According to ET Intelligence Group, Garden Reach Shipbuilders & Engineers (GRSE), an Indian manufacturer of warships for the Indian Navy, is likely to pick up a revenue growth soon. This may attract investors during the 3-4 coming years because the shipyard is to make frigates for the Indian Navy during this period of time.
Two Indian frigates (Picture Source: GRSE)
Three frigates (medium-size warships) are being built at Garden Reach, and execution has reached a criticality threshold that would allow the company to begin recognising revenue. This means the peak revenue in the next 3-4 years could be potentially three times of last fiscal year’s sales.
The initial public offering of Garden Reach had received a lukewarm response from Dalal Street when it debuted in September 2018 due to the lack of immediate revenue growth triggers, despite an order book of Rs 20,313 crore.
Typically, the design to the delivery time of a warship varies from 66 to 80 months, and the bulk of the revenues is recognised between 35 and 60 months. The three-missile frigate, which the company is currently building, is entering the 35-60 month phase. Thus the bulk of the revenues from the Rs 19,500 crore order will be recognised.
The company’s revenues at the end of FY19 stood at Rs 1,558 crore, a gain of 2 per cent over the previous fiscal. Also, the company has bagged orders worth Rs 2,435 crore for making eight large survey vessels for the Indian Navy, and delivery of these ships will start from October 2021.
The current order book of the company stood at Rs 27,955 crore at the end of FY19, which includes a recently bagged order of Rs 6,311 crore for eight anti-submarine warfare shallow-water craft. The company is currently bidding for 4-5 orders from the Navy and Indian Coast Guard, including the Rs 10,000-crore order from the Indian Navy for Corvettes.
Apart from revenue growth that should boost earnings in the medium term, the company has worked diligently to improve cost efficiency and lower its overheads. It improved its supply chain, increased outsourcing, lowered employee count, and paid less liquidated damages (the penalty for not delivering warships on schedule) at times when revenue growth was moderate.
