McGrath RentCorp
NASDAQ:MGRC
McGrath RentCorp
McGrath RentCorp began its journey modestly, carving out a niche in the American rental industry with a business model rooted in practicality and foresight. The company has built a name for itself by offering rental services across three main lines: modular buildings, electronic test equipment, and liquid and solid containment tanks. With strategic vision, McGrath RentCorp focuses on catering to a spectrum of industries, including education, construction, energy, and telecommunications, thus ensuring diversity in its revenue streams. By maintaining a portfolio of scalable, rentable assets, McGrath RentCorp effectively mitigates risk and capitalizes on long-term leases, which stabilize cash flow and provide a buffer against economic fluctuations.
What sets McGrath RentCorp apart is its well-honed expertise in management and logistics, which drives operational efficiency. It leverages the power of regional presence, with service centers and offices scattered throughout its key markets, ensuring rapid response times and personalized service. In this way, McGrath not only retains a competitive edge but constantly enhances customer loyalty. While innovation in sectors such as electronic test equipment rental infuses new energy into the market, the steady demand for modular buildings and containment solutions continues to form the backbone of its operations, ensuring a well-rounded approach to growth. Admiring the wisdom of maintaining a decentralized structure, the company stands as a testament to the power of strategic diversification and disciplined management.
Earnings Calls
Mazagon Dock Shipbuilders reported solid performance with margins currently at 20-21%, though these are expected to normalize to 12-15% due to changing order profiles. With a substantial capex plan of INR 5,000 crores over the next five years, the company invests in expanding its shipyard capacity. Upcoming projects include P75 and P75(I) submarines, with deliveries planned over the next several years. The government’s defense budget reflects a slight increase of 5%, indicating continued support for naval acquisitions, positioning Mazagon Dock favorably for future contracts.
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Ladies and gentlemen, good day, and welcome to the Mazagon Dock Shipbuilders Limited Q3 FY '25 Earnings Conference Call hosted by Nirmal Bang Institutional Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Jyoti Gupta from Nirmal Bang Institutional Equities. Thank you, and over to you, ma'am.
Thank you, Yousuf. Good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you to the Quarter 3 FY '25 Earnings Conference Call with the management of Mazagon Dock Shipbuilders Limited. We have with us Shri Sanjeev Singhal, Chairman and Managing Director, Additional Charge and Director of Finance; Shri Biju George, Director Shipbuilding; Commander Vasudev Puranik, Retired Director, Corporate Planning and Personnel; and Director, Submarine and Heavy Engineering, Additional Charge.
Without further ado, I request Mr. Shri Sanjeev Singhal to start with his opening comments, after which we can open the floor for questions and answers. Thank you, and over to you, sir.
Yes. Good afternoon, everybody. Happy to welcome you all to this investors -- to this conference call. We have posted a good set of numbers. The company is consistently doing well as you must have gone through the numbers. Whatever queries would be there, we would be happy to address those queries. We can start with the conference, please.
Sir, should we start with the Q&A?
Yes.
[Operator Instructions]
First question is from the line of Atul Tiwari from JPMorgan.
Congratulations on good set of numbers. Sir, my first question is on the medium-term margin profile that the company can have. And sir, the context is that over the past 3 to 4 years, your margins have expanded quite a bit. So are the current margins sustainable at about 20%, 21%? So could you share your thoughts on that?
No, this is -- we have earlier also indicated that this is based on the orders, which were legacy orders continuing for quite some time. The order profile is changing and a normal margin for this kind of industry would be in the range of 12% to 15%. So we have always given this kind of a projection that a sustainable margin would be something around 12% to 15%.
And sir, this 12% to 15% will be at PBT level or at EBITDA level?
Yes, this is at PBT level.
PBT level. So including other income and everything, the 12% to 15% of revenue?
Yes.
Okay, sir. And sir, if you could comment on the media reports regarding P75(I) order, where we are in the process and how long these negotiations could go on and when we could expect some kind of conclusion of these negotiations and award of the order?
The price bids have been opened. So a decision has already been taken that only one bid is technically suitable. That is the one submitted by Mazagon Dock Shipbuilders Limited. Price bids have been opened. We expect that anytime soon, the negotiations or the discussions should start. I would not say negotiations because there would be discussions with respect to commercial also. We are quite hopeful that if the process goes as per the normal pace, next financial year, we should -- the order should be in place.
Okay, sir. And sir, my last question is on any other large orders that are in the pipeline over the next 1 to 2 years, if you could highlight?
Additional submarines, we are quite hopeful that there is a -- we are confident that it can be done before 31st March this year.
So these are the 3 additional P75 submarines?
Yes.
Okay. And within this financial year, you are hopeful that it should fructify.
We are quite confident about it because from our side, everything has been done. So now it is only the final approvals, which is pending with the MOD and government. There is sufficient time is there. So we are quite hopeful that before 31st March, the order should be in place.
Next question is from the line of [ Gagan Thareja ] from ASK Investment Managers.
I hope I'm audible clearly.
Yes.
Sir, the first question is on the other expenses for the quarter. I mean there's a host of expense items or line items, which cumulatively add up to that. And that has gone up substantially, so provisions, project-related expenses and so on and so forth. I think if I accumulate all of this into other expenses, it's up.
There is a disturbance from your side. Your voice is there, but simultaneously, something is there in the background also. Clearly -- your question is not understood clearly. Please repeat.
Okay. I'll repeat my question. My question is the other expenditure for the quarter -- Q3 results reported, which includes provisions and project-related expenses has gone up substantially. Can you elaborate on that?
Yes, certain provisions have been created with respect to the inventories, which are lying with us and where the warranty period of the ship is complete. So considering that there is no clear visibility with respect to the utilization, although the items are good. And we expect that going ahead in future, these items may be required on the ships which have already been commissioned or on other projects. As and when they are utilized, the provision would be reversed. But for the time being, provisions have been created with regard to the excess inventory. Here is this. And with regard to the offshore project of ONGC, the first one which we had received the order in the month of December. Although the time line has been extended by up to 31st of March, the -- for the time being, the time lines have been extended without waiving the LD. The LD issue remains open. So we have provided the liquidity damages for the project. As and when the time extension is received with the waiver of liquidity damages, this provision may be written back.
Right. And sir, you also indicated that if you are able to deliver the orders ahead of schedule, there will be a reversal of D-448 liabilities and you'll be able to save on costs. Has that manifested itself in this quarter? And is it possible to give some idea of what benefit could have come from that in the quarter?
Yes, we have completed the Project 15 Bravo, all the deliveries are done. D-448 liabilities for [Technical Difficulty]
I think it will be converted very shortly.
D-448 liability for the first one is done. D-448 of the second ship is expected soon. So as far as this quarter profit is concerned, a substantial contribution is from Project 15 Bravo.
Right. So if I understood it correctly, the subsequent quarter, which is Q4 will possibly also have some element of reversal of D-448 liabilities?
Depending upon what exactly is the expenditure for liquidation of D-448 liabilities. Because the expenditure is less than the [indiscernible] created for that, there would be a reversal.
Right. And also you have some provisions created for this Scorpene deliveries, which you have done in the past during the COVID period. And you indicated that -- I think INR 140 crores to INR 150 crores, 2 such reversals are possibly there to be done. Was there any...
INR 142 crores for submarine 5 already in this quarter, which has also contributed to the profit. Our submarine that is submarine 1 is still under discussion. There, the provision is in the range of INR 100 crores because the LD applicability for the first submarine was at the rate of 2.5%. On others, it was applicable at the rate of 5%. So this is still under discussion. We are pursuing that. And with regard to the sixth submarine, again, we have now delivered it in the month of January. So this again, we'll be taking up for waiver of LD. So this will take time. But as and when the waivers received, this provision will also be reversed.
So sorry, just to get the number, this was INR 42 crores or INR 142 crores -- you are not very clearly audible to me.
SM5, we have reversed INR 142 crores.
INR 142 crores. Okay. All right, sir. And what are the deliveries due in the fourth quarter? You indicated Scorpene, you delivered one in January. So that will come into the fourth quarter. Any other deliveries pending for large platforms in Q4?
In this financial year, no deliveries are pending. We are not expecting any further delivery in this financial year. Next financial year, one is definite, could be 2.
All right, sir. And next-generation Corvettes, also the order finalization, I think, is due and fairly close to completion. Any updates there that you can provide? And when do you see this being materializing?
We have participated in the bid. The bid is -- they are not open [Technical Difficulty] Mr. Biju has replied that, that price bids have not yet been opened.
Okay. All right, sir. And you mentioned a fairly comprehensive CapEx program. Can you give us how you'll be spending it? I think you indicated INR 5,000 crores over the next 4, 5 years. How will be the CapEx budgeted on an annual basis starting next financial year?
We have 2 CapEx programs. One for the adjacent land, which we need to be developed with a graving dry dock. And also near Nhava Sheva in the Nhava -- we call it as the Nhava yard, that also has to be developed as a full-fledged shipyard with the graving dry dock. [indiscernible] their reports would be ready by -- the DPR should be ready by mid of this year. And then we will be tendering over the EPC contract. There is the uncertainty of environmental clearance which are there. So it will -- it's a slightly long [indiscernible] are coming to fruition.
So from a financial standpoint, in terms of magnitude, what we -- what will the CapEx budget be for '26?
'25, '26 as far as these projects are concerned, there may not be a major CapEx. But yes, our floating dry dock would be ready. Floating dry dock, it is around INR 500 crores CapEx is there approximately. So that will get realized in the -- completely in the current -- next financial year.
Third quarter.
Yes. INR 350 crores will get realized thereby.
And apart from P75, P75(I) and NGC, what all orders are there in the pipeline for which you might have bid also which you see coming up for bidding in the next 12 to 18 months?
Large order is not there, but discussion is there with regard to 17 follow-on of 17 Alpha, that is 17 cargo. And with respect to next-generation destroyers. So a firming up at the Naval and has not taken place, but we expect between 2 to 3 years from now, these 2 projects should be fructifying.
Right, sir. And the P75 and P75(I), is it possible to understand from the point where you receive the order, how will deliveries be scheduled? I mean first delivery will be how far away from having received the order for 75 and 75(I) and thereafter, how will the submarines be delivered?
The date of placement of receipt of order and then subsequent submarines, each 1 year, additional 1 year for each submarine.
Okay. And for the existing Scorpene Kalvari class, I think you also indicated on the midlife upgrade, there will also be an AIP, which will be installed. When is the order disbursal for that due? And thereafter, for the midlife upgrade, further orders are placed over what time schedule?
AIP order for approximately INR 1,768 crores, we have already received in the month of December. As for the repeat order is concerned, it is still with Navy to decide. So we expect next financial year, there should be a decision.
[Operator Instructions] Next question is from the line of Rohit Natarajan from Aditya Birla Sun Life Insurance.
Congratulations on strong set of numbers. My first question is more to do with normalization of margins for FY '26. Any color on what will be that number look like?
Mr. Rohit, your audio is not clear. There is a lot of background disturbance.
Sir, I was asking what is the normalized EBITDA margin assumption for FY '26?
I said that at PBT level, it will be around 12% to 15%. Just on the first question, we have indicated that normalized PBT for this industry, anything between 12% to 15% is quite okay.
My second question is more to do with, say, let's assume hypothetically, if we conclude this year with INR 12,000 crore execution. Will it be fair to say because we haven't concluded the submarine order, the next year could possibly see some sort of a decline in execution and then probably we will see a jump?
No, we are not envisaging a decline next year.
That means from the existing order backlog, you should be in a position to grow at least 10%. Is that the fair assumption to be made?
Right now, we have not taken an assessment with respect to the growth. But yes, there will not be a decline.
Next question is from the line of Sagar Gandhi from Invesco Mutual Fund.
As there is no response from the current questioner, we will move to the next question from the line of [ Bhavesh ] an individual investor.
Congratulations on a great set of numbers. My first question is with respect to your order book. So as I can see in the investor presentation, the order book as on 31st December '24 stands at INR 34,787 crores. So if I had to discard the 3 deliveries done in the month of Jan 2025, what will be the current order book stand at? Like will it be between INR 26,000 crores, INR 27,000 crores?
First of all, I'll correct you, the 3 deliveries were not in January. 2 deliveries were in December. So these have been taken into consideration while working out the order book. And with regard to the third delivery also, this was in the first week of January. So it doesn't have any material impact on my order book. Whatever numbers are there as on 31st December, they by and large, consider all the 3 deliveries.
Okay. And secondly, sir, Mr. Prime Minister Modi is traveling to France next week. So there are rumors that there might be a contract signed for the Rafale and the 3 Scorpene submarines. So can we see this getting materialized by next week or it will happen by 31st March?
No comments from our side.
Next question is from the line of Sagar Gandhi from Invesco Mutual Fund.
As there is no response from the current questioner, we'll move to the next question from the line of [ Anirudh Murarka ] from Continental.
Congratulations, sir, for a great set of numbers. My question is regarding your subsidiary, Goa Shipyard. Any plans to list the same in the future? And how much stake do we hold in this company?
Goa Shipyard is not our subsidiary. They are our associate company. We are holding 47.21%. Currently, there is no management control. It is just an investment in Goa Shipyard. We don't participate in their production programs or any kind of a decision-making. They are an independent company.
Next question is from the line of Atul Tiwari from JPMorgan.
Sir, if I could ask, I mean, you did mention a PBT margin of 12% to 15% for this industry. For next year, FY '26, will this margin emerge? Or will we continue to operate at much higher margin given the kind of what we have right now going on?
Next financial year is primarily the existing orders where the margins are comparatively higher, better. So next financial year would be not 12% to 15% but at the same time, difficult to assign any kind of a number, but we expect healthy margins next financial year.
Okay. And sir, at the end of the 9 months, our order book is down year-on-year. And I understand that we will likely get very large orders very soon. But will it take some time to ramp up the execution of those orders and hence, consequently, say, for 1 year, our revenue growth could be slow, like, say, 5% or 10% only. Is that a possibility? Or will we continue to grow at like 20% even next year?
No, we are not saying that next year growth is not projected at 20%. We are saying that there would not be a decline in next year revenues. Growth numbers have not been worked out. There could be a marginal growth.
Next question is from the line of Ms. Jyoti Gupta from Nirmal Bang Institutional Equities.
If we close this year with INR 12,000 crore execution, do we see with the current -- the projects upcoming, which you'll have by March, the mean order book intake of something like INR 17,000 crores and then INR 19,000 crores in the next 2 years? And when you said that your EBIT margins are going to decline to 12% to 15%, will that be after FY '26? Because you're saying that FY '26 would be better than FY '25, then your margins should actually start seeing a decline after FY '27 or we should start seeing it after FY '26?
I -- none of these statements which you have made are -- can be ascribed to me. I have never said that INR 12,000 crores, we are expecting this year. We have never said with respect to next year margins or there would be a margin decline. I have only replied that a normalized margin for our industry could be in the range of 12% to 15%, balance with regard to...I have already...
When can we see that kind of normalized margins? From which year can we start expecting those kinds of normalized margins?
No, we are executing the existing orders. So where the margin should be somewhat similar levels what we are experiencing today, except for the exceptional items like reversal of LDs, et cetera. And depending upon the D-448 execution. So we don't see much change for the existing orders.
Okay. And this existing orders that we have, these are executable over the period of 2 years or 3 years?
Approximately 2, 2.5 years.
2, 2.5 years. So which means -- and these are all nomination based. So obviously, after 2.5 years, you may see -- I mean, we could see some sort of changes in the margins, right?
This industry, it all depends. And when these orders -- large value orders are materializing on us. Sitting today, I will not be able to predict what is going to happen after 2.5 years. If we are -- if the material -- if the orders with respect to additional submarines with respect to 75(I) are materializing, the normal refit of Scorpene submarines is coming to us, then I don't see a reason for decline in the revenues or profits.
Sir, how much are we progressed in terms of indigenization? And how much would that impact have on the overall margins, if...
Indigenization is not likely to have an impact on the overall margins because initially, there is an investment required. Some of [ message ] would be there. So we expect to counter both the factors with each other. So we don't see any significant impact neither on the negative side nor on the positive side with regard to indigenization because these would be the first projects where the indigenization would be taking shape. And depending upon at what value or what cost we are able to get these equipments, the future trajectory would be decided for future projects.
[Operator Instructions] Next question is from the line of Prerak Gandhi, an individual investor.
Congratulations on a good result. Sir, a couple of questions. First was that in the last con call, you mentioned about your current -- expanding your current yard capacity. So where do we stand with respect to that? And secondly, how much do we stand to gain in case of fresh orders from the government of India with respect to submarines and the big ships P75(I)?
We have just replied to both these queries.
Okay, sir. Sure. I'll take a look at that. And secondly, sir, the thing is that with respect to defense allocation, this budget, it has seen a flattish or probably a flattish approach. So do we see a more push towards Indian Navy considering the long gestation period in the shipbuilding industry?
As far as the budgetary allocation is concerned, for the CapEx, there is an increase of around 5% on an overall basis, considering all the wings. But our experience states that whatever is the requirement, whatever proposals are firmed up, there is no dearth of funding or none of the proposals have been stalled by the government. So as and when the proposals get firmed up, we are quite confident that they will be converted into orders. We don't see budgetary constraints as such.
Next follow-up question is from the line of [ Gagan Thareja ] from ASK Investment Managers.
Sir, 2 questions on P75 and P75(I). The 3 P75 submarines that you will be getting the order for, will they be inclusive of AIPs or without AIPs?
Those are without AIP. [indiscernible] submarine is without AIP. P75(I) is with AIP.
Yes. I'm just wondering if you are upgrading your P75 existing submarines, the 5 or 6 that you delivered with DRDO AIP, would it not be a natural progression to build the next 3 with an AIP inclusive in it? I'm just curious to understand why are they not within AIP?
Yes. Because the first one is yet to be -- see, after making the AIP, it has to be integrated with the submarine and then tested. Eventually, all line will have this AIP. But as of now, since the AIP is not yet integrated, they have not considered it for the moment. It is kept as an additional item, add-on item later.
No. But I mean, the delivery for the first one would be far out, right, 3, 4, 5 years out. So by that?
Yes. I mean, so they didn't want to [indiscernible] everybody, let the first one get proven and then they will -- it's a matter of only time. If it is available, it will be integrated.
All right. And on P75(I), there were questions raised that while ThyssenKrupp submarine has a demonstrated sea-proven AIP, the submarine on which the AIP was installed and demonstrated was a relatively smaller one compared to the specification of the Navy. Does that mean that ThyssenKrupp will have to go back to the drawing board for a complete redesign for the Navy's requirements and therefore, the design and delivery phase would be a reasonably lengthy one?
So see, this P75(I) submarines are of larger dimension and both in terms of diameter and the length. So the AIP that is required on both will be of a higher capacity. And it's a matter of only upscaling what has already been developed and available with the Germans.
No, when you upscale it, obviously, you have to test it for balance also, right? Isn't it? Because the center of gravity and center of hydrostatic pressure will shift around, right?
All that gets catered in the design.
I'm asking this because the Spanish company, Navantia had a terribly difficult time managing weight around design extensions.
Navantia does not have an AIP as of now. So that is why they have.
Yes. No. But even if you look at the Greeks purchased ThyssenKrupp's 212 submarines. And I think even they had these issues, keeping issues with the first one and some redesign.
These are already -- the submarine design has already been made and it is available. So there is not a problem at all for I program.
All right. And the deliveries for these -- once you receive the order could be how far out for the 75(I)?
7 years on signing of the contract for the first one and 1 year subsequent for the remaining submarines.
75 should be done at a quicker pace because you've already done it?
Y, we can. Those what you call, efficiencies will improve the speed, but it's kind of time because this is a general time line for constructing submarines worldwide.
Next question is from the line of [ Anirudh Murarka ] from Continental.
Sir, my question is that from your official handle, we have seen many pictures of foreign delegations visiting your shipyard. So does any progress or potential for exports of submarines or products to these delegations like from Brazil, from Indonesia?
Okay. These visits by the foreign nationals are steps towards converting them into exports. They take -- they don't happen overnight because there are a lot of issues involved when it comes to export. So -- and bilateral issues basically. So at the moment, we have already started some amount of export to Malaysia, but that's at a very small scale. We are supporting the submarines. So as and when things get crystallized, they will convert into some export orders. But it doesn't happen in a hurry. I mean you need some time, all these -- there are a lot of things involved in it. So yes, but we are consistently at it. The important thing is once you get a lead, you need to pursue it.
[Operator Instructions] Next question is from the line of [ Alok Shah ] from CPMS.
I just want to understand the next-gen Corvette approx INR 36,000 crores order. When the tender is going to open?
When are we going to open Corvette also?
Corvette, right now Navy has not indicated. So we don't see anything happening this financial year. May will take time first it has to be technically evaluated, then all the deficiency document has to be collected and then later on, the price [indiscernible] then the negotiation.
He is asking when it will be open.
Expecting next financial.
Next financial only, it will.
Next follow-up question is from the line of [ Gagan Thareja ] from ASK Investment Managers.
Yes. Can you also give some update on the status of the P76 project? Is it still in a very preliminary design phase? Or do you see this also sort of reaching some sort of portion in terms of ordering perhaps a couple of years down the line?
We don't have anything to share right now.
[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments.
Thank you for giving us this opportunity to interact with the investors. And our primary focus is to execute the orders, which is already in hand, both for the Indian Navy and ICG. At the same time, we'll be looking for more orders, also exports, as CMD mentioned. And we look forward for a fairly good growth, both of revenue as well as the bottom line in the future as well.
Thank you very much.
Thank you. On behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.