Aditya Birla
Aditya Birla Money Limited
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Analyst Poll
Garden Reach Shipbuilders & Engineers
07-June-2019 [14:21]
In interaction with Mr. Vipun Kumar MD on 6 June 19

Key Highlights

Garden Reach Shipbuilders & Engineers (GRSE) caters to the shipbuilding requirement of Indian Navy and Indian Coast Guard. Ships ranging from small to large and advanced vessels including frigates, anti-submarine warfare corvettes, missile corvettes, landing ship tanks, landing craft utilities, survey vessels, fleet replenishment tankers, fast patrol vessels, offshore patrol vessels, inshore patrol vessels, water jet fast attack craft, hover crafts and fast interceptor boats have been delivered to Indian Navy, Indian Coast Guard, the Ministry of Home Affairs and other countries over the last five decades.

More than 750 vessels have been built to carry men and materials as well as for surveillance of the coast line. Boats, pontoons, barges, sailing dinghies, fishing trawlers, fire floats, tugs, dredgers, passenger ferries, motor cutters, deck whalers and launchers have been constructed.

Apart from shipbuilding division (around 96% of total revenues), the company also has Engineering and engine production service division which offers deck machinery items, pre-fabricated portable steel bridges and marine pumps etc.

Presently, there are three separate facilities for shipbuilding, all of which are located in close vicinity of each other in Kolkata, West Bengal. The ships are built at the main works unit and at the Rajabagan Dockyard. The third facility is used for fitting out and repair of ships. There is capability to build vessels ranging from five tonnes to 24,600 tonnes. The plant is modern and capable of offering end-to-end solutions.

Margins improved in FY 19 overall due to higher margins from construction of P 17A Project with higher physical progress and delivery of 4 ships.

Company spends around 10-12% of PAT on R&D activities to enhance indigenisation and operational improvements to reduce wastage and rework in ship construction. As compared to around 85% 5 years back, the company has reached around 93-94% indigenisation.

FY 19 capex was around Rs 50 crore. The company aims to spend around Rs 200-250 crore of capex in next 3-4 years. This will be towards modernization of existing ship building facility.

Operating losses in FY 17 and in FY 18 were primarily due to liquidity damages on some orders. Management has assured that the damages are almost over and few more losses will be cleared in FY 20. Post which no more such losses will happen. The order book does not have such scope of work for liquidity damages that was seen in the past.

The order book for all the product categories stands at around Rs 21644 crore as on April 19. Of the total order book, around Rs 300 crore of orders are from engineering and engine related orders and rest are all from shipbuilding orders.

Post April 19, the company received orders of around Rs 6300 crore of anti submarine warcrafts.

The business is cyclical. Recognition of revenues and expenses occurs in large parts in the middle period of the project, when expensive equipment and sophisticated systems are installed in the vessels. The beginning period of a project and the end period of a project give rise to significantly lower revenues and expense recognition compared with the middle period. As a result, revenue and expense recognition is heavily weighted toward five-year cycles of one to two years of lower revenue and expense recognition, followed by one to two years of significantly higher revenue and expense recognition, followed again by one to two years of lower expense recognition.

The order book has to be executed in 15 to 60 months timeframe. Hence order booking and revenue recognition will be more skewed towards FY 22 and FY 23 given the nature of the business.

Expects moderate revenue growth in FY 20 and in FY 21, but stupendous revenue growth in FY 22.

Global markets will also be explored. Their intention is to market all vessel sizes for export to various geographic locations. Hopes are high of exporting small- and medium-sized warship and patrol vessels to South East Asia, west Asia, African countries and Latin America

Most of the orders in hand are at fixed prices. There is sufficient cushion to absorb any increase in raw materials prices.

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Securities Broking is through Aditya Birla Money Limited: SEBI Registration No. NSE/BSE/MCX/NCDEX:INZ000172636 ; NSDL /CDSL: IN-DP-17-2015. PMS - INP 000003757, Research Analyst –INH000002145, Investment Adviser - INA000009214. Central Insurance Repository Limited: IRDA/IR2/2014/312. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Please read the risk disclosure document, rights and obligations, guidance note, Do’s and Don’ts and policies and procedure carefully before making any investment decision. Brokerage will not exceed the SEBI prescribed limit. Margins as prescribed by Exchange / SEBI will be applicable.
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