Garden Reach Shipbuilders & Engineers Ltd

NSE:GRSE

Earnings Call Transcript 2021-Q2

[Vipin Kumar Saxena, Chairman & MD]

Ladies and gentlemen, very good morning to all of you. I am Rear Admiral VK Saxena, Chairman, Managing Director of Garden Reach Shipbuilders & Engineers Limited. I extend a very hearty and warm welcome to you all for this conference call to discuss our financial performance for the quarter ended 30th September 2020. I have with me, Mr. R.K. Dash, my new Director of Finance. You know that earlier, we had Mr. Dogra, he has retired. And now he has taken over.So before I go into financial details, I would like to give a quick brief to all our valued investors, analysts and all the stakeholders about the performance of the company and what are achievements we had despite of the COVID prevailing still. As you know that the COVID continues to be still troubling us as what we met last time in the month of June this year, when we discussed the results of the last financial year, '19/'20. And at that time, I was expecting that there may be kind of a slowdown or there'll be a much more better situation somewhere in September or so. But we all are aware that the trouble still continues and COVID is nowhere out; it continues to linger around. And therefore, the troubles continue for us, especially being in the manufacturing industry. In fact, because of the COVID, entire world is affected, country and industry, in particular.And you are fully aware that we, being a manpower labor-intensive industry, because we are in the warship building, which is highly dependent on the availability of the labor force and also on the supply chain, availability of thousands of the equipment, thousands of the material, [indiscernible], et cetera, from diverse manufacturers and suppliers.Now you are aware that all the things continue to be hampered and have got affected, supply chain also got badly affected. All the suppliers in fact are just struggling because manufacturing, they had the trouble of the labors. Therefore, those things did not happen. We being the platform integrator and we talk about warship construction, both these things have really adversely affected our performance.In the first quarter, you are aware that we had the lockdown. And finally at Kolkata, the lockdown was lifted only on 8th of June, and thereafter, the -- although the lockdown was lifted, but still in the second quarter, we had around 15-odd days of intermittent lockdowns and it continued till August also. So in total, total 90 days. In the quarter 1, we had 75 days of the no production and 15 days in Q2. So altogether, 90 days, no production. That certainly has impacted our planned production activities, coupled with the nonavailability of the labor force and, of course, the needed materials, which was planned to have been delivered to us. So those things have really affected our performance. And although we have been limping back to the normalcy, we are aware that the need for the social distancing and other safety precautions still continues to be very much there.In Kolkata, the trains have just started from 11th onwards, 11th of November onwards. Till then, the accommodation of the people was a big trouble. And we have here working a shift system to ensure that the COVID protocols are taken care of so that sort of large number of groups are deployed in a shift to avoid any infection, et cetera. So those were the imperatives. We have, I would say, taken a lot of care. We have done a lot of re-arrangement and re-sequencing of our production activities.And as a result of that, we did see a very good improvement in terms of the performance of the company, when we talk about the physical performance. Financials, we have already seen, I will give in a little while, I'll come back and talk to you. But certainly, it has been a good improvement compared to the quarter 1 where we had a complete lockdown almost 75 days of no production.Starting with the second half, I would say, very positive thing that has happened in the shipyard. We -- the moment we opened, the very next day, we delivered the last fast patrol vessel to Indian Coast Guard, Kanaklata Barua. So that was an event that within 1 day of opening up, we did achieve that delivery of the ship. Thereafter, we have also ensured that we have the last LCU, landing craft utility, of the Indian Navy.We are aware that we had the contract for 8 ships construction for them. 7 were delivered already and the last one, of course, we are trying to deliver somewhere in June or so, but because of the lockdown and other issues and nonavailability of Indian OEMs, foreign OEMs and a lot of other things, we could not progress further, and we had planned to deliver the ship as early as possible after things eases out.So despite of the COVID challenges and we have ensured that the ship got ready for the contracted sea trial, where the entire ship has gone to the sea for around 3.5 to 4 days and undertook successfully all the sea trial and she's back, she's in dry dock now, mandatory dry docking, and we expect that balance of the checks and trials should get over, and we should be in a position to deliver this last ship of the project to the Indian Navy somewhere in December or so. With that, this project also will get successfully completed; major projects that I tell you, 8 ships, I already told you about it.Apart from that, you are aware that we have already delivered 4 ASW corvettes, which was a weapon-intensive platform, had 90% indigenous content. The last ship, Kavaratti, which was delivered in February this year was commissioned finally by Chief of the Army Staff on 22nd of October at Visakhapatnam, which has received a lot of applaud, lot of appreciation about the quality of the ship and the capability what has been held up to the Indian Navy when the ship got commissioned with the entire weapon sensors perfectly working and she has become an integral part of the Eastern Naval Command, you know that in that area of the sea how critical is that.Apart from that, we are also going ahead with the lot of other production activities, particularly the launch of the first P-17 missile frigate. That is a stealth missile frigate. You know that is a huge project, biggest of the projects that was ever handled by the Garden Reach Shipyard in its history. And we had planned to launch the ship in the month of December, and we are very much on. And because we have taken this as a huge challenge despite of the limited availability of the manpower and other things, we are still on track, and we are planning to launch this particular ship, which is 6,600 tonnes ship, very complex weapon-intensive platform frigate. This ship is planned to be launched in mid of December ahead of schedule. It is on track. So that is another good news for all of us, highly motivating thing for everybody.In addition to that, I must, again, inform you that the other 2 ships, we have got a contract for 3 ships construction, stealth frigates. The first ship launching is going to be the biggest event. And thereafter, other 2 ships are also progressing quite well. The third ship, construction, production work has already started. In addition to that, you are aware that 2 more projects are there in our hand of the Indian Navy. One project is construction of 4 survey vessel (large) for the Indian Navy. We are going ahead with the construction of the 2 ships of the survey vessel. Hull construction is already in progress. And the keel of the second survey vessel large is planned to be laid in the month of November itself, that is on 26th of November. What is the meaning of the keel? It is a huge block when it gets ready, that is put on the building [ block ] or the dry dock. So that is, I would say, a major activity that actually indicates that now the other blocks are very much ready for integration and consolidation and the hull work continues to happen thereafter.Another thing that is happening despite of the COVID, my design department is working in full swing, the ASW Shallow Water Craft, 18 number ships we have to construct for the Indian Navy. But you know that, that project also we have won on a competitive bidding basis and survey vessel (large) is also won on a competitive bidding basis. Now this -- the design part, which is a complex weapon platform, ASW Shallow Water, the design work is happening. We have taken time, which is important that design has to be given that much of a time to make sure that the design is done in a fantastic manner. So we expect the construction of the first ship to start by end of this year, that is end of December, we'll be starting with the production of the first ASW Shallow Water Craft.So all these things are something, despite of the corona effect, second quarter, we have tried to get back on our feet as much as possible. But you are aware that still the troubles continue, and we have to observe all those precaution and safety issues, et cetera. So we do hope that with all these limitations and the new strategies what we have made, we do hope to do better in other 2 quarters. Of course, quarter -- when compared to quarter 1, quarter 2 has been very encouraging. So we want to really further get on with our balance of the activities. So Q3 and Q4, we have expectation that we should be able to [indiscernible] further.Further, I would like to inform you that because of the 90 days lockdown, we had lost around 2 lakhs manhours and also the own plant and machinery units that had the impact. And because of that, we have taken around INR 21-odd crore as an exceptional item. In addition to that, we have also tried to augment our facilities what we see what was happening in respect to the augmentation plan at Rajabagan Dockyard. We have commissioned -- it was -- virtual commissioning was done by the [Foreign Language], where we have got a 2 major block construction complexes bid at the cost of around INR 21 crores at the Rajabagan Dockyard Unit. Now, with these 2 major complexes coming into [indiscernible], we can work round the clock and have around 8 blocks construction happening concurrently at Rajabagan Dockyard. And this is actually going to be becoming a very big feeder unit where the blocks will get constructed and they can be spread to the main unit where all these ships are getting constructed in the building work and the dry docks.In addition to that, we have also commissioned CNC underwater plasma cutting machine at a cost of around INR 4 crores plus. So these 2 things coming up at Rajabagan Dockyard Unit, our fabrication capacity has gone up around 28% further. And the blade cutting capacity has also increased by around 25%. So these 2 things happening in terms of the infrastructure augmentation has given a good boost to us. We hope that the rate of construction works when it comes to the hull block fabrication, which is important activity, and most of our new projects are right now in the hull construction stage. So the first ship of the 17 Alpha getting launched that really it will be great boost to us. And the other -- that second 17 Alpha, that is frigate under construction, third production already started. Survey vessel (large), I told you the hull construction is already on. And we hope that by mid of next year, we should be launching the first survey vessel (large) and the construction of these. So as of now, the majority of focus is there on the hull construction activity. Because once the hull gets ready of the ship, we will be in a position to have the equipment going onboard ship. But we have to have the hull ready where it can be -- the equipment can be lowered on board.Now I will quickly come across and then brief you on the key financial highlights, where we compare our this quarter 2 results. I'm sure that you all would be happy to note that compared to the Q1, the Q2 VOP, value of production, has gone up by 148%, INR 270 crores as against INR 109 crores in the first quarter. The total income has also gone up from INR 160 crores to INR 320 crores. EBITDA has gone up 6x from INR 10 crores to INR 60 crores. The PBT has also gone up around 27x from INR 2 crores to INR 54 crores.The PAT has improved considerably, INR 0.15 crore was the thing in the quarter 1, which has gone to INR 38 crores. The PBT margin has gone up by 17x from INR 1 crore to INR 17 crores. EBITDA margin has also gone up from INR 6 crores to INR 19 crores. The operating profit has shown a good improvement from profit, that -- operating loss was INR 48 crore, that has now jumped to INR 27 crores operating profit. So this is what has been actually the very good performance. And again, I'm submitting to all of you is that comparing our sales in this pandemic situation, which is extraordinary, not only for GRSE, but for the entire world, I'm not trying to compare with previous year's results, that is Q2 result of this year with the previous -- corresponding previous year because that will not really be giving us a correct picture because we are trying to resurrect ourselves with our activity and doing our best to how do we move forward from here on. So these are the important aspects, which I have to inform all of you.And I'll be very happy to take on your questions for [indiscernible], and I have with me, I told you, our Director of Finance also. We'll be happy to take on your questions. Thank you very much. And I also must wish you all, all of you and your families a very happy Diwali, which is going to be tomorrow. Have a happy and safe Diwali and take care of against the corona. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Jonas Bhutta from PhillipCapital.

[Jonas Hemant Bhutta, Research Analyst]

Congratulations on a decent set of numbers despite the challenges. Sir, my first question was, now like you enumerated the various physical activities that are likely to take place or are expected to take place as early as December, do you have any bit of visibility on how you will close the year in terms of revenues? Would it be more or less in line with what you did last year, which is about INR 1,400-odd crores? That's my first question, sir.And yes, joined to that, we had almost 3 or 4 projects that we were vying for in terms of order potential, like the 8 FPVs or the next-gen missile vessels. In this period of lockdown, has there been any material movement in those projects, suggesting that they can be awarded [ rent ] or has there been any material movement on that? That's my first question, sir.

[Vipin Kumar Saxena, Chairman & MD]

Okay. Thank you very much. I think that it will be very difficult to really predict in coming months how the situation would be. And as I said that when we met last time in the month of June, we all hoped that the COVID would probably ease out and would become much better by the time we reach to September or so. We had all the hopes that vaccine would be somewhere around and probably will get the relief from the troubles which we are facing. And as I explained that, we have a very peculiar kind of a manufacturing requirement. We are a manpower-intensive industry, labor-intensive industry and have to largely depend on the supply chain activities. Those are things I have explained that are badly affected.While we are seeing some positivity happening, but still we do not have the clarity with regard to whether the corona would be taken care of by, let's say, at least end of third quarter or the fourth quarter. And we see that still situation is quite hazy. Therefore, predicting the things with greater clarity will be -- will not be in order and will be very difficult.But what we are trying to do and what I just explained to you that the physical activity, which are very critical and important because unless you have the hulls, et cetera, getting constructed, now when we have a challenge of the nonavailability of those equipment, which we are expected to come in, say, third quarter or second quarter or even in the early fourth quarter, all has got affected in terms of delivery time lines. Every manufacturer, whether they are foreign manufacturers or Indian manufacturers, small manufacturer or big manufacturer, everybody's been asking about the force majeure 4 months. And you know that Government of India, Ministry of Finance has already ordered those force majeure really to various people.So therefore, these are the challenges where we do not have greater clarity as to how and when these things would materialize. But despite of those uncertainties, which is right now in our hand, we are trying to prepare the ground and have at least the hull construction, which is what is the beginning of all the ship construction activity. We are trying to expedite by taking a lot of new initiatives, different systems and methods, mechanisms have been created to have the productivity improving. So with that, the launching itself, I have said that had I been taking the -- I would say, getting worried too much with the corona issues, launching would not have been possible. And when the launching happens, in the next meeting, I will certainly inform you people that how big the ship looks like. And because of COVID, you people can't come here. But it will be, I would say, a fantastic thing to really witness and watch that event. It's such a big ship.So we are actually trying to make up some ground wherever it is possible for us with the things which are under control. I hope that answers your question. And we will be trying to move inch better and better and better. But how much we would be able to succeed, I certainly, at this moment, will not be right to predict.Coming to the second question, what you asked about the new projects. Yes, we have submitted the bids for a number of projects of the Navy and the Coast Guard. Right now, the evaluation -- technical evaluation, et cetera, is going on for ACV, 12 air-cushion vehicles, which was projected for the Indian Coast Guard and Indian Army; and the 8 FPV, which we stated, yes, for the Coast Guard and 6 NGs, new-generation missile vessels; and of course, we have also submitted the -- our bid for the multipurpose vessel for the Indian Navy, 2 in number. So as of now, they have not -- in fact, they have not been able to conclude the technical negotiation of the date FPV. NGMV, not yet started technical negotiation. Once the technical negotiation gets over, they clear some of the shipyards and whichever shipyard is cleared, their price bids are opened up. So as of now, not much of the progress has been made as far as these new projects are concerned. Whenever something positive comes up, I'll be most happy to inform you through the various media, et cetera. Thank you.

[Jonas Hemant Bhutta, Research Analyst]

Sure. Sir, my second question was to DF, and if you can share certain numbers on what our current order backlog is, what is the portion of shipbuilding within that? And in the first half, if you can break up the revenue by large projects, like how much did P-17 Alpha contribute, survey vessels contribute and the 3 legacy projects; LCU, FPV and ASW, the old ASW. And whether there were any LD provided for in the first half?

[Vipin Kumar Saxena, Chairman & MD]

I will quickly give you a broader input with regard to the current balance order, the position is INR 26,183-odd crores. DF, you can correct me. And right now, I'm saying that we have already completed the ASW corvette project and whatever was -- booking, et cetera, was there is almost over. There is going to be some figures. You can -- and the same way the FPV project has also -- yes, LCU, we have around -- how much? We can tell you the figures, okay. So those figures can be shared too.

[Jonas Hemant Bhutta, Research Analyst]

Sure, I'll take it off-line from DF.

[Vipin Kumar Saxena, Chairman & MD]

Yes, it can be shared with you because there are maze of the tables, et cetera, there, right? But as of now, certainly, we have that INR 26,183 crores is our balance order book. And largely, our revenue is going to be now onwards will be coming to the 17 Alpha project, and I would say 60% to 70% of the revenue is coming now -- will be coming from the 17 Alpha projects, all of which is under construction. And also, I have said that survey vessel (large) has already started. We'll be having revenues coming up from this project also. And this year, we may have some revenue in the range of INR 5 crores to INR 10 crores that will come from ASW Shallow Water Craft because they'll be starting the production of the ASW Shallow Water Craft. So in fact, we'll have some of the revenue coming through the warning data that we require for the design activities, there's a cost to it. So ASW Shallow Water Craft also will give us some revenue. So largely, we will be having a major part of the revenue of the shipyard coming up from the shipbuilding activities alone as that has been trend always. And rest all is from Bailey bridge will be around INR 40 crores to INR 50 crores. That is what my expectations are. Similarly from deck machinery unit, it would be in the range of around INR 25 crores or INR 30-odd crores. And the diesel engine plant at Ranchi would be in the range of around INR 25 crores, INR 30-odd crores. So this is what is the figures I'm expecting, but it all depends on how the COVID allows me to dispatch my things or have the manpower, have the -- enough people coming up and doing the job for us. That is the situation at this point of time.

[Operator]

The next question is from the line of Arun Kejriwal from Kejriwal Research.

[Arun Kejriwal]

My question, sir, is that we have been able to ramp up capacity with Rajabagan. We had also talked about getting outsourced -- some work outsourced to some of the private players. Considering this ramp-up which has happened on both these counts, and if we take away COVID that it is now more or less nearing normalcy, would we see Garden Reach doing something like 1.5x, 2x going forward of production?

[Vipin Kumar Saxena, Chairman & MD]

Okay. A very good question, Mr. Kejriwal. And I would say that the ramping up that has happened and the very pertinent point with regard to the outsourcing, I think GRSE has taken a lot of steps to enroll and engage very capable and competent forms, some from Mumbai also, from your city. And they are doing outstanding jobs. That has never happened in the history of the GRSE, but we are all very much working for us for the various projects, all the 3 ongoing projects and around 60%, 70% plus work is noncore activities are outsourced to these capable firms who are working with us within my shipyard. That is a very important and great thing.So I am seeing that a lot of increase and enhancement in my throughput by using their manpower and also the -- in terms of the feeder unit, which I told you have created the capacity of construction of blocks and also the blade cutting, which is very basic and fundamental thing for erection of the -- I would say, construction of the units and the blocks. So having the capacity getting increased by 25% plus in terms of the blade cutting and the block application. In other locations, that is RB, Rajabagan Dockyard and these outsourced ones getting employed with us, overall, my -- the production capacity and the production rate certainly has gone up.But let me again tell you, Mr. Kejriwal, the fact is that I told the previous investor with respect to the question which he asked with regard to clarity. Now right now, we are going through the phase of the -- all the 3 projects, that is 17 Alpha, survey vessel and ASW Shallow Water Craft, the hull construction. And all of you would probably, by this time, know about the warship building, the hull is what, steel and the labor. So it does not give you a huge amount of revenue as such.But when the major weapon sensors, machineries, automated equipment, electronic starts coming up, when the hulls get completely ready and get -- they will be launched, that is when the majority of the equipment items, et cetera, start coming up. For example, a missile system, that is to go on board or BrahMos launcher, you know that, or the SAM, the surface-to-air missile launcher and system, all those things are going to be very big, I would say, ticket items. Once they are lowered, they'll start giving a huge amount of VOP. So we are in the phase as of now while my -- the production thing has increased despite of the challenges of hull construction, I'm preparing the ground to have this equipment being lowered.Now equipment supplies also got affected because of the COVID. I explained that. So therefore, the things which I was expecting to be received by the third quarter, so that I would have lowered them in the fourth quarter. So those things will automatically get delayed. Therefore, these are things which are still uncertain and how much we have been requesting these suppliers to try to ramp up their production also. But to sum up that, yes, shipyard is trying its best within our capacity of doing hull construction, getting whatever things are possible, start fitting them up. But as and when the equipment and the material items will start coming up, we'll start lowering it. So that would largely dependent on the -- depending on them and how fast, how soon they're coming. So I'm trying in this particular year, Mr. Kejriwal, that whatever is still in my control, I will do my best to have best of the revenue that would come up. It would be difficult to say that whether it will be 1.2x or 1.3x, or it could be less than that. So we'll have to wait until third quarter. That is the time things would be much better.

[Operator]

The next question is from the line of [ Ashok Damani ], individual investor.

[Unknown Shareholder]

This is [ Ashok's father, Ramesh Damani ]. Congratulations, sir, for a good set of numbers. I have a couple of questions to ask you, sir. First, I noticed that your subcontracting charges and salaries have sharply declined year-on-year. This is despite the fact that you're saying you're subcontracting more. So can you throw some light on that?And secondly, I want to ask this hull production phase that you're talking about, we are primarily in the hull production phase and that would continue for how many quarters do you think before we load on the additional equipment? I just need some more clarity on that, if you could give us, sir.

[Vipin Kumar Saxena, Chairman & MD]

Okay. The first question, which you asked about is subcontracting charges declining. I would say that the rates which we are getting from the local vendors, earlier, the era was that only the Kolkata-based local vendors were engaged, whatever little was being outsourced. And I found that the rates were exorbitantly high. But when we explored the other avenues and we went to other cities and looked at the rate, what they're offering us, the throughput they are offering, the quality of skilled manpower, which they are deploying, which they have and under their control, I found that with that number of manpower, naturally, lesser people are there, but they're highly skilled, the throughput and the production rate is much better. So therefore, I'm seeing that they are spending either same or somewhat less. But I'm getting much more better throughput. So there's lot of advantage we are trying to accrue and get from the much better vendors, which we have selected. We're doing an extensive work with regard to vendor selection and vendor identification, et cetera.Coming to the second part, yes, the -- as for the shipbuilding cycle, which I have been explaining to all my valued investors, that the first phase is up to 30% of the time, 30%, 35% depending on the block and complexity of the ships is for the hull construction. So as of now, all the ships that I'm going to launch the first 17 Alpha in the mid of December, I would have completed around 22% or 23% of the hull construction. And after the ship gets launched, then certainly we'll be -- thereafter, when the equipment, et cetera, would start coming in, we will start flooring it. So survey vessel (large) also, the -- and then second 17 Alpha that is affiliate is right now going on a different block phase, block constructions are going on. Whereas the first frigate is going to get launched [indiscernible] mega block was consolidated. The company's ship hull has been formed. Now the ship will get launched, she will go in the water. And afterwards, we will start lowering the equipment. So the phase of equipment lowering will come, as we call it, outfitting phase. So in outfitting, a lot of plumbing will happen, a lot of cabling will happen, a lot of electronics and electrical weapon, sensors, missile systems and, et cetera, et cetera, and engineering systems [indiscernible], they'll start coming in.And I must tell you that we will have to have little patience when these things start coming in. And I will explain to all of you that when we reach to that phase, you will find the curve going up sharply. The first ship of the frigate 17 Alpha [indiscernible], we will start seeing this thing happening after the launch. That is not immediately. But after the launch, we have to prepare certain things. We will again come back to certain other mandatory requirements.Second ship also start getting forms, hull part and hull consolidation, [indiscernible] fabrication of survey vessel (large), it is not going to give me much things. But when the ships get launched, survey vessel, I told you the first ship, I'm planning to have it launched by somewhere in July or so next year. So once the ship gets launched, some of the equipment certainly I will try to put it before even it is launched. Say for example, the main engines of the ship. Some of the equipment has to go inside the ship. But the bulk of the cost comes out will be costly weapon, sensors and other major engineering equipment. So that is what is going to be happening.So I think that maybe from next year onwards, we would be having a, I would say, much more better picture because the equipment starts getting, major equipment, which will give us a larger amount of VOP, value of protection of revenue, which we talk about will start showing in my books. That is how it happens.

[Unknown Shareholder]

Okay. That was very good. Two other quick questions, sir. First, you made a provision of INR 20 crores. I'm not understanding the accounting basis for that. Could you explain that? And do you have any clarity from the government on your upcoming OFS, when is that scheduled?

[Vipin Kumar Saxena, Chairman & MD]

Can you repeat the second one, upcoming? OFS?

[Unknown Shareholder]

OFS, yes, sir.

[Vipin Kumar Saxena, Chairman & MD]

Okay. I will take this question first, and then the other one, of course, Director of Finance will answer. See, I said that OFS, we had the meeting, et cetera, with DIPAM, and you know that rest all is going to be decided by the Government of India as to when and DIPAM -- as to when they decide the appropriate time for going for the OFS. So we are all awaiting their directives when to -- when this thing will happen.With regard to the first question, which you asked about that, that is around 2 lakh manhour we lost, which is around INR 19-point-some-odd crores we had to take as a provision, as exceptional item. And also the around INR 2-plus-odd crores was based on the plant and machinery uses, which certainly did not happen because of the lockdown. So these are taken as exceptional items, and that has been already deliberated along with the auditors also. And that's how we are taking this one as an exceptional item.

[Operator]

The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers.

[Sunil Shah]

Sir, I have one question, which I would like to just understand from you. Sir, as you mentioned that our construction work for the frigate, they will follow an inflected curve, that is from the next year onwards, the first frigate will start showing higher numbers of revenues. Sir, right now, we are going through the COVID phase. But if I make an assumption that this is FY '21, but the later half of FY '22, maybe the fourth quarter of FY '22, will we see an inflection in our revenue recognition for all the 3 frigates? Or it would be just the first frigate and the second would be somewhere in FY '23? And the third frigate, could it be in FY '24? Or we'll see inflection happen for all 3 together somewhere in FY '23 or thereabouts? Could you give me some better understanding? And the point again, which I would like to understand is that when the revenue numbers get inflected, in rupee terms, how much would that be? So if I make an assumption that today on an annual basis if my revenue is something around INR 1,400 crores, then when the revenues would be at an inflection point, would the quarterly run rate be somewhere around INR 1,400 crores? If I could just get a sense, meaning whether it would happen when and how much it would happen?

[Vipin Kumar Saxena, Chairman & MD]

Okay. The fact of the matter is that the way that shipbuilding cycle, I'm sure that you would have already gone through the way I had explained earlier also. The initial phase is around 30% of the time when the hull, et cetera, is there, we do not get much. And in this year, of course, we got badly retarded because of the COVID. And I said that unfortunately or fortunately, my industry is a labor-intensive one and completely dependent on the supply chain. We have to depend on thousands and thousands of equipment materials. So all these, all the things that got affected. Therefore, the time line, if I see more safely, around 4 to 5 months of retardation already happened in terms of the production activity, in terms of the revenue booking. See, naturally, if I would have completed 4 months back, if everything was on plan, I would have completed the hull construction, launching of [indiscernible] ships and that would have made sure that I would have been able to lower some of the equipment at the block stage itself. But see, there has been a definite delay of around 4, 4.5, 5 months, and it will all depend on how the situation further kind of rectifies and improves in our times -- coming months.So therefore, I do have a lot of hope, at least, from the next year onwards. So these 4 months because I was trying to ramp up the things in third and fourth quarter, which is always the case in case of shipbuilding, where fourth quarter always, we see the last 2 months a lot of activities do happen, and we try to put them -- a lot of things, a lot of efforts goes on in Engineering division as well, as well as in the Shipbuilding division. But then what is still uncertain, but whatever things are getting shifted because of these 4 or 5 months at a time, they all will be happening in next financial year.Therefore, you will -- whatever levels we finally reach in this financial in terms of the revenue from operations, it is going to be certainly much, much better than this financial year because of the shipbuilding curve and cycle. And I do hope that the equipment which I planned out in this financial year to be lowered, they obviously will have to go. There is no other chance. We have to put [indiscernible] load them onboard ship, and therefore, the booking will come. So I'm expecting that the performance of the shipyard and in terms of the financials and revenue booking, et cetera, would be much better because there's no other chance. Once you have the hull made, the ships are launched. I've told you that next year, I'll be also launching the second -- first survey vessel also. When the ship is launched, naturally, she is ready to receive the equipment. And by then, all the delays of the suppliers, which is in the range of around 4 months or 5 months, they all would be coming in. So my platform is ready for receiving the equipment, both frigate also as well as the survey vessel. And therefore, I should not expect I should be getting much better revenue than this year.

[Sunil Shah]

Yes. So sir, fine. This year is, of course, a washout for many, many companies and maybe for somebody like us as well, that's accepted. It's about FY '22 or FY '23, the financial year. So maybe the peak numbers could come somewhere in FY '23 for all the 3 figures?

[Vipin Kumar Saxena, Chairman & MD]

So I would say that the delay is only 4 to 5 months, so therefore, [ beat ] of different, different ships. You take 3 ships of the 17 Alpha, that is a frigate program. The first ship [ beat ] would come somewhere, I would say, '23 or so, FY '23. There's no doubt about it. And the other 2 ships will be trailing by around a year, each would be trailing, if you talk about frigates. Okay in terms of the long construction and the equipment going.But along with that, see when the first ship of the frigate goes to a certain level of the [ beat ]. By this time, the -- because the construction time of the frigate is higher, 6 years, then the survey vessel construction time is just around 36 months. But of course, there are delays 4 or 5 months, but the ship would be shaping up more faster, whatever revenue has to come on lowering of the equipment of first survey vessel would be also coinciding and will be conjoining in terms of the curve with the first frigates.And every ship, that is second survey vessel also would be following and coming up with some percentage of construction. So all these things would be giving me some other revenue. Situation is going to only and only improve. There's no question of we remaining flat. We have to go up. How much it will go up and how -- I would say, in terms of the peak, et cetera, they are all going to be different, different peaks for different ships, of the same class of the ship. Okay. It is bound to go up.Let me assure you that whether it's going to FY '23 or FY '24. But FY '23, because there's been a drag of 5 months, I would say that. So results would have been very good in FY '22 as I said last year also. And therefore, now I do have a great hope that it is going to -- they're bound to show a better performance because of construction cycles, because they will have to be put onboard ship. Integration will have to happen, [ the transact ] will have to happen.Therefore, I have a great hope that the company will have to do well because I've got a fantastic set of order book and equipment is already ordered. The hulls are getting constructed. So once you receive the equipment, they have to be put onboard ship. The more you put them onboard ship, you have to recognize the revenue against the cost of the equipment. That's how things would be looking.

[Sunil Shah]

Sure. Sir, my second question is, as we progress into our construction of the frigate, our profit could also move in tandem because I think we are assured a 7% PBT margin? That's a profitability number, which I recollect. So even our profitability would move just like as we progress the construction of the frigate? Or are the margins going to be different at different points of time? If you could just let me understand that as well, please?

[Vipin Kumar Saxena, Chairman & MD]

Yes. I said that this is a contract, 17 Alpha that is frigate contract is on nomination basis. And the profitability, that is a thing is already fixed at 7.5%. So whenever we book the revenue, proportionately 7.5% would be booked. Now also the fact that if I'm able to do better things in terms of my internal efficiency improvement, I can further add on to my profitability, right, in terms of -- and [ Mr. Damani ] has asked a question, you would have heard that, and where my cost of the outsourcing also have come down. My cost of permanent employees has come down because I'm not further engaging any permanent employee. So I'm optimizing in terms of my own fixed cost. And then further enhancing the efficiency levels in my operation, material procurement doing a better negotiation with the various suppliers and trying to get a better cost what was estimated, but these things will further add up to my profitability if all thing goes well.

[Operator]

The next question is from the line of Abhijit Mitra from ICICI Securities.

[Abhijit Mitra, Analyst]

This is mostly data question that I have [indiscernible]. So if you can highlight the execution of P-17A either in Q2 or in first half, the LCU, SPV and the survey vessel (large) and the liquidated damages that we have seen in Q2 or in first half?

[Vipin Kumar Saxena, Chairman & MD]

See, as far as 17 Alpha, I told you that the project is progressing quite well. And at this point of time, the liquidated damage that is going to be -- and also being even taken into account because the delivery of the first ship is only in 2023 and from there. So you take on the revenue when you actually -- we are certain with regard to the delay that is going to be happening. So in this financial year, we have not taken any healthy provision, et cetera, for 17 Alpha, and I'm quite hopeful that whatever target we have already set in for the construction activity of the ships as per the plan, they are progressing quite satisfactorily. And in fact, I'm launching the first ship ahead of schedule. As per the per chart contractual milestone, they are supposed to be launched in the month of February. I am trying to launch the ship in the month of December.Why I'm launching the ship in the month of December, the fact that once I launch it, I will be in a better provision to lower a lot of other equipment and machinery as and when they are made available. So I can start putting them onboard ship. So that is what advantage I will get.

[Abhijit Mitra, Analyst]

Yes. So that INR 800 crores of revenue target will be met?

[Vipin Kumar Saxena, Chairman & MD]

Can you just repeat your last question?

[Abhijit Mitra, Analyst]

That INR 800 crores of revenue target from P-17 Alpha for the current year will be met?

[Vipin Kumar Saxena, Chairman & MD]

See, the thing is I told you there are a lot of still uncertainties which prevails. And it will not be in order to say that whatever my targets are there. Yes, I had ambitious targets, which we have prepared. And because of the trouble and issues, I have explained that the availability of various equipment and material and manpower and the numbers, the group sizes which we're required to work in a particular manner will not be possible because of social distancing norms. So those things are still, I would say, uncertain, and it is going to be interesting, but challenging to reach closer to what my ambitious targets I had. They are -- they were quite realizable had COVID not happened. But certainly, we are trying to tread with caution and working hard to see to it that how far we -- how better we do. The Q2 result you have seen has improved. I do see that Q3 and Q4 have to also improve.

[Abhijit Mitra, Analyst]

Great. And just to understand a bit on the cash flow side. So your trade receivables have come down. Your advances from customers seems to have gone up in the quarter. This is a heartening sign. But is the cash flow situation sort of enabling your target prediction over the next 6 to 9 months? Or is there a sort of concern that you have there?

[Vipin Kumar Saxena, Chairman & MD]

I would like to give all of our investors happy news that we had -- I was actually quite worried and apprehensive in the first quarter when we did not receive a large part of our dues. But we have got the collection from our customers that already happened in the range of around INR 100-plus crores. So that is actually going to take care of my -- whatever the working capital and other requirements. So we don't have actual worry with regard to our -- any kind of thing that is supposed to be coming up from my customers and working capital [indiscernible] whatever.

[Abhijit Mitra, Analyst]

So cash flow is not a constraint for execution for the next 6 to 9 months?

[Vipin Kumar Saxena, Chairman & MD]

No constraint. I do not have any constraint of funds at this point of time.

[Operator]

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

[Dixit Doshi]

Most of my questions have been answered. Just 2 small questions. One is, when you say that the exceptional item of INR 20 crore is basically around 2 lakh manhours loss. So is my understanding right that basically due to lockdown, there was no work going on, but we paid the salary? So this is related to that expense. And otherwise, it would have come in employee benefit expense only.

[Vipin Kumar Saxena, Chairman & MD]

Yes, you're right that as per the government directives, we had to kind of pay the salary to all the employees, and that's how we're seeing that although no production happened, but I had to pay them. Similarly, the plant and [indiscernible] which were supposed to have been used by availability of the people, that is also not used at all. So these 2 factors have been taken as exceptional items. And that is very much in line with government directives.

[Dixit Doshi]

So in terms of our orders…

[Vipin Kumar Saxena, Chairman & MD]

And as per the accounting standards.

[Dixit Doshi]

Okay. So basically, in terms of our orders on nominated basis, can we recover these amounts? Or it's kind of lost?

[Vipin Kumar Saxena, Chairman & MD]

See, as of now, they are being shown as a loss. But you see there when you talk about huge projects like 17 Alpha, which is in the range of INR 19,000 plus crores, and it has got a long decision period. And other 2 more projects are there. So all together, when we talk about INR 26,000 plus crores of the order book, I do hope that with the better efficiency and different measures which we are planning to take, that sum should not be really a botheration for us. And this is one of the kind that of a thing, which we have taken an exceptional kind of item. And that is not going to be repetitive in nature. So I think the company is very much confident and capable of taking care of this kind of a loss, which we call it at this point of time. So we'll -- I don't think it's a really worry for us. So we would be able to make up and handle it.

[Dixit Doshi]

Okay. And sir, my second question was regarding the repairs and maintenance. So we are planning to set up a team and going into that segment. So is there any update you can share?

[Vipin Kumar Saxena, Chairman & MD]

Yes. In fact, we have started in a small manner where we did get the orders from the Indian Coast Guard, not very big, but it's a good beginning, which we have been actually trying to make some inroads with the Navy and the Coast Guard and others. So we succeeded with the Indian Coast Guard. Navy is also still continuing to think and files are moving around in different corridors of Delhi. So I'm sure that in times ahead, we have a good possibility, and we are foreseeing [indiscernible] with regard to repair and maintenance also.

[Operator]

The next question is from the line of Viraj Mithani from Jupiter Financial.

[Viraj Mithani]

Most of my questions are answered. Just 1 question, sir. This is regarding the dividend. In these times of corona and challenging times, more or less, our dividend policy remains stable or there will be a change in that?

[Vipin Kumar Saxena, Chairman & MD]

Can you just repeat your question, what is that?

[Viraj Mithani]

So my question is about the dividend policy. Since we are going through a challenging -- a very challenging time, more or less, our dividend policy will remain intact, the -- whatever the government directive is? Or will there be a change in the dividend policy for this current year?

[Vipin Kumar Saxena, Chairman & MD]

Yes, dividend policy, you know that is all basically based on the government directives, and we will continue to follow that. And we are seeing our track record of dividend, the last 26 years we have been profit-making and dividend-paying company. And every year, dividend is seeing a good, I would say, increase. And -- but of course, you will also appreciate it that everything depends on the financials of the company in that particular year. And based on that, whatever decision will be taken by the Board of Directors and management of the company, that would certainly be shown as a dividend. So at this juncture, when we are going through with certain difficult times, based on the financials, et cetera, how that is going to happen. But certainly, I can say that there'll be a -- there's an existing government policy, and we may have to abide by that unless there are some special kind of dispensation comes from the government. So it has not changed. It remains same as what it was. And therefore, I do hope that it will be probably safe. If it changes, you will get to know.

[Viraj Mithani]

No, I just wanted the management outlook on dividend policy? Because more or less we'll maintain that, right? That's what I wanted to know.

[Vipin Kumar Saxena, Chairman & MD]

Yes, that's what I'm saying. So far, we are continuing to maintain what has been coming as a Government of India, Ministry of Finance policies on that, on the dividend distribution. And we are holding onto that unless there's some change.

[Operator]

The next question is from the line of Hardik Jain from ISJ Securities.

[Hardik Jain, Director]

Sir, most of my questions are answered. So just one thing. So you said, obviously, there is very -- it is very difficult to predict what is going -- how the situation will turn in future in regards to corona. But as of today, can you just let us know if you are working with your full strength and how is the progress of production is going on currently? Maybe things can change in future, but what is the current situation?

[Vipin Kumar Saxena, Chairman & MD]

See, we are still restricted. We do not have the full strength. Only 11th of November onwards, the local trains have started. There are people who are staying around 40 kilometers, 50 kilometers away from here. So there were a lot of problems, even the buses, et cetera. So commutation was a big problem in Kolkata. And now it looks like that they have started the transportation system in full flow. So we do hope that it would improve. But within my shipyard, I am supposed to follow the strict government guidelines of the social distancing and the other safety precautions. And as per that, if I follow the strict measures which I've been following, the sizes of the groups that are required to work in congested compartments of the ship that is under construction, this is always, now we are looking at reduced numbers. So that they don't have that kind of a major trouble and worry. Therefore, till such time the corona -- corona is still lurking around and very much exist in the air, I have to follow those precautionary measures. Therefore, I cannot deploy the people in the same strength in the same similar groups as it was in the pre-COVID situation.Therefore, there certainly is going to be some effect on that. But that still, I am saying that there's a lot of initiatives we have taken to somehow augment the production rate. But the biggest challenge is in terms of the availability of the equipment and the material. So that is what is the issue, which has certainly got affected badly. And that's -- we are all hoping that it may ease out a bit in terms of the supply, et cetera, whenever the forms start supplying. So we are still struggling with that.So these 2 things, the availability of labor, I said that, and the material, actually gives us the kind of, I would say, revenue recognition and the production progress. While hull construction is not [indiscernible] full or not, but I'm trying to achieve the production rate in terms of the hull construction what I planned. But unless the equipments and materials are available, those things cannot be taken onboard ship. There is plumbing or, say, a lot of other electrical equipment, switchboard, so many things are there. But they are not made available, it's not easy to put them. In fact, we are not ready to put them onboard. So those are the challenges at this point of time. I'm sure that it will all ease out, because we are an industry, please understand that. Had it been like, I know, refrigerator manufacturing or fridge or I would say the car or TV, et cetera, they're not because you don't -- a lot of people can probably work from home in the software industry or other industry. Here, it's a labor-intensive work, we have to have the people available. We are a platform integrator. I have to have the items available to put them onboard and integrate it.So those are the challenges and limitations. And I'm sure that in the months ahead, we should be in a position to recover back to some extent.

[Operator]

The next question is from the line of [ Parimal Mithani ], individual investor.

[Unknown Shareholder]

I just wanted to know about the subcontract charges. Is it safe to [indiscernible] because the project 17 Alpha is a common platform between you and [indiscernible]. Most of this subcontracting charges will come down going ahead from now? Or that's the reason that we have shifted vendors to Bombay compared to Kolkata?

[Vipin Kumar Saxena, Chairman & MD]

No. Let's really make it a little more clear to you, that the labor rates, I have seen that whatever was there because of different environment condition at West Bengal or Kolkata had work. There is certainly -- we have looked around and, in fact, the companies who are having a good financial muscle power, that have got a much more better skill set available or many other equipment, other things, they are able to perform much better with less number of people. That's the reason that as of now, the cost, which is looking like is quite reasonable when you talk about outsourced ports when I worked with the many other outside industries. And I welcome them. They have come and doing fantastic job within my shipyard.And going forward, it will all depend on the government. You know that they have been citing labor rates, it gets revised periodically. Last year, it got revised, was in the range of around 40-plus percent. The hike was. So the minimum labor wages, et cetera, have to be paid whether it is my people in Kolkata, that is minimum labor wage or it is the people who have been coming from elsewhere. So that will certainly depend on these government policies and the rates, what is going to be fixed up by the Ministry of Government of India and Ministry of Labor, et cetera. But I'm quite sure that we are learning a lot, and we are trying to revise a lot of forces, et cetera. So therefore, how to optimize the number of the people who are working on particular jobs, they're able to give us with lesser or same number of people more and more throughput, that is going to be the main, I would say, important thing for us to look at.

[Unknown Shareholder]

It's safe to assume, sir, we will be seeing margins increasing going ahead, right, following efficiencies coming in?

[Vipin Kumar Saxena, Chairman & MD]

Yes, yes. Whether it is the labor or it is going to be the material management or it is going to be other operations for the shipyard, it is actual fact will be the how much efficiency in all area operation improves. For example, if I set design is my very, very critical area. How good is going to be my design, design to cost, we talk about. If our designers have done a good job and if my material and commercial department has done a good job in negotiating the good price, what I have estimated, if I'm able to do well there, whatever my estimation was in the steel procurement, cable procurement, plumbing procurement, there it's called the efficiency. Whatever we are able to do, refine my design and then do a good kind of vendor selections for the supply of equipment, have the long-term rate contracts established for the various suppliers, so there is surety and clarity. Economy of scale is known to the vendors. This is going to give me tremendous advantage in terms of the overall cost, which we have planned earlier or catered for, but it will add up to my bottom line.

[Unknown Shareholder]

And sir, just in your opening remarks, you mentioned about Rajabagan Dockyard. You said we can do 8 blocks concurrently. If I'm not mistaken, sir, earlier, you had said, we had a capacity of doing 16 blocks. So can you just explain, sir, what do you mean by that because I didn't understand properly subcontract? Does it help our manufacturing process in terms of the ships that you're doing currently?

[Vipin Kumar Saxena, Chairman & MD]

See, let me tell you the -- we have got the main unit, which is in 48 acres of the area, which was -- which is actually the mother of -- I would say, the main hub of the fabrication activity. We have the best of the infrastructure in the mills. That has got the modern -- modular integrated construction facility, which is actually developed in main, around INR 600-plus crores, we have spent and we've got this particular thing brought up.We have a lot of block units and mega block construction happening here. But what I told you is Rajabagan Dockyard also had -- it was quite old kind of facility, which we acquired from Inland Water Marine Transport Corporation, which was a government organization, way back in 2006. But since then, I would say, last 2 or 3 years, it was just lying in that shape only. But it has a lot of possibilities, 33 acres in this area there. When we got this too, we had certain capacity to construct some of the blocks, with whole fabrication facility there. But having these 2 major complexes coming up, my capacity has got added up by 8 blocks construction further at Rajabagan Dockyard. So this is basically to add on into my overall block fabrication capacity.

[Unknown Shareholder]

[indiscernible] earlier, we had 16 blocks, which we couldn't do it at the main unit. Now plus this additional 8 will come into it, right, sir?

[Vipin Kumar Saxena, Chairman & MD]

Yes. Because the number of block construction depends on the need.

[Unknown Shareholder]

Okay. And sir -- and is it safe to assume, sir, that, that means for Project 17 Alpha we'll be way ahead of schedule, sir, by 6 months from the delivery time line?

[Vipin Kumar Saxena, Chairman & MD]

See, it's all going to be depending on many factors, because there are a lot of weapon and sensors, a lot of major things are there, guns, et cetera, they are supposed to be coming from the Indian Navy-nominated suppliers like the long-range gun, which is supposed to be coming up. There are some discussions on and something is happening. So which country it will come and what is going to be the safe, that is what is being finalized. So apart from few of the equipment, but generally, this -- we will be -- as a shipyard, we are progressing ahead. And we do hope that there should not be any delay.

[Operator]

Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

[Vipin Kumar Saxena, Chairman & MD]

Thank you once again to all our valued investors, analysts and other stakeholders and individual investors as well and institutional investors. And wishing you once again, to you and your family, a very, very happy Diwali.And to conclude, I would say that the shipyard certainly is -- we've had troubles, but we are trying our best against all the challenges, what I have explained. In terms of the manpower or the supply chain disruption, et cetera, we are trying to overcome the challenges. We are seeing the results. And we do hope that we should be doing better in Q3 and Q4. And eventually, what we are going to be [indiscernible] and is going to be coming up and reflected in the next tranche.So, I can only assure investors that we have patience and shipbuilding is a long decision activity, I've been explaining to everybody. This company has got a fantastic [indiscernible] capacity, the different kind of changes and we are trying to bring in and hope that, with better efficiencies and the kind of execution skills, we are further developing, I'm sure that the shipyard is poised to do quite well. And you all will be happy and satisfied in the long run with us. Thank you very much, once again. [Foreign Language]