(88.57%).
• Bank Balances other than Cash and Cash equivalents: Decreased by ₹73,185 Lakhs(-6.41%).
• Contract Assets- Decreased by ₹22,593 Lakhs(-79.78%).
• Other Current Assets-Decreased by ₹28,130 Lakhs(-7.15%).
• Current Liabilities:-Decreased by ₹1,50,550 Lakhs(-6.24%).
• Trade Payables: Decreased by ₹16,878 Lakhs. (-3.78%).
• Other Financial Liabilities: Increased By ₹5,016 Lakhs(34.22%).
• Contract Liabilities: Decreased by ₹1,61,000 Lakhs (-8.33%).

Working Capital Trends (Standalone) #

(₹ in lakhs)

• Working Capital Increased significantly, primarily attributed to decreased in current liabilities and increase in current Assets.

Asset Quality Metrics (Standalone) #

(₹ in lakhs)

• Allowances indicate a proactive approach to potential credit risks, even with increased receivables.

Debt Structure and Maturity Profile (Standalone) #

MDL’s debt structure, from the provided financials, appears to consist of :

Lease Liabilities: Current Portion: ₹12 Lakhs (FY24) ,₹573 Lakhs(FY23) Non-Current Portion: ₹81 Lakhs(FY24) ,₹31 Lakhs(FY23)

Deferred payment liability to a foreign supplier: Current Portion: ₹474 lakhs(FY24),₹474 Lakhs(FY23) Non-Current Portion: ₹1765 Lakhs(FY24),₹1802 Lakhs(FY23)

*The Company has minimal debt.The liabilities are related to a lease.

Off-Balance Sheet Items (Standalone) #

(₹ in lakhs)

• Contingent Liabilities, excluding capital commitments, is ₹35,26,321 Lakhs, which includes indemnity bonds issued by the company to customers for various contracts.
• Capital commitments are present, at ₹1,30,692 lakhs.
• Guarantee provided substantially increased, indicating higher contingent obligations.

Operating Performance Analysis of Mazagon Dock Shipbuilders Limited #

Revenue Breakdown #

• Segment-wise Revenue (FY 2023-24): Due to the nature of defence equipment production, specific segment reporting is not provided. The company’s operations are categorized into two segments: Shipbuilding, and Submarine and Heavy Engineering.
• Geographical Revenue: Revenue is almost entirely domestic during 2022-2023 and 2023-2024. Export orders of $85 million, or 0.16 % for 2023-2024.
• Revenue Growth: Total revenue from operations increased by 20.94%, from ₹7,827.18 crore in FY2022-23 to ₹9,466.58 crore in FY2023-24.

Cost Structure Analysis #

• Cost of Materials Consumed: Constituted 58.72% of total income in FY2023-24, a slight decrease from 60.17% in FY2022-23.
• Employee Benefit Expenses: Represented 8.45% of total income in FY2023-24, down from 9.28% in FY2022-23.
• Sub-Contracting Charges: Decreased to 3.61% of income in FY2023-24 from 5.33% in FY2022-23.
• Other Expenses (Project Related & Others): Combined, they formed 3.42% of income in FY2023-24, reduced from 5.95% in FY2022-23.
• Finance Costs: The cost reduced by 0.02 % in FY 23-24

Margin Analysis #

• Gross Margin: For FY2023-24, the gross margin was 1.882 times the gross block, improving from 1.012 in FY2022-23.
• Operating Margin (EBITDA Margin): Increased from 19.3% (₹1,511.28 crore) in FY2022-23 to 26.9% (₹2,549.63 crore) in FY2023-24.
• Profit Before Tax (PBT) Margin: Increased from 18.26 % in FY 2022-2023 to 26.00% for 2023-24.
• Profit After Tax: PAT increased by 72% year over year.
• Net Profit Margin: Increased from 13.71% in FY2022-23 to 19.49% in FY2023-24.

EPS Analysis #

• Basic & Diluted EPS: Increased from ₹53.19 in FY2022-23 to ₹91.5 in FY2023-24, demonstrating a 72% increase.

Cash Management: MDL Financial Analysis (FY 2023-24) #

Cash Flow Analysis (Consolidated) #

Operating Cash Flow (OCF) #

Operating Cash Flow increased to ₹136,091 lakhs in FY24 from ₹182,775 lakhs in FY23. This increase is observed before direct tax paid (net off). Major observed changes include a decrease in inventories, trade receivables, loans and advances, and an increase in other current and non-current assets.

Investing Cash Flow (ICF) #

Investing Cash Flow outflow increased to ₹141,981 lakhs in FY24, compared to an inflow of ₹14,966 lakhs in FY23. Major changes were in proceeds from the sale of property, plant, and equipment.

Financing Cash Flows (FCF) #

Financing Cash Flows decreased to ₹(44,850) lakhs in FY24 from ₹(21,799) lakhs in FY23.

Working Capital Management #

Working Capital increased to ₹3,153.84 crore in FY24 from ₹1,945.34 crore in FY23.

Dividend and Share Buyback #

Dividends #

An interim dividend of ₹309.39 crore (@ 153.4%) was paid in FY24. A final dividend of ₹244.25 crore (@121.1%) was declared for FY24.

Share Buyback #

No share buyback activity is mentioned in the provided financial data.

Liquidity Position #

Current Ratio #

The current ratio increased to 1.14 for FY24 from 1.08 for FY23.

Cash and Cash Equivalents #

Cash and Cash Equivalents increased significantly to ₹352,348 lakhs at the end of FY24 from ₹186,842 lakhs at the end of FY23.

Financial Performance Analysis: A 3-Year Trend #

Profitability Ratios #

Return on Equity (ROE) #

• FY24: 33.0%
• FY23: 25.7%
• FY22: 17.5% *Analysis: ROE has consistently improved, demonstrating increasingly efficient use of shareholder equity to generate profit.

Profit Before Tax (PBT) Margin #

• FY24: 26%
• FY23: 18%
• FY22: 14% *Analysis: PBT Margin indicates significant operational efficiency & cost control improvement.

Profit After Tax (PAT) Margin (Net Profit Margin) #

• FY24: 19.49%
• FY23: 13.71%
• FY22: N/A *Analysis: PAT Margin shows a significant improvement which can represent increase of efficiency of operations.

EBITDA Margin #

• FY24: 27%
• FY23: 19%
• FY22: 15% *Analysis: EBITDA margin showed improvement in all years, that demonstrates the improvement of operating efficiency and increase of core profitability.

Liquidity Metrics #

Current Ratio #

• FY24: 1.14
• FY23: 1.08
• FY22: 1.05 *Analysis: The current ratio consistently remains slightly above 1, indicating a stable but potentially tight ability to cover short-term liabilities with short-term assets.

Efficiency Ratios #

Asset Turnover Ratio #

• FY24: 0.33
• FY23: 0.27
• FY22: 0.19 *Analysis: Asset turnover ratio is increasing, which demonstrates the increasing efficiency in the usage of assets.

Inventory Turnover Ratio #

• FY24: 0.78
• FY23: 0.59
• FY22: N/A *Analysis: Inventory Turnover has improved in FY24, that indicates increase in efficiency of operations.

Receivables Turnover Ratio #

• FY24: 6.56
• FY23: 7.66
• FY22: N/A *Analysis: Receivables Turnover ratio has slightly decreased.

Leverage Metrics #

Debt-to-Equity Ratio #

The company reports no debt, rendering this ratio 0. The company’s operations are funded entirely by equity and operational cash flows.

Working Capital #

Working Capital is ₹ 3,153.84 crore for FY 2023-24, and ₹1945.34 for the FY 2022-23. The increase of working capital ensure the liquidity and efficiency of operations.

Mazagon Dock Shipbuilders Limited (MDL) Financial Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Overall Revenue from Operations: Increased by over 21%, from ₹7,827.18 crore in FY23 to ₹9,466.58 crore in FY24.
• Profit Before Tax (PBT) (excluding exceptional items): Increased by 72% from ₹1,429.33 crore in FY23 to ₹2,461.38 crore in FY24.
• Profit After Tax (PAT): Increased by 72% from ₹1,072.72 crore in FY23 to ₹1,845.43 crore in FY24.
• EBITDA: Increased from ₹1,511.28 crore in FY23 to ₹2,549.63 crore in FY24.

Market Share and Competitive Position #

• MDL is a key player in the Indian defence shipbuilding sector, described as one of India’s premier defence shipyards.
• MDL is the only Indian shipyard to produce both destroyers and conventional submarines for the Indian Navy.
• It holds a unique position, as it is shortlisted as a strategic partner for Project 75 (I) and has bid for additional Scorpene class submarines.

Key Products/Services Performance #

• Destroyers (Project 15B): The third guided missile destroyer, ‘INS Imphal,’ was delivered, ahead of schedule.
• Frigates (Project 17A): The fourth stealth frigate, ‘INS Mahendragiri,’ was launched.
• Submarines (Project 75): Completed the final reading of the third Scorpene submarine, ‘INS Karanj.
• Ship Repair: ‘INS Shishumar’ was handed over to the Indian Navy after successful Medium Refit cum Life Certification (MRLC).
• Exports: Bagged contract for 6 Multi-Purpose Hybrid Powered Vessels

Geographic Distribution and Market Penetration #

• Domestic: MDL primarily serves the Indian Navy and Coast Guard, making it highly concentrated in the Indian market.
• Export: MDL has secured export orders, Signed contracts with the Indian Coast Guard and with a Denish client. MDL signed Master Ship Repair Agreement (MSRA) with the US Government.

Segment-wise CAPEX and ROIC #

• Capex: The company has recently acquired a 15-acre piece of land. There are capex plans for a new 12,000-ton capacity Floating Dry Dock.
• Return on Capital Employed (ROCE): Increased from 34.37% in FY23 to 44.28% in FY24.

Operational Efficiency Metrics #

• The company delivered the third destroyer (Project 15B) five months ahead of schedule.
• MDL has adopted ‘Integrated Construction Methodology’.
• The import content in Value of Production for FY 2023-24 is ₹ 2,414.71 Crore and for FY 2022-23 is ₹ 2907.80 Crores.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Exploration of a greenfield shipyard at Nhava Yard.
  • Development of a skill development hub and Apprentice Training School.
  • Diversification into the Maintenance, Repair & Overhaul (MRO) of MI-17 helicopters.
  • Pursuing export opportunities and has appointed channel partners.
  • R&D Initiatives: Focus on indigenous Submarines,Fuel Cell powered electric Vessel, autonomous technology.

Strategic Risk Assessment: Mazagon Dock Shipbuilders Limited (FY 2023-24) #

Strategic Risks #

• Severity: High. The nature of defense shipbuilding involves long gestation periods and technological complexity, creating substantial project risks.
• Likelihood: Medium. MDL is currently short of having two independent directors.
• Trend: Stable, reflecting ongoing challenges in the defense sector.
• Mitigation Strategies: MDL is pursuing indigenization efforts, as seen in the development of 57 major items and systems. Exploring new markets, such as MRO for MI-17 helicopters.
• Control Effectiveness: Partially effective. Indigenization is progressing (57 items), and new orders from the Indian Coast Guard and a Danish client have been secured; however, there are still vacant positions for two independent directors.
• Potential Financial Impact: The order book stands at ₹ 38,561 crores. Risks from the P75(I) project (AON cost of ₹ 43,000 crores in 2018) and next-generation destroyers are high.

Operational Risks #

• Severity: Medium to High. Operational risks include potential delays in project execution, reliance on specific suppliers, and workforce skill requirements.
• Likelihood: Medium. The report highlights the delivery of the 3rd Destroyer of P15B five months ahead of schedule, showcasing operational efficiency.
• Trend: Improving. Mega Block outsourcing to improve productivity.
• Mitigation Strategies: Mega Block outsourcing is in place. An apprentice training school is addressing skill gaps, with 202,384 man-hours of training provided. Health, Safety & Environment Management Systems (HSEMS) are in place, with ISO 14001:2015 & ISO 45001:2018 accreditation.
• Control Effectiveness: Partially effective. LTIFR for workers was 0.29, up from 0.18 in FY 2022-23, and total recordable work-related injuries for workers increased to 8 from 4.
• Potential Financial Impact: The value of production was ₹ 9,068.01 crore for FY 2023-24 against a target of ₹ 9,101 crore.

Financial Risks #

• Severity: Medium.
• Likelihood: Low.
• Trend: Improving. Revenue from operations increased by over 21%, and PAT increased by 72% to ₹ 1,845.43 crore.
• Mitigation Strategies: Diverse order book spanning the Ministry of Defence and international clients.
• Control Effectiveness: Effective. Strong financial performance indicators across the board. Net Worth increased to ₹ 5,570.68 crore, and working capital increased to ₹ 3,153.84 crore.
• Potential Financial impact: Dependent upon the materialization of orders.

Compliance/Regulatory Risks #

• Severity: Medium to High. Non-compliance with SEBI Listing Regulations regarding the composition of the Board and its committees.
• Likelihood: High. The company didn’t have a sufficient number of independent directors.
• Trend: Stable. Ongoing issue related to board composition.
• Mitigation Strategies: MDL, being a Government Company, relies on the Ministry of Defence for director appointments.
• Control Effectiveness: Limited. MDL has sought a waiver for non-compliance and penalties.
• Potential Financial Impact: Penalties of ₹ 43,18,800 were charged.

Emerging Risks #

• Severity: High. The document refers to MDL and its partners being subject to U.S. and other sanctions.
• Likelihood: Medium. MDL has global orders.
• Trend: Increasing, as the Company explores new business opportunities.
• Mitigation Strategies: (Section Empty)
• Control Effectiveness: (Section Empty)
• Potential Financial Impact: (Section Empty)

Strategic and Management Analysis of Mazagon Dock Shipbuilders Limited #

Long-Term Strategic Goals and Progress #

• MDL aims to maintain leadership in shipbuilding and submarine construction by adopting advanced technologies and localization of critical components. It shows progress in the Submarine and ship segment by delivering five Scorpene class submarines.
• Exploration of new opportunities in the Maintenance, Repair, and Overhaul (MRO) sector and offshore projects represents a strategic diversification effort. There is also a focus on making MDL futureproof by investing in infrastructure.
• The development of a greenfield shipyard at Nhava Yard is a long-term initiative for enhancing shipbuilding and repair capabilities.
• The MoU with the Ministry of Defence sets specific performance targets. MDL largely achieved its production targets, showing strong operational performance with a PBT of ₹ 2,461.38 crore.

Competitive Advantages and Market Positioning #

• MDL holds a unique position as the only Indian shipyard producing both destroyers and conventional submarines for the Indian Navy.
• The company is a “Lead Shipyard” for major Surface Combatants.
• The company’s strategic location on the west coast provides proximity to major sea routes.
• MDL possesses two independent submarine assembly and launch lines.
• The company has secured the “Navratna” Status.

Innovation Initiatives and R&D Effectiveness #

• MDL has a dedicated Department of Indigenization and has successfully localized 57 major items and systems for ships and submarines.
• Ongoing R&D projects include the development of indigenous conventional submarines, midget submarines, underwater targets, and mobile target emulators.
• There’s a focus on Artificial Intelligence (AI) projects, including underwater swarm drones and autonomous surface vessels.
• Collaboration with academic institutions and startups through the iDEX initiative is fostering innovation.
• R&D spending for FY 2023-24 was approximately 5.26% of PAT.

Management’s Track Record in Execution #

• MDL has delivered key naval assets ahead of schedule, including the third guided missile destroyer of Project 15B five months early.
• The company has signed contracts with the Indian Coast Guard and a European client, indicating successful contract acquisition.
• Achieved record-high Revenue from Operations of ₹ 9,466.58 crore and Profit After Tax (PAT) of ₹ 1,845.43 crore in FY 2023-24.

Capital Allocation Strategy #

• MDL has acquired additional land from MbPA for shipyard expansion, indicating a focus on long-term infrastructure development costing approximately ₹ 354 Cr.
• The company has placed an order for a Floating Dry Dock with a Capex allocation of ₹ 496 crore.
• A dividend payout of 274.50% of paid-up share capital was declared, indicating shareholder returns.
• Capex is planned for the development of the newly acquired land and the Nhava yard for infrastructure development.

Organizational Changes and Their Impact #

• The establishment of a dedicated Department of Indigenization in 2015 has driven the localization of numerous components.
• Madhavi Kulkarni was appointed Company Secretary & Compliance Officer, effective December 1, 2023.
• Cdr. Vasudev Puranik, Director (CP&P), took on the additional charge of Director (Submarine & Heavy Engineering), effective May 27, 2024.
• The ‘Sanskar Se Samriddhi’ program facilitates direct interaction between senior management and employees.

ESG Framework #

ESG and Sustainability Analysis #

Environmental Metrics and Targets #

• MDL installed a 1.85 MWp rooftop solar power plant, generating 50 Lakh Mega Joule of electricity from solar power in FY 2023-24 (11% of total consumption).
• Total electricity consumption was reduced by 7,129,663.66 kWh.
• Total energy consumption was reduced by 8,512,455 MJ.
• CO2 emissions under scope 2 were reduced.
• 5.26% of total Profit After Tax (PAT) invested in R&D projects targeted toward improving environmental and social impacts.
• 2.91% of the total Capex was used towards improving environmental and social impacts.
• MDL is ISO 14001:2015 & ISO 45001:2018 (HSEMS) and ISO/IEC 27001:2013 accredited.
• Sewage treatment plants are capable to treat up to 2 cum/hr, and grey water treatment plants with a capacity to treat up to 4 cum/ hr.

Social Responsibility Programs #

• CSR expenditure for FY 2023-24 was ₹22.30 crore, impacting over 338,648 individuals.
• CSR initiatives span education, health and sanitation, nutrition, skill development, and village development.
• Healthcare initiatives include the supply of medical equipment at Government Hospitals and support of mass screening for sickle cell anemia.
• Skill development programs include apprenticeship training, with 202,384 man-hours of training provided in FY 2023-24.
• Education support includes “MDL Super 10” and tuition centers for underprivileged children.
• Aspirational district projects in Nandurbar included Sickle Cell anemia screening for 120,000 people and malnutrition awareness initiatives.

Governance Structure and Effectiveness #

• The Board of Directors comprises four Whole-Time/Functional Directors, one Government Nominee Director, and four Independent Directors as of March 31, 2024.
• Nine Board meetings were held during FY 2023-24.
• The Audit Committee met eight times during the financial year.
• The Nomination and Remuneration Committee met eight times during the financial year.
• The Stakeholders Relationship Committee met once during the year.
• The Corporate Social Responsability Commitee had four meetings.
• The Risk Management Committee met twice during the year.
• MDL is compliant with the Guidelines on Corporate Governance for CPSEs issued by the Department of Public Enterprises (DPE) and SEBI(LODR) Regulations.
• The company did not have sufficient number of Non-Executive & Independent Directors.

Sustainability Investments and ROI #

• MDL invested in a 1.85 MWp rooftop solar power plant, indicating a commitment to renewable energy. The financial ROI is not explicitly detailed but is represented through energy savings and reduced carbon footprint.
• Investment in waste management practices is evident, though specific financial returns are not quantified.
• MDL has invested significantly in Research and Development, with 5.26% of the profit after tax.

Regulatory Compliance and Future Preparations #

• MDL complies with the Companies Act, 2013, Indian Accounting Standards, SEBI regulations, and Secretarial Standards issued by the Institute of Company Secretaries of India.
• The company is exploring a greenfield shipyard at Nhava Yard, indicating preparations for future infrastructure needs and potential regulatory requirements related to environmental sustainability.
• MDL maintains compliance with Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012, achieving 27.66% procurement from MSEs in FY 2023-24.
• MDL is complying with the Guidelines on Corporate Governance for CPSEs issued by the Department of Public Enterprises (DPE) and SEBI(LODR) regulations
• The audit report includes management representations under Section 143(3)(iv) of the Companies Act, 2013, stating no funds were advanced, loaned, or invested in other entities with the understanding of indirect lending or investment in other persons or entities identified by the Company.

Forward Outlook: Mazagon Dock Shipbuilders Limited (MDL) Analysis #

Management Guidance and Assumptions #

• Revenue from Operations is expected to continue increasing in FY25.
• FY25 revenue target for MOU with the government is between ₹10,000Cr to ₹10,500Cr.
• Early delivery of the fourth destroyer (contractual schedule February 2025) is targeted. Timely delivery is the goal for the first frigate of Project-17 Alpha.
• Sustained demand within the defense sector is assumed.
• Contracts MDL is currently executing are on a nomination basis.
• Future projects like additional submarines are also expected on a nomination basis.
• Future contours are not visible right now with respect to next-generation destroyers and follow-on ships of P-17 Bravo frigates.

Market Growth Forecasts #

• The Indian coastline (7,500 km) and geopolitical factors are projected to create significant future development in the maritime defense sector.
• Requirements for shipbuilding exist, and funds would be provided as requirements get crystallized at the Navy level and orders are placed.

Planned Strategic Initiatives #

• Maintain leadership in shipbuilding and submarine construction by adopting advanced technologies and innovative practices.
• Focus on indigenization and the ‘Make in India’ initiative to localize critical components, reduce import dependency, and enhance self-reliance.
• Explore new opportunities in the Maintenance, Repair, and Overhaul (MRO) sector and offshore projects to diversify the portfolio.
• Establish a greenfield shipyard at Nhava Yard to enhance shipbuilding and repair capabilities.
• Pursue export avenues with a wide range of product portfolios.
• Revive the Off-shore line of business to provide an additional stream of revenues.

Capital Expenditure Plans #

• Significant Capex planned over the next two to three years for the development of the recently acquired 15-acre land parcel adjacent to the existing MDL premises.
• Significant Capex investment in capacity addition at Nhava yard, anticipating larger future platforms with deeper drafts.
• Construction of a new 12,000-ton capacity Floating Dry Dock.
• Creation of a skill development hub and Apprentice Training School at Gavhan village, Navi Mumbai.
• Order placed for Floating Dry Dock with a Capex allocation of ₹ 496 Cr.

Efficiency Improvement Targets #

• Progressively reduce overhead expenditure and operational costs.
• Attain technological leadership in warship and submarine construction through in-house R&D and partnerships.
• Enhance productivity through improved internal processes, benchmarking, and innovative practices.
• Upgrade employee capabilities as per HRM guidelines issued by DPE.

Potential Challenges and Opportunities #

• Challenges:

  • Potential delays in project execution due to the long gestation period of shipbuilding and submarine projects.
  • Dependency on timely deliveries from suppliers, especially foreign OEMs for critical components.
  • Competition from domestic private sector shipyards and international shipbuilders, particularly in terms of pricing.
  • Maintaining the skill level of the workforce given the technological complexities of the industry.

• Opportunities:

  • Growing demand for naval vessels and submarines due to India’s strategic maritime location and evolving security needs.
  • Government initiatives like ‘Make in India’ and ‘AtmaNirbhar Bharat’ promoting indigenization and self-reliance.
  • Expansion into the MRO sector and offshore projects, creating new revenue streams.
  • Export orders and collaborations can enhance global presence.
  • Potential for repeat orders and nomination-based contracts for next-generation destroyers and frigates.
  • Potential future project includes Project 75I, six submarines.
  • Order of ₹4,676.32 crore from M/s ONGC for Wellhead Platforms and Associated pipeline projects.

Scenario Analysis and Sensitivity to Key Assumptions #

• Geopolitical Situation: The current geopolitical situation is assessed to be conducive for increased defense spending.
• Revenue Growth Scenario: Continued increase in revenue from operations is expected, with a target close to ₹10,000-₹10,500 crore for an “excellent” MoU rating in FY25.
  • Sensitivity: Growth is highly sensitive to the timely materialization of orders, particularly the additional submarine order.
• Profitability Scenario: Margins are influenced by early deliveries (positive impact), liquidated damages (negative impact), and the type of contracts (nomination vs. competitive).
  • Sensitivity: EBITDA margins have been volatile, and future margins will depend heavily on project execution and contract type.
• Order Book Scenario: Strong order book (₹38,561 crore as of March 31, 2024), but future growth depends on securing new orders, especially the additional submarine contract.
  • Sensitivity: A significant increase in the order book is expected if the submarine contract materializes; otherwise, growth will depend on smaller orders.
• Capex Impact Scenario: Significant Capex is planned, particularly for land acquisition and Nhava yard development.
  • Sensitivity: Cash reserves will be utilized, impacting free cash flow. Funding for new projects could be impacted if major new orders are delayed.
• Competition Scenario: MDL anticipates potentially bidding for next-generation destroyers (NGD) and follow-on P-17 Bravo frigates, but the tender process is uncertain.
• Cost Sensitivity: Profitability is sensitive to project cost management, where early deliveries have a positive effect by saving on costs.

Audit & Compliance #

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report expresses an unmodified opinion on the standalone and consolidated financial statements.
• Emphasis of matters include: pending registration and renewals of certain leasehold properties, balances of advances to vendors and balances outstanding in sundry creditors subject to confirmation, balance due to/from Indian Navy (Debtor) subject to reconciliation and confirmation, and liquidated damages. The auditor’s opinion is not modified.
• No frauds were reported by the auditors.

Key Accounting Policies and Changes #

• Revenue Recognition: For Ship Construction/repair contracts, revenue is recognized over time using the percentage of completion method (PoC).
• Depreciation: Calculated on a straight-line basis as per Schedule II of the Companies Act, 2013.
• Inventory Valuation: Raw materials, stores, and general spares are valued at weighted average cost. Equipment for specific projects is valued at cost.
• Leases: The Company adopted Ind AS 116, recognizing right-of-use assets and lease liabilities.
• The company utilizes estimates and assumptions on account of actuarial valuation, recognizing deffered tax assets, and dicounting of long-term financial liabilities.
• No change in accounting policy during reporting period.

Internal Control Effectiveness #

• The auditors expressed an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• The Company has an Internal Audit Department and outsources specific area audits.
• The company implemented the e-Vidhan(Vigilance Management System) in SAP ERP.

Regulatory Compliance Status #

• The Company complied with the provisions of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and other applicable regulations, except for Board composition requirements.
• Penalties were imposed by NSE and BSE for non-compliance with Regulation 17 of SEBI (LODR), 2015, totaling ₹ 43,18,800. Part of fine waived for certain periods post compliance.
• The Company observes Presidential Directives on reservation of posts for SCs/STs/OBCs.
• Complied with guidelines on corporate governance for CPSE and SEBI regulations.
• Complied with Public Procurement Policy for Micro and Small Enterprises.
• Adhered to the ISO 14001:2015, OHSAS 18001:2007, ISO 45001:2018 and ISO/IEC 27001:2013 standards.

Legal Proceedings and Their Potential Impact #

• The Company has disclosed the impact of pending litigations.
• Claims against the Company not acknowledged as debts amounted to ₹ 6,400 lakhs.
• There are disputed tax demands pending before adjudicating/appellate authorities.

Related Party Transactions #

• Transactions with related parties were in the ordinary course of business.
• Major related party transactions were with the Ministry of Defence (revenue of ₹ 9,03,815 lakhs) and Goa Shipyard Limited (dividend of ₹ 3,655 lakhs).
• Remuneration and sitting fees were paid to Directors and Key Managerial Personnel.

Subsequent Events #

• No adjustments to the financial statements were required for events after the reporting period.
• Lease agreement for land with Mumbai Port Authority will be executed in FY 2024-25 for renewal for 29 years.

Analysis of Accounting Quality #

• The use of estimates is inherent in the business and appropriately disclosed.
• The unmodified audit opinion suggests a high level of accounting quality.
• The consistent application of accounting policies allows for comparability across periods.

Regulatory Risk Assessment #

• High Risk: Non-compliance with SEBI regulations on Board composition.
• Moderate Risk: Pending litigations and claims.
• Low Risk: Compliance with most statutory dues and regulations.