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Indian Shipbuilding
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Mantrana Maritime Advisory provides |
Shipbuilding is a globalized, technology and capital intensive industry.
Shipbuilding is a cyclical industry, which is often impacted by developments in the shipping industry and the current market perception. Shipbuilding is a unique industry because, a ship is sold before the construction begins and each ship is custom made for the owner and it takes anywhere between 1 to 3 years for the delivery of a new ship. The ship owner orders a ship in anticipation of its future use, and in many cases with advance charter agreements which makes it critical for the shipyard to deliver within specified deadlines. This makes shipbuilding delays costly for the owner and hence, they prefer to place orders with established shipyards with a good track record.
Indian Shipyards have an orderbook of close to 260 ships with aggregate value in the region of Rs 280 bn. Approximately, Rs 200 bn are export orders while Rs 80 bn is for domestic shipping companies.
Majority of the orders placed on Indian shipyards are from European Shipowners. The owners specify manufacturers for all the critical items placed in a ship. Indian shipyards have built offshore supply vessels for leading offshore companies such as Deep Sea Supply, Bourbon Offshore, Lamnalco Group, Halul offshore, Maridrive oil, etc. They have also built ships for leading international cargo carriers. Cochin Shipyard has built ships for Clipper group. In addition, Indian shipyards have newbuilding orders from Precious Shipping of Singapore, Reederei Vogemann and Opiolek Reederei of Germany, etc.
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Indian Shipbuilding Industry
Profile of major shipyards in India
Product range catered to by shipyards in India
Upcoming shipyards in India
Statistics related to investment, expansion plans, new upcoming projects, etc in the Indian Shipbuilding Industry
Infrastructure details of upcoming Shipyards in India
Key selling points of Shipyards in India
Future outlook of shipbuilding industry in India
Independent assessment and recommendation about shipyards in India
Critical issues and problems related to Indian Shipbuilding Industry
Market Assessment for Shipyard
Macro study of Shipping and identification of target segment for shipyard
Demand supply Scenario for ships
Charter rates assessment and its impact on Shipbuilding Industry
Shipyard Consultant for Technical Consultancy
Site Selection for Setting up new shipyard
Location assessment for shipyard
Planning and layout of Shipyard
Infrastructure Require for Shipyard
Planning of equipments and Machinery for Shipyard
Project Scheduling & Planning
Shipyard Consultant on Regulatory Matters
List of Permission required for setting up shipyard
Classification & Statutory requirements for shipbuilding
Subsidy Issues in Indian Shipbuilding
Risk Assessment in the Indian Shipbuilding Industry
Assessment of risk associated with establishment like
Competition in the Indian Shipbuilding market
Longer lead time for Indian Shipyards
Technical Risk associated with Indian Shipyards
Liquidated Damage due to delay or failing to meet performance guarantee
Design & Engineering risks with the Indian Shipbuilding Industry
Supply chain management & Project execution risks in Indian Shipbuilding Industry
Financial Study
Capital Expenditure required for setting up a Greenfield Shipyard in India
Phasing of investment
Operational Expenditure in Indian Shipbuilding Industry
Revenue projections based on market and capability of Shipyard
Equity Required (how much & when)
Financing options, Sources, Debt/Equity ratio etc.
Break-even analysis & ROI |
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| Indian Shipbuilding - Current Scenario |
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India has close to 32 shipyards including those owned by Central Government, State Government, Defense Ministry, listed and privately held. The following chart summarises the Indian shipbuilding industry, in terms of ownership of shipyards.
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Despite the current downturn, Indian shipyards are not idle. The orders received during the shipping upturn period are due to be completed by 2011-12. Many orders are nearing completion and the ones due for delivery in 2009-10 are unlikely to be cancelled. Orders due in 2011-12 may be cancelled. However, this will not have an immediate impact because the shipyards will be compensated with penalty fees for such cancellations. |
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Shipyards Booked till 2011-12 |
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Despite the current downturn, Indian shipyards are not idle. The orders received during the shipping upturn period are due to be completed by 2011-12. Many orders are nearing completion and the ones due for delivery in 2009-10 are unlikely to be cancelled. Orders due in 2011-12 may be cancelled. However, this will not have an immediate impact because the shipyards will be compensated with penalty fees for such cancellations. |
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Currently there is an excess tonnage of bulk carriers in the global market. This is due to excess and sometimes speculative ordering for bulkers during the shipping boom. The drop in Chinese ore demand has caused bulker freight rates to plummet and there are rumors of order cancellations in this segment.
The orderbook of Indian shipyards by DWT (as of March 2009) is shown in the figure. 43% of this is in the cargo segment. |
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The average price of a bulk carrier on order is $38 million. Out of these, 21 vessels with a displacement of 1.01 million DWT are due to be delivered in 2011 and beyond. These orders are the most likely to be cancelled. The approximate value of these vessels is $ 764 million (Rs 40 billion). |
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The above figure shows the orderbook of ABG shipyard by value of ships and the respective owners.
Indian shipyards may have a cause for concern as they could become idle from 2012 onwards. However, It is expected that the downtown in the economy as well as the shipping industry will not last than long.
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Expansion Plans Put on Hold |
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Some of the private shipyards have put their expansion plans on hold in view of the current financial crunch as well as the shipping downturn. Amongst others, It is understood that L&T has reduced the size of its planned shipyard at Katupalli near Chennai. |
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Future Outlook |
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Due to the shipping downturn as well as the global economic scenario, the future of the shipbuilding industry beyond 2011 seems uncertain. Even though shipyards are running profitably as of now, they are taking measures to cut costs in anticipation of a lull in business from 2012 onwards. Historical data suggests that such lulls in shipbuilding industry have lasted for as long as 10 to 15 years. Hence, it is no wonder that established shipyards like Mitsubishi in Japan and JJ Sietas in Germany are taking pay cuts and laying off workers. However, we expect that history does not map the current times since the speed of change has increased in an unprecedented manner.
Indian shipyards are organized currently in such a manner that a major portion of their orders are from foreign ship owners. Also, Indian private shipyards cater almost entirely to the commercial shipping segment. In view of the anticipated crisis, it is important to have a look at other sources of demand for new ships which could be tapped by Indian shipbuilders. |
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Defense |
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The Indian Navy could be the saviour of the Indian shipbuilding industry. In the interests of national security, Naval orders are usually given to domestic shipyards. In India such orders have been given mainly to the public sector yards. However, as the Indian Navy looks to expand its fleet, the private sector yards can hope to bag some of these naval orders. A naval order is highly attractive because:
Long delivery time allowed Government absorbs the price increase due to cost overruns very little chance of an order being cancelled.
However, a private shipyard needs to obtain a license to build naval ships, for which it has to satisfy technical requirements. L&T is the frontrunner in obtaining naval orders and is setting up a shipyard in Ennore, near Chennai in order to build naval ships. ABG, Bharati and Pipavav are also aiming to enter the defence segment. |
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The potential for a shipbuilding company is enormous with India aiming to become ‘blue water navy’ by 2020. The shipbuilding orderbook up to the year 2014 stands at 39 vessels with a total value estimated to be Rs 235 billion. Also, by 2030, India is expected to build 24 submarines at an estimated cost of Rs 600 billion.
The current commercial shipbuilding order book of Indian shipyards is Rs 280 billion till 2012. This means, approximately Rs 70 billion per year. Assuming, the Indian Navy is going to spend Rs 950 billion, starting in 2013 up to 2030. This means an annual spending of Rs 53 billion per year.
Even if the private shipyards get 50% of these orders, they will earn Rs 27 billion per year – Rs 43 billion less than their boom-time earning. Of course, these are rough calculations with many assumptions. But, the large difference suggests that defence alone cannot help sustain the current performance of Indian shipyards. Hence, we look at another alternative - shipbuilding for offshore sector.
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Offshore |
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The offshore segment is also an attractive segment for the Indian shipbuilding industry. 41% of the current order book of Indian yards is in the offshore segment consisting of 70 vessels with an average price of $38 million. The most expensive vessel, a $160 million rig, which was supposed to be delivered by Bharati shipyard to Great offshore, which had planned to lease it to ONGC has been delayed by at least 6 months. This has caused ONGC to cancel the order. However, Bharati has continued to work on the ship in anticipation of finding a new buyer.
Still, the offshore segment is attractive because:
As budgeted expenditure in the Offshore Exploration & Production has fallen by only 12% (Barclays Capital) despite more than 65% in oil price.
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Oil & Gas companies are cash rich, they have contractual & regulatory commitments to government to explore blocks awarded to them. They will acquire ships to initiate such exploration.
In India, budgeted expenditure for offshore segment has increased due to the development of discovered fields
ONGC budgeted expenditure for XI plan (2008-12) has increased by 75% over previous five year plan
Such factors could encourage foreign players to invest in Indian offshore sector, which will help improve India’s technical know-how in the field and prevent shipbuilding delays like the one just discussed. Leading nations in the offshore sector like Norway have shown interest in India’s offshore sector.
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Indian Ship Owners |
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Nearly 70% by billing of Indian commercial orderbook is export oriented. It shows that Indian fleet owners prefer to acquire ships from outside India. During the boom time, Indian shipyards benefited from spill over of orders from the overbooked foreign yards. But now, they will have to attract domestic ship owners as the world demand has slowed down |
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There are a total of around 900 vessels under the Indian flag. Almost all of them are Indian owned. The average age is 24 years. Within the next 5-10 years, a large number of these ships will need to be replaced and it is important that these shipbuilding orders go to Indian Shipyards.
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Coastal Trade & Inland Waterways |
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In the current situation of a downturn in global trade, coastal trade sector assumes more importance for the shipbuilding sector. Currently there are 615 vessels in the coastal segment with an average age of 23 years. This amounts to a total displacement of 1 million DWT.
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The development of Inland Waterways (NW I, II and III) along with the planned construction of National Waterways IV and V, presents an opportunity for Indian shipyards to cater to the small vessel segment.
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