L&T Shipbuilding hopes to double exports by 2022
With domestic defence and shipbuilding order flow drying, L&T Shipbuilding will be focusing on doubling its export revenue share by 2021-22.
“We will be done with all our orders in 2019, once we finish the seven offshore patrol vessels (OPVs) order the same year,” Jayant D Patil, senior executive vice-president (defence), told Business Standard. “Since there is no revenue visibility from the domestic market (defence and shipbuilding) in the next two years, we will be scouting far more aggressively in the export market and increase our dependency on export orders.” Patil is also a wholetime director on the L&T board.
Currently, of the total revenue stream in L&T’s shipbuilding segment, exports contribute 6-7 per cent. However, by 2021-22, the aim is to raise the export order contribution to 15-20 per cent.
L&T Shipbuilding is part of the $17billion Larsen & Toubro, the engineering and technology giant. It has two main revenue streams, defence & aerospace and shipbuilding. Under the defence-aerospace segment, it has four verticals— submarines, guns & missiles, military communication and weapons & engineering systems. The shipbuilding segment comprises construction of ships such as OPVs and warships, and the repair segment, also termed refit.
The company still hopes to also get some major orders from the defence segment, in the pipeline for a longer than expected period. “We are awaiting contracts for landing platform/dock (LPD). We are hopeful it will come in the next two months. Ideally, it should have come a year back,” said Patil.
LPD is an amphibious warfare ship, generally designed to transport troops into a war zone. It also has the capability to transport helicopters.
“Warships and submarines are other areas where we are very bullish in times to come. We see opportunities in at least two submarine programmes but are uncertain on the time frame. We hope at least one of these will happen in the next two to two and a half years,” said Patil.
Overall, L&T has been waiting for some multi-crore defence projects to take off for quite some time. It hopes for orders here, generally in the range of ~50,000-60,000 crore.
L&T has a shipyard at Kattupalli near Chennai in Tamil Nadu and in Hazira, Gujarat. With regard to its high-margin ship repair business, the company sees strong spillover as a large number of ships from the navy are likely at the refit facilities of government-owned and private shipyards. “I am hoping the navy makes some decisions next year and there would be more need for refits (repair). Public sector yards like Mazagaon and Vizag are now full; so, there is scope for us to get these orders. Repair has better margins but volume is lower,” said Patil.
L&T Shipbuilding’s revenue contribution to the group is still miniscule. However, it has big hopes on large orders from the defence sector, where it sees unending opportunity in the longer run.
“For the L&T consolidated balance sheet, we have revenue visibility over the next four financial years and it might be reaching ~175,000-200,000 crore. But, for shipbuilding to contribute even a minimal 10 per cent would mean reaching ~20,000 crore, which will not happen soon. However, shipbuilding for us is a very clear decision and we are bullish in the long term,” he explained.
L&T Shipbuilding is one of the few private shipbuilders that is doing well; peers Bharati Shipyard and ABG Shipyard have been in deep financial trouble for a while.
The Anil Ambani-led Reliance Naval and Engineering has not made any major headway in terms of orders since it bought stake in Pipavav Defence and Offshore Engineering in 2015.