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Ship-building Sector: Revitalizing the sector through number of reforms

ICICIdirect Research 26 Sep 2025 DISCLAIMER

The government has approved a comprehensive package worth Rs 69,725 crore to revive and modernise India’s ship-building ecosystem. The govt’s overall aim is to reduce dependence on foreign ships and regain the country's maritime sector which remains a backbone of the Indian economy, supporting ~95% of the nation’s trade by volume and ~70% by value.
India’s share in global ship-building market is currently at less than 1%. The package positions India to compete with established ship-building nations like China, South Korea and Japan (the three nations hold more than 90% share in ship-building) by addressing the 25-35% cost disadvantage faced by Indian shipyards.
Govt also aims to be among the world’s top-5 ship-building nations by 2047 with a target of increasing share of locally built vessels from 5% at present to 69% by 2047
The key highlights of the package is an extension of “shipbuilding Financial Assistance Scheme” till March 2036, backed by a corpus of Rs 24736 crore. The scheme primarily aims towards incentivizing shipbuilding in India (15% assistance for vessels below Rs 100 crore, 20% for vessels above Rs 100 crore and 25% for green, hybrid and specialised vessels).
With minimum requirement of 30% domestic value addition, the scheme also includes a “Shipbreaking Credit Note” allocation of Rs 4,001 crore. Allowing shipowners to claim 40% of a vessel’s scrap value when dismantled at Indian yards towards constructing new vessels.
The package also includes a Rs 25,000 crore “Maritime Development Fund” to provide long-term financing for the sector. MDF also includes an Interest Incentivization Fund of Rs 5,000 crore to reduce the effective cost of debt and addresses critical financing gaps and enables lower-cost capital for ship-building and ship-repair projects.
Also, Rs 19,989 crore has been allocated for “Shipbuilding Development Scheme”, which focuses on building mega shipbuilding clusters and infrastructure expansion.
As per the govt, these reforms will unlock 4.5 million gross tonnages of additional capacity annually (currently at ~0.1 million gross tonnages annually) and attract investments of ~Rs 4.5 lakh crore. 
Amongst the Indian shipyards, we believe that companies like Cochin Shipyard and Mazagon Dock Shipbuilders will have huge opportunity in commercial ship-building in the coming years.
Cochin Shipyard has already signed an MoU with HD Hyundai of Korea and Tamil Nadu govt for a long-term strategic collaboration in ship-building. The management also guides orders pipeline of 2.85 lakh crore (including defence ship-building) in the coming years. With an order backlog of Rs 21000 crore (~4x TTM revenue) and healthy order inflows, we expect earnings growth to remain strong. We have a target price of Rs 2240 on Cochin Shipyard
Mazagon Dock also has strong orders inflow visibility in defence with two large contracts worth Rs 1 lakh crore for submarines expected in the next few months. Thus, the current order backlog of ~Rs 30000 crore is expected to increase significantly by this year end.  Management also stated that potential order inflow opportunity of Rs 2-2.5 lakh crore in the next 18-24 months. We remain positive on Mazagon dock also with a target price of 3160

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