SLOWER THAN EXPECTED EXECUTION IN SHIP-BUILDING SEGMENT IMPACTED Q2FY23 PERFORMANCE

News:

  Revenue for the quarter came in at Rs 683.2 crore (down 1.9% YoY); lower than our estimate of Rs 800.6 crore. This was mainly due to slower than expected execution in ship-building contracts. Revenue from Ship-Building segment (~77% share) declined 5% YoY to Rs 527.6 crore while revenue from ship-repair segment (~23% share) increased 10.3% YoY to Rs 155.6 crore. Sequentially, total revenue increased 55% led by strong growth in both the segments (50.1% QoQ revenue growth in ship-building and 74.0% QoQ revenue growth in ship-repair)

·         Gross margins contracted by 305 bps YoY on increase in raw material cost. Sequentially, gross margin improved by 379 bps led by strong revenue growth (despite sharp increase in raw material cost)

·         EBIDTA margins came in at 19.8%; contracted by 382 bps YoY on muted sales and increase in costs (mainly other cost). Sequentially EBITDA margin improved sharply by 1265 bps on operating leverage benefits. EBITDA declined by 17.7% YoY (+329% QoQ) to Rs 135.3 crore (I-direct estimate of Rs 120.2 crore)

·         EBIT from ship-building segment stood at Rs 96.4 crore (down 38.8% YoY) while ship-repair segment EBIT increased sharply by 178.4% YoY to Rs 50.6 crore

·         PAT came in at Rs 112.8 crore (down 14.1% YoY) led by lower sales and lower margins. However, higher other income of Rs 61.7 crore (+47.3% YoY) supported the bottomline

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 Cochin Shipyard’s Q2FY23 performance was impacted mainly on account of slower than expected execution; possibly in its major active projects like anti-submarine warfare (ASW-SWC), hopper dredger and export contract of multi-purpose vessels. CSL’s order backlog is estimated to be at Rs 21000 crore (~6.3x TTM revenues) post the recent vessels contract of Rs 1000 crore from Europe. The majority of the large contracts in order-book is expected to witness meaningful execution from FY24E onwards (like 6 NG Missile Vessels, ASW corvettes, export order of vessels. Moreover, ship-repair segment, which is already doing better, would see more good opportunity in the future post the expansion of facilities at Mumbai, Kolkata and Port-Blair. We remain positive on CSL as it has a strong earnings visibility for the coming years considering healthy order backlog and strong opportunities in shipbuilding (in both domestic & exports) and ship repair segments.

Impact:

Positive