Mazgaon Dock: Significant growth in FY24E

In 2018, the Defense Acquisition Council had approved the procurement of 6 indigenously designed next-generation off-shore patrol vessels (NGOPV). Back then, the cost estimate was Rs.49.4 billion and the project was awarded to Pipavav Shipyards. Plagued by several delays, the project was scrapped. On December-20, however, the Ministry of Defense increased the number of vessels to 11, with a revised cost of about Rs.90 billion. For these vessels, Mazagaon Dock Shipbuilders, among other Indian shipyards placed their bids. The awarding is split among 7 vessels for the L1 bidder, and 4 vessels for L2, provided L2 agrees to uniform cost. As the results are out, Goa Shipyard is L1 and GRSE is L2 for the Rs.90 billion order.

The two shortlisted strategic partners: Mazagaon Dock Shipbuilders and L&T, were to hold discussions with the five shortlisted foreign collaborators. Except for Korea's Daewoo Shipbuilding & Marine Engineering, all other contenders backed out. The set conditions and their inability to share confidential commercial data with a yard is the major sticking point. The other concerns include a high indigenous content percentage and almost unlimited liability on the foreign technology partner. Further, there are concerns even on single propulsion equipment vendor (battery in case of the submarine), which adds to the list of woes that can escalate costs and prolong time.

Mazagaon Dock Shipbuilders has a history of building Corvettes. In fact, INS Khukri was India's first of its class guided-missile corvette. This was indigenously built by the Mazagaon Dock Shipbuilders in 1989. INS Khukri served the navy for 32 years before it was decommissioned on Dec 23rd, 2021.

The Indian navy plans to acquire seven new-generation guided missile corvettes at $2 billion, to replace its Russian-built 1241-RE missile vessels. This order will allow only domestic companies to bid under the government's indigenous plans. The Indian Navy wants the new corvettes to have a longer range, than the older ones. The vessels should be capable of offensive nuclear submarine attack, anti-submarine warfare, local naval defense, maritime interdiction operations, and visit, board, search, and seizure. 

Mazagaon Dock's  Rs.450 billion order backlog is spread over two critical projects: (1) Rs.200 billion in P15B Destroyers; (2) Rs.200 billion in P17A stealth frigates. Both these projects are in shipbuilding. The Rs.50billion residual portion is confined to P75 Scorpene-class submarines and works on the medium refit and life certification of a submarine.

As Mazagaon Dock enters into the final stages of vessel delivery by FY24, the company will engage in a higher number of brought-out items. This is largely confined to "the fight" component, among the three critical components of defense shipyards: float, move, and fight. The $2 Billion Corvette orders remain the near-term catalyst besides any progress on P75(I). Even without the new orders, a 21% CAGR for revenue/net profit over FY21-FY24E is expected.