Cochin Shipyard Ltd is braving a choppy shipping industry to sell shares in an initial public offering (IPO) with the chief executive of India’s biggest state-run shipbuilder by dock capacity pinning hopes on a “different growth strategy” to sail through.

With its “big-brother’ shipping facing headwinds from a slowing global trade since 2008, overcapacity and falling freight rates, shipyards world over are struggling for business.

Closer home, the troubles surrounding ABG Shipyard Ltd and Bharati Defence, both listed, is bound to play in the investors’ minds when the share sale kicks off on August 1.

“Our situation is very different from others,” says Madhu S Nair, 51, one of the youngest to helm the Kochi-based company, which for many years were headed by naval commodores. Nair rose through the ranks to become the CMD in January 2016, after spending 29 years at the yard.

“We do not have debt, we have cash in hand of ₹1,600 crore, we have the capex to move forward. We did things prudently over the past many years; we preserved land, we preserved cash and we preserved our people. We have everything to move forward,” Nair told BusinessLine.

Cochin Shipyard knows the importance of preserving cash. “We have gone through bad times. Twenty-five years ago, we were not at this level; our net worth was a negative ₹180 crore. We are a little bit debt averse. Leveraging on debt too much is not in the character of this company,” Nair says.

Being debt-free is a big thing for a ship builder these days considering that both ABG and Bharati were weighed down by the huge debt they raised and couldn’t repay on time in the wake of a market downturn, putting ABG on the brink of bankruptcy.

Expansion The market downturn continues but Cochin Shipyard is re-shaping its strategy to stay profitable, even investing in a ₹2,800 crore capacity expansion which would be part-funded through the share sale, making it the first of the five state-owned shipbuilders to be listed on the bourses. The capacity will help it build bigger ships and take up more repair work. “We turn down 20-30 vessels for repairs a year due to lack of capacity,” he pointed out.

Increasing revenues “We are very clearly in four distinct spaces – ship building defence, ship building non-defence, ship repair defence and ship repair non-defence. In FY 17, revenue-wise, 26 per cent of our revenues came from ship repairs which is not going anywhere down for the last two years year-on-year. It is only increasing not by small figures by big figures. Our ship repair revenues have jumped from ₹196 crore in FY 15 to ₹375 crore in FY 16 to ₹550 crore in FY 17. That is the kind of jump we are seeing in the ship repair business. I’m not saying we want to jump at the same level, but it is a high margin business,” Nair said.

“Shipbuilding, which is 74 per centof our business, 85-90 per cent of that revenue today comes from government-funded defence contracts. The balance comes from orders as part of the government’s Make in India initiative,” he said in Mumbai on 25 July fresh from a trip to the maritime hubs of Singapore and London to meet potential investors. In other words, the company earns its entire revenues from government orders.

Contracts worth ₹3,000 cr Currently, the yard is executing contracts worth ₹3,000 crore, comprising four passenger-cum-cargo vessels for the Andaman and Nicobar Administration, one technology demonstration vessel for the DRDO and the balance work on the second phase of the aircraft carrier, the first made locally, for the Indian Navy.

“As we move forward, for the next few years, I’m willing to not really look at the international shipbuilding market. Even without that, the Navy’s aircraft carrier is backing me up. We have submitted bids for orders worth ₹12,000 crore for the Navy and the Ministry of Home Affairs. Ship repairs will continue to pick up. So, for me, five years from now, I’m just singing. Now, what comes five years later… by that time the aircraft carrier will be in water, last 30 years of aircraft carrier experience will be with me; I’ll have whatever I pick now from defence space and by the time the next aircraft carrier is on the horizon, we feel we’ll be the rightful claimant for building that. Then, I’m not expecting the international market to remain in the ditch over the next five years. But, I don’t want to say we will grow at five times or ten times. We will have consistent growth and PAT levels and PAT margins will be sustained,” Nair added with confidence.

The shipyard has been largely unaffected by workers’ strike despite its base in Kerala, known for militant trade unionism. “It’s a miracle,” says Rajesh Gopalakrishnan, general manager, business development and new projects, adding that the yard has been a profit making company for many years.

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