Indian Shipbuilding, Shipyard Consultant, Indian Shipyard, Shipbuilding, Shipbuilding Consulting

Indian Shipbuilding

Mantrana Maritime Advisory provides

Shipbuilding

Shipbuilding is a globalized, technology and capital intensive industry, with more volatility than the OSV industry.

Shipbuilding is a cyclical industry, where variables like fresh developments in the shipping industry, current market perception, government tax and reforms. Shipbuilding is a unique industry, because a ship is sold before the construction begins and each ship is custom made for the owner. The lead time is anywhere between 1 year to 3 years for the delivery of a new ship. Orders are placed in anticipation of the ship’s future use. In many cases, companies even enter into a charter agreement in advance, which makes it absolutely imperative and critical for the shipyard to deliver within specified deadlines.

Thus, delay in delivery not only affects the owner, but also the reputation of the yard where it was put on order, not to mention the financial aftermath. Hence, companies 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 billion. Approximately, Rs.200 billion are export orders, while Rs.80 billion is for domestic shipping companies.

Majority of the orders placed at Indian shipyards are from European ship owners. Indian shipyards have built offshore supply vessels for leading offshore companies such as Deep Sea Supply, Bourbon Offshore, Lamnalco Group, Halul Offshore, Maridive 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 new-building orders from Precious Shipping of Singapore, Reederei Vogemann and Opielok Reederei of Germany, etc.

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

Indian Shipbuilding - Current Scenario

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.

INDIAN SHIPBUILDING
Government Controlled			Private Sector
Central Government		State Government	Public Listed	Privately Held
Ministry of Surface Transport	Ministry of Defense
1. Cochin Shipyard 2. Hindustan Shipyard 3. Hooghly Dock	1. Mazagon Dock 2. Goa Shipyard 3. Garden Reach Shipyard	1. Alcock Ashdown 2. Shalimar Works	1. ABG Shipyard 2. Bharati Shipyard 3. Pipavav Shipyard	About 22: some of the leading ones are L&T, Chowgule, Tebma, Dempo, Shoft etc.

Despite the current downturn, Indian shipyards weren’t idle. Most new-building orders during recession were from government companies such as ONGC, SCI and other firms such as coast guard, navy, etc. 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.

Shipyards Booked till 2011-12

Detail

Despite the economic slowdown, Indian shipyards were occupied with building new orders. Most of these orders were from government companies such as ONGC, SCI, and firms like coast guard, navy, etc. Orders received prior to the recession period are slated to be delivered by 2011-12. The shipping companies are looking to expand their fleet, and with respect to the ongoing new-building activity, about 74 ships are estimated to be delivered by 2014 by the Indian shipyards. Many orders are nearing completion and the ones due for delivery in 2009-10 are unlikely to be cancelled. Orders that were to be delivered in 2011-12 may be cancelled. Shipyards won’t have to bear the brunt of this cancellation, as they will be compensated for the same.

Excess and, sometimes, speculative ordering during boom time, has now resulted in an excess tonnage of bulk carriers in the global market. The drop in Chinese iron-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. The major chunk, 43% of the total new order-builds, is in the cargo segment.

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).

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 might face stagnation from 2012 onwards. However, it is expected that the downturn in the economy as well as the shipping industry won’t last that long.

Expansion Plans Put on Hold

Detail

Future Outlook

Detail

Defense

Detail

The Indian Navy could be the savior of the Indian shipbuilding industry. In the interest 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, since Indian Navy is looking 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 needs 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 defense segment.

The potential for a shipbuilding company is enormous with India aiming to become ‘Blue Water Navy’ by 2020. The shipbuilding order book up to the year 2014 stands at 39 vessels, with a total value estimated to be at 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 values at Rs.280 billion till 2012, which translates into approximately Rs.70 billion per year. Riding on the assumption that the Indian Navy will be spending Rs.950 billion, starting in 2013 up to 2030, the Indian shipping industry would see an annual spending of Rs.53 billion per year.

Even if the private shipyards were to get 50% of these orders, they will stand to earn Rs.27 billion per year; Rs.43 billion less than their boom-time earning. These figures are mere deduction based on the combination of current market and the best case scenario. However, the large difference suggests that defense alone cannot help sustain the current performance of Indian shipyards. Hence, another alternative needs to be considered: Shipbuilding for offshore sector.

Offshore

Detail

The offshore segment, too, is a lucrative segment for the Indian shipbuilding industry. Around 41% of the current order book of Indian yards caters to 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 in turn was to be leased 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:

Budgeted expenditure in the Offshore Exploration & Production has fallen by only 12% (Barclays Capital) despite more than 65% in oil price.
Oil & Gas companies have deep pockets. Moreover, 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 78% over previous five year plan.

Such factors could encourage foreign players to invest in Indian offshore sector, which will add to the technical knowhow, thereby preventing shipbuilding delays. Leading nations in the offshore sector like Norway have shown interest in India’s offshore sector.

Indian Ship Owners

Detail

Nearly 70% of new-builds in Indian commercial order book are export oriented. It reflects the notion that Indian fleet owners prefer acquiring ships from outside India. During the boom time, Indian shipyards benefited from spillover of orders from the overbooked foreign yards. But now, they will have to attract domestic ship owners as the world demand has slowed down.

There are a total of around 900 vessels under the Indian flag and almost all of them are Indian owned. The average age of the fleet is 24 years. Within the next 5 years - 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.

Coastal Trade & Inland Waterways

Detail

In the current situation of economic turmoil, 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.

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.