Garden Reach Shipbuilders & Engineers Ltd

NSE:GRSE

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon, ladies and gentlemen. I'm Margaret, the moderator for this conference. Welcome to the conference call of Garden Reach Shipbuilders & Engineers Limited hosted by Concept Investor Relations to discuss its Q3 and 9 months FY '22 results. We have with us today, Rear Admiral, Shri VK Saxena, Indian Navy, Retired, Chairman and Managing Director; Commodore PR Hari, Indian Navy, Retired, Director Personnel; and Shri RK Dash, Director Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Shri VK Saxena. Thank you, and over to you, sir.

[Vipin Kumar Saxena, Chairman & MD]

Very good afternoon to all of you, ladies and gentlemen. I'm VK Saxena, retired, Chairman and Managing Director of Garden Reach Shipbuilders & Engineers Limited. I welcome you all to this conference call to discuss the financial performance of this company for Q3. But before we go into the financial aspect, it's my honor and proud privilege to quickly brief you about the other activities that have happened in the shipyard. As you all know that we have gone through the first phase of COVID, first phase, thereafter the second phase, and then the third phase or third wave, whatever we call it. That certainly third wave did not force us to go for the lockdown, but certainly, it had the impact in terms of the number of people as we all know that the infection rate was very, very high, very rapid. So it had the impact in terms of the large number of people getting impacted in the shipyard, that is our own employees and contract personnel also.However, good news is that there was no lockdown. There was no complete disruption of the production activity. However, because of the large population getting impacted, there were restrictions that were put in place that is a number of people, again, COVID appropriate behavior was imposed by the state government and also the local administration of Kolkata. As a result of that, we had to adopt to the modified routines and the number of personnel that were working at a time. We had to move on to the shift system with lesser number of people. And also the biggest issue that came up was the disruption in the supply chain, in particular, which is again a major critical requirement for the warship shipbuilding and ongoing projects.However, as you have seen and noticed that despite of all the disruption and challenges and of course, the aftereffects of the second wave of the COVID, in second and third quarters the company has done extremely well. In fact, third quarter has been extremely good, very productive. I'll be briefing you later on again on the financials of the company. During this quarter, we have signed succession agreement with the Syama Prasad Mookerjee Port that is KOPT in October. In that, we have got the 3 dry docks taken on lease and the purpose and purpose and aim of this dry docks is to undertake the refit and repair activities for a variety of the ships, which are whether the commercial ships or the naval ships or the coast guard ships and are certainly going to enhance our -- first towards the refit vertical. And not only that these dry docks were taken over, but some work was done, and we have commenced the operation with docking of the 2 vessels already, so that's a good news for all of us.Second thing is that at our diesel engine plant, Ranchi, you are aware that we have got a major contract of manufacturing 1-megawatt diesel alternators for the Indian Navy, because project 4 ships of P-17 Alpha being built at MDL and 3 ships at GRSE, total 28 number 1-megawatt will have to be supplied to them. And this is -- the alternator is indigenous one and a lot of efforts have been put in by the GRSE. The Ranchi plant indigenized a variety of the studies and items and equipment. And as a result of excellent effort despite of the pandemic, we have been able to not only complete the integrated factory fitness style successfully at the Ranchi plant, but we have been able to deliver the 3 diesel alternators to the Indian Navy that is Mazagon Dock Limited 2 DAs already there and third DA will be reaching shortly there.We have also undertaken the keel laying of ocean-going passenger cum cargo vessels, which we are building as an export vessel for the Government of Guyana that happened in the month of November in presence of the senior officials from Government of Guyana. We have also undertaken the launching of our first survey vessels Large, which you know that is a 3,300 tonnes ship of the Indian Navy. We are making 4 warships for them as part of this particular project. The ship was launched on 5th of December of 2021 by the wife of Rajya Raksha Mantri, Shrimati -- Shri Bhattji. We have also undertaken -- on the same month, we have also undertaken the keel laying of the ASW shallow water craft at the GRSE. We have also -- as a part of our refit activity, we have done the refit of 2 ships successfully.In addition, we have also got an excellent rating from as part of the MoU target with the Department of Public Enterprises, who undertakes the rating of all the CPSEs for year 2021, which you know that was the worst affected year because of the pandemic. And I'm happy to inform all of you that the GRSE is the only defense public shipyard to be rated as excellent. We achieved 91.23% marks. And we are the second DPSU among 9 DPSUs. One was HUL and other one is GRSE. So -- and total 16 CPSEs out of 300-plus CPSEs have been rated excellent. So therefore, I would say that GRSE has shown huge resilience and the kind of strategies and other things we have devised has resulted in excellent performance resulting into the excellent rating from the Department of Public Enterprises, Government of India. And despite of all the issues and problems that we have faced, I would say that the kind of learning we have got and the strategy which we have devised, I'm happy to inform that now our productivity and efficiency has gone up considerably. And today, the productivity levels are almost close to 3x than it used to be previously. So I think the pandemic, although it has affected everybody, but it has taught us a large number of things and that has enabled us to deploy the new strategies and resulting into the excellent throughput in fabrication, direction, plumbing, cabling and outputting, all dimensions of the shipbuilding activity we have been able to achieve very, very good productivity.Now briefing you about the ongoing projects. You are aware that we have got 6 projects at this juncture with us. And in that, we have got total 17 ships and 6 patrol boats for the Government of Bangladesh. And out of the 6 projects, 3 are pertaining to the Indian Navy, 1 is Project 17 Alpha stealth missile frigate 3 number ships. The second project with Indian Navy is 4 survey vessels Large and then we have 8 ASW shallow water craft for Indian Navy. Altogether, 15 warships for the Indian Navy alone. Then we have 1 project, 1 ship, fast patrol vessel for the Coast Guard. And of course, 1 vessel for the government of Guyana, which is under construction.Now all the 3 ships of the Project 17 Alpha are under production and moving at a good pace. The first ship as you know that was launched instead of the pandemic in December 2020, 2 months ahead of schedule. The second ship is already doing quite fine despite of all the limitation and problems due to the pandemic. She will be launched in mid of this year, as I told you in the last quarter discussions. The third ship is also being under construction and going on at a decent pace, and is going to be launched next year's mid, which will be ahead of schedule by 2, 3 months.As regard to the project survey vessel, as I told you, the first ship has already been launched on 5th of December '21, with almost 40% construction -- overall construction. Now why I'm informing that we have launched it with 40% construction because for this kind of ship achieving 40% construction during -- prior to launch is something unique, and in GRSE, we have achieved this. The benefit of this achievement will be that after she is launched, we will take much lesser time for postlaunch activities and outfitting, et cetera. And we hope that by end of this year, we will be able to deliver the ship to the Indian Navy.The second survey vessel ship, which is under construction at L&T Kattupalli, we have also submitted to them the hull part of it. She is expected to be launched in the next 2 to 3 months' time. And the third ship is expected to be launched, the survey vessel large third one, somewhere in the third quarter of this year. The next is ASW shallow water craft, 8 ships. The 4 out of 8 ships are under production -- various stages of production. The keel of 2 ships have already been laid. I told you the one ship keel was late last year, and the -- in fact, both the ships' keel has already been laid. The second ship keel was laid on -- in the month of December at GRSE. Now launching the first ASW shallow water craft is planned to be happening somewhere in July to August this year.I must say that the -- at this point of time, except that some disruption in the supply chain, and of course, certain items, which are supposed to be coming up from abroad, generally, the issue you know that containers are a big challenge -- movement of the containers, et cetera, and the shortage, et cetera. But that has a minor impact. But otherwise, all our ships for the Indian Navy are going -- moving on a quite decent speed and pace. Similarly, when I talk about Guyana ship, which is the export one, we already laid the keel of the ship I told you, and that is also going to be ready for delivery by July this year. And then after, she will be moving to Guyana.Then the Coast Guard ship that is fast patrol vessel is also -- construction is going on fine, and we expect to launch the ship by May this year and the delivery by end of this year. So generally, the -- all the projects are generally going on fine -- quite fine at this juncture. And I really don't see any major issues. Now it looks that from whatever in case of the third wave and nothing happens beyond that as we have been all reading in the newspapers that it seems that this endemic thing is coming. If that is the case, I think we are on the right track, and you will see accelerated performance of the shipyard by end of this financial year.Now I'll brief you about the performance of the company at the quarter ending Q3. As I said earlier also on number of occasions that when it comes to the warship building, we should not see normally the kind of quarter-to-quarter performance. We should always look at the kind of because of long gestation period. Therefore, I will try to compare the results of Q3 cumulatively from Q1, Q2, Q3 to the previous year up to Q3. So up to Q3, the revenue from operations has been INR 1,212 crores, as against INR 742 crores of the previous Q3 -- up to previous Q3, showing an improvement of over 63%. Similarly, the EBITDA has also gone up by 46%. The operating profit, that is a very, very important thing, and I'm very happy to share with all of you that the operating profit of the company has gone up by 7x if I compare the performance till Q3 to last year Q3 from INR 12.67 crores last year, last -- up to Q3, it has gone to INR 81.88 crores. Similarly, the PBT has also gone up by 51% from INR 128.58 crores to INR 194 crores. The profit after tax has also improved by 49% from INR 95.47 crores in the previous year December quarter to INR 142.33 crores till this Q3 of FY '22. Now, this certainly, as I told you earlier, is all due to the huge improvement in the overall production and internal efficiency, whatever measures we have taken. And also despite a reduction in the other income during the current year. We have declared -- the Board of Directors has declared interim dividend of INR 4.9 per share as against INR 3.85 per share of the previous year. The company has got the EBITDA margin 17%. PBT margin stands at 15%. The PAT margin stands at 11%. The earnings per share for the 9 months ending December 31 stands at INR 12.42 as compared to INR 8.33 as of the last year December. So this is about the financial performance of the of the company as such. And I can say with confidence and belief that the way the company has overcome all the challenges and issues during this year, last quarter, that is the Q4, we have a strong belief that if no disruption happens, if no issue comes up, we will be doing extremely well and hope that this financial year results would be, by far, the best in the history of the GRSE and all its dimension.So ladies and gentlemen, that is what from my side at this moment. I will be very happy to take on the questions along with Director Finance and Director Personnel, whatever you have. And so the house is open for any questions or any query from your side. Thank you very much.

[Operator]

[Operator Instructions] The first question is from the line of Rohit Natarajan from Antique Stockbroking.

[Rohit Natarajan, Associate Vice President]

Yes. Congratulations on a good set of results. Sir, my first question has got to do with P-17 A 3. I understand -- I mean I was under the impression that the launch date for this particular vessel is in -- somewhere in August. Between keeling and launch dates, what could be the kind of execution or revenue that you could book on that vessel?

[Vipin Kumar Saxena, Chairman & MD]

Let me tell you the 17 Alpha project, and they are very, very big and complex stealth missile frigates of the Indian Navy, 6,670 tonnes of each ship, and a frigate with highly complex weapon sensors, machineries and a lot of automation. So now when you talk about the speed of construction, if you recollect -- or if you have been part of my earlier discussions, the shipbuilding curve, when you talk about the start production to the keel laying then to coming to the launch, I have said earlier also that there are phases, first, second, third and of course, the fourth phase. So first phase is where the -- largely the hull construction goes on. And in terms of the percentage when you see the construction progress, it is somewhere around 20% to 25% altogether along with the hull outfitting also happening. So that hardly gives you much of the, I would say, the revenue as such because there's only steel and labor that is involved.So the keel laying is one block, which gets made, keel part of it, and that ceremony is called the keel laying. And from keel laying to launch, launch, it depends. For such large ship, it is somewhere around 25%, 30% of the construction. We launch the ship with some amount of equipment and machineries going onboard ship. So it takes somewhere around close to different availability of material equipment and such other things. Now the 17 Alpha ship, each ship construction time is around 5 years plus. So therefore it is somewhere in between around 1, 1.5 years from the -- or 2 years by the time you lay the keel and do go for the launch is close to 1.5 years or so.And from launch to -- that is Phase 2, it comes with the maximum amount of weapon sensors, all advanced propulsion systems, et cetera, they go onboard ship. There you have the maximum revenue that gets booked. So from launch to that trial phase is the longest time it takes, and here comes a maximum amount of revenue booking. So this is how the ship construction is -- as far as 17-Alpha is concerned is going to be happening. I told you that the first 17-Alpha was launched in the month of December 2020. And when we launched the ship, it was at 25% construction -- 25%, 26% construction. Right now, we have a construction progress of around somewhere close to 38% or so, right. So this being a very large ship, each month, generally, it is -- 1.5% to 1.7% per month is the progress because there's a different method of counting the construction progress. So from now till we get into that trial phase that would be happening somewhere around late next year or maybe beyond that. So that is how is the time frame.

[Rohit Natarajan, Associate Vice President]

Sure, sir. I appreciate that part. So then if I look at all the 3 vessels coming together and this -- the launch date, probably all 3 will be more or less on launch by FY '23. So which would mean that your execution could, technically speaking, go up to INR 3,000 crores kind of a number in FY '23 and maybe INR 3,300-odd crores kind of number, INR 3,400-odd crores kind of number in FY '24. So I'm just going by the 1.5% into the value of vessel method. Probably, it may not be commensurating with the financial progress of the vessels too. So help me understand, sir, how does this FY '23 revenue trajectory and '24 trajectory would look like.

[Vipin Kumar Saxena, Chairman & MD]

Yes, I understood your question. I told you that when it comes to the, I would say, project P-17 Alpha and other ships also, whether survey vessel and ASW shallow water craft. In fact, the 17 Alpha project has now reached to a certain level where cumulatively the first ship is going to give us the maximum amount of revenue, right.I just tell you that when I talk about the revenue that is registered for 17 Alpha project, if I compare to the corresponding 9-month period of last year. So this year till Q3, we have registered this INR 666 crores as against INR 432 crores of the previous Q3. So just now I expect that and as I said that the way 17 Alpha project is going and if nothing interrupts us, you will expect in FY '23 much, much more higher revenue. I told you up to Q3, we have booked around INR 666 crores, which is going to be further much higher, maybe around INR 800 crores or so that will be coming up in project 17 Alpha itself. And FY '23, when I have majority of the equipment going onboard first ship and the second ship of the 17 Alpha, you can see absolutely fantastic performance.And I said that now we are reaching to such an overall curve for not only 17 Alpha, but many other projects which are already going through the construction and progress much better. So therefore, altogether, from the 3 projects of the Indian Navy, we are expected to do much, much better, much, much better. I can't give you the exact figure. But as you are saying that, yes, you will see this year itself by end of the financial year, it will be -- there are historical figures that we'd be achieving will be achieved. That is what my belief is. So let's wait and watch. And hereafter, I've been saying from last many meetings that you will now see the phase of the excellent performance has already started and the curve is going to be steeper.

[Rohit Natarajan, Associate Vice President]

Sure, sir. I appreciate that part. Sir, my second question is more to do with the prospective order inflow. What is the quantum of total orders in pipeline in the short term, medium term and probably something in long term?

[Vipin Kumar Saxena, Chairman & MD]

See, as of now, as I said that earlier also that we have submitted our bids. And one or 2 places we lost bids quite closely. Now we are -- tomorrow we -- or this week, we have been told that they will be opening the bids of the new-generation offshore patrol vessels NG OPV. That is for 7 plus 4, 11 ships construction, 7 will be by the L1 shipyard and 4 will be by the L2 shipyard. So we are clearly waiting for this major things to get opened up. And that is a major thing, which seems to be happening in the near future. And we are bidding very, very forcefully as far as some export biddings are concerned, even though smaller vessel, but we are -- as a part of export effort, we are seriously getting into that. So that is what is there as of now.

[Rohit Natarajan, Associate Vice President]

Okay. So this is -- this INR 9,000 crores of vessels opportunity, are we looking at some corvettes too? There are some INR 13,000 crore corvettes, which is going for an RFP stage, right? So would you be looking...

[Vipin Kumar Saxena, Chairman & MD]

Yes, yes, yes. Why not. So I want to say that this is the RFP, which has already come out and we have responded to this RFP in the form of submissions a bit. Now when you talk about the new-generation corvettes that is supposed to be -- we are all waiting for the RFP to get released by the Ministry of Defense and the Naval Headquarters. So that is keenly awaited by us. You know that we are the only shipyard, which has produced 10 corvettes, 6 missile corvettes and 4 ASW corvettes. So we have got the best expertise, wherewithal and everything possible to go for a strong bidding.

[Rohit Natarajan, Associate Vice President]

And what was the L1, L2 proportion over the -- that is not unknown at this point in time, right? RFP is not yet out [indiscernible].

[Vipin Kumar Saxena, Chairman & MD]

I couldn't get your last.

[Rohit Natarajan, Associate Vice President]

Sir, I was saying the corvette, new-gen corvette INR 13,000 crore kind of orders, the L1, L2 detailed breakup like the one you have right now for 7 plus 4 for the distribution it's with you. That distribution is not available for the corvette orders, if I'm not mistaken.

[Vipin Kumar Saxena, Chairman & MD]

No, that is not known as far as the corvettes are concerned because that would be decided by the ministry and the Indian Navy. So that is not known to us at this juncture.

[Operator]

[Operator Instructions] The next question is from the line of Pritesh Vora Mission Holdings.

[Pritesh Vora]

Sir, how do we assume -- I mean, what is the continuity in the ship orders? Like the current order will last how many years? And what is the pipeline for the next sets of orders?

[Vipin Kumar Saxena, Chairman & MD]

See, I would tell you that order book executable as of now is quite healthy, which is around INR 24,605 crores. And I told you altogether, we are supposed to execute construction of 17 warships -- or ships and 6 number of boats for Government of Bangladesh. So it's huge in terms of numbers and a variety of the ships that is under construction for the Indian Navy and the Coast Guard and also the -- for the Guyana that is export vessel, 1,700-tonne vessel.So in our appreciation and with the current progress, of course, nobody anticipated that there will be a pandemic there were a lot of predictions and plans, everybody has made out in their lives, everything got disrupted. Hence, the shipbuilding also. And you know that shipbuilding is being labor-intensive and supply chain dependent, so we were worst affected.Now I see that the current order book and looking at the construction cycle as per the contract plan and of course, the -- that of the force majeure and other things, we expect up to FY '27 or so the ships construction order book will last. And we expect that the next 1 or 2 years, the new-generation corvettes thing would have come out RFP. We should be seeing the opening of the NG OPV tender. And also, there is a tender for the -- we expect for the hovercrafts for -- or the ACV, we call it, the air cushion vessels, for Coast Guard and the Indian Army 12 in numbers, we are again going to be very strongly. So likewise, whatever things would be coming out, we'll be going forward with greater enthusiasm and better prepared to see that we should get some orders. So it is not the end of thing and we have sufficient work in hand. The capacity is almost optimally getting utilized. Infrastructure resources. I told you the productivity levels have improved almost 3x. So therefore, as of now, the current order book is going to take the thing till FY '27.

[Pritesh Vora]

FY '27. All right. And how do you hedge your -- the steel price? Like the contracts are passed on -- steel contracts are passed on, how do you -- because steel prices has seen a lot of improvement in the demand -- in the cost over the last 1 year. So how do you see the steel price coming on?

[Vipin Kumar Saxena, Chairman & MD]

You should not worry when it comes to the warship construction steel part because unlike any commercial vessel and merchant ship where the largest chunk is the steel part, we have the huge part of the cost of the vessel of the warships is primarily on the weapon sensors, equipment, machinery, electronic items and such other things. So the steel constitutes very, very little, around 3% to 4% of the entire cost of the ship. So it is certainly not a big, big trouble because the steel getting produced is mostly -- almost indigenous. The warship-grade steel is indigenous being produced by the SAIL. We have the MoU with the SAIL to supply. So it is not really badly impacted as such.

[Pritesh Vora]

But how is the contract? Would you be able to pass on the steel prices? Or you have to take it? How is the contract toward it?

[Vipin Kumar Saxena, Chairman & MD]

I can tell you that's why I explained to you that you need not to really worry for it because it is very miniscule part of it, of the entire cost of a ship. So that is -- such variations are factored, not to worry.

[Operator]

[Operator Instructions] The next question is from the line of Mani, an individual investor.

[Unknown Attendee]

I had a couple of questions. One, if I wish to compare the employee costs along with other listed players, GRSE's employee cost as a percentage of revenues is slightly higher, in fact, significantly higher. So I just wanted some explanation on that, number one. And if you also could just explain the current cash in hand out of the order book. Even that, I think, is considerably lower than the other listed players. So if you can just throw some color on it, it would be helpful.

[Vipin Kumar Saxena, Chairman & MD]

See, let me tell you the employee cost is governed by the central government, the wage rate, et cetera, and many others, which we have to abide by. And if you see the so-called improvement in the overall performance and the employee and of -- the revenue from operation per employee has really gone up much, much better. So therefore, I see that there's, I think, a good improvement. And the -- this -- the cost of the employees, which we are seeing that is actually coming down. Compared to last year that was 23%, it has come down to 17%. So we are all working towards making a lot of improvement in the -- despite we cannot throw out the permanent employees. But what we have also done is that we have resorted to a very, very structured outsourcing on many areas of the noncore activities that has also helped us to not only improve the overall production, and I think a great amount of throughput collectively, but also is helping us to bring down the fixed -- that employee cost also.Yes, [Foreign Language] your second question was cash in hand. So that is -- you see that total cash with us as of now is INR 3,411 crores. In that we own cash, which is there INR 176 crores. Rest all is by the customers that is INR 3,235 crores and is all against the various projects. There's no advance. It is against the stage payment that has been given by the customer. And this will be used for the project only. So the own cash is just INR 176 crores.

[Operator]

[Operator Instructions] The next question is from the line of Abhishek Poddar from HDFC Mutual Fund.

[Abhishek Poddar]

Regarding the operating margin, sir, where do you see that settling with the improved execution? This quarter, we saw the revenues going up, but the margin was slightly under pressure. So do you see a large improvement there?

[Vipin Kumar Saxena, Chairman & MD]

See, I must tell you that you would have been tracking the margins from the previous quarters and previous years. And you are also aware that the margins levels when you talk about in the shipbuilding especially in warship building is normally, the Navy gives us profitability margins around 7.5% only. But over the years, through the lot of changes and improvement that has been happening in the company, we have been consistently going up in the margins. And now what you see is around 11%-something that has already come up. And I don't see it should be going down. It should be with the -- of course, the revenue will be doing quite well, but the margin also is expected to do well. And it will be -- hopefully, it should be better than this.

[Abhishek Poddar]

Understood. And, sir, could you elaborate more on the order that you are expecting from Bangladesh?

[Vipin Kumar Saxena, Chairman & MD]

See, Bangladesh, you know that they're a small country and neighboring country close to us strategically. We are trying to make inroads in that country and making sure that whatever kind of orders, whether small order or big orders, we are trying to venture into that, responding to the various RFP, et cetera, Okay? From Fishery Department, you all know that we have got the order for the 6 number patrol boats from the Fishery Department of Government of Bangladesh.we have got the tie-ups with the certain ports of the Bangladesh, Bangla ports and Payra ports, okay? So this is already there. And we have been bidding strongly for -- a couple of the RFPs have come out. We have bid for that. And also, we are looking at the larger kind of thing where some warships to the defense LoC, that talks are also on. So we are very hopeful that something probably may come our way. We are certainly going to be receiving some order on the portable steel bailey bridges from Bangladesh Army. Not big order, but it will be certainly around INR 7 crores, INR 8-odd crores, worth of the export orders from the Bangladesh Army. So we are doing a fairly, I would say, good attempts with the Bangladesh. And we have to have patience to see to it that it fructifies to some bigger orders in future.

[Abhishek Poddar]

Understood. And sir, just last one, confirmation, the RFP for corvettes, that is valued at INR 13,000 crores.

[Vipin Kumar Saxena, Chairman & MD]

RFP for the?

[Abhishek Poddar]

Corvettes that you talked about.

[Vipin Kumar Saxena, Chairman & MD]

We are actually -- yes, we expect it maybe sometime this year, if everything goes well, by end of this year, hopefully, or maybe early next year, it should come out. But we can only anticipate. But there's no concrete news as of now. But they are very much keen that RFP should come out. I'm sure that they will have their own procedural aspects at the naval headquarters and the ministry. So it has to come out. It has to come out, and we are all waiting for it.

[Abhishek Poddar]

Understood. And sir, what is the value of the 11 fast patrol vessels, total value of the tender?

[Vipin Kumar Saxena, Chairman & MD]

11 new-generation offshore patrol vessels?

[Abhishek Poddar]

Yes, yes.

[Vipin Kumar Saxena, Chairman & MD]

Yes, it is around close to INR 9,000-odd crores.

[Operator]

[Operator Instructions] The next question is from the line of Himanshu Bhatia, an individual investor.

[Unknown Attendee]

Yes. I had just one small question. Sir, for the current quarter, the raw material costs have been a bit on the higher side. So if you could just throw some color on that because since you said that the steel cost and the raw materials for warships are something to not be taken much concern of. So, sir, please, if you could just elaborate on that.

[Vipin Kumar Saxena, Chairman & MD]

See, let me again tell you that when we say the raw material that means we in the parlance of the shipbuilding and warship building we call it yard material. And in this raw material or yard material, it's not only the steel alone, but along with steel there are a lot of structural items like electrodes and flux and so many other things comes up. But in addition, we have the plumbing pipes, et cetera, and many other fittings that come up. We have the electrical cables also. They all form part of the so-called yard material or raw material, what do you want to call it. And also, there are some installation material and, of course, the flooring material, deck flooring, et cetera. These all form part of hard material and raw material part. So yes, there is some increase here and there. But to my mind, what we are seeing here in quarter that is certainly not a great thing you should look at the quarter part. Because when we look at the cost of the vessel, when the procurement happens, we don't procure it on a quarter-on-quarter basis, okay? The items, say for example, 17 Alpha ships, which are huge ships and the decision period of each shipbuilding is around 5.5 years. So there's no point having certain materials coming up quarter-to-quarter. They come up progressively -- and then there is a cost that has been assigned to a particular order, which is getting delivered in a part quantity or in full quantity.So in certain quarters, what you see is not the, I would say, a great reflection of the overall cost of the yard material or raw material as such. Because in that quarter, there'll be consumption of more steel because the steel [indiscernible] is very high. So when you see that the cost of the material has gone up because the large amount of fabrication activity has happened. So that's how you generally see that the material cost is looking higher or whatever has been booked in that.

[Unknown Attendee]

Okay, sir. Sir, that puts a great perspective to it.

[Operator]

The next question is from the line of Karthik Bhat, an individual Investor.

[Unknown Attendee]

Yes. Most of my questions have been answered. I just want to confirm that, sir, operating margins, would it be fair to say that it will be around 11% to 12% over the next few quarters?

[Vipin Kumar Saxena, Chairman & MD]

Yes. That's what I'm saying that despite of the pandemic and the challenges, if you have come thus far in terms of the margins and operating margin and other things, I am quite hopeful that we should be doing better than what so far has happened. So that is what is I believe and hope.

[Unknown Attendee]

Sure. Okay, sir. And there's no -- you don't foresee any needs for taking up any debt, right? Considering next year, you don't foresee any need for taking up debt, right, significant?

[Vipin Kumar Saxena, Chairman & MD]

No, no, no.

[Unknown Attendee]

Okay, sir.

[Vipin Kumar Saxena, Chairman & MD]

And I must tell you -- I must also add up other investors also asked before you the question about the profitability margins. In warship building, if you are able to get anything in double digits is always very, very welcome, okay? So if I'm doing 10% as against 7.5% of what Navy gives me, I'm very -- I should be very happy and everybody should be very happy. If I'm doing 10%, that is fantastic. If we are doing 11% much better. And if we're doing better than 11% that would be, I think, good for everybody. So I think we all are hoping that hopefully, we should be -- but we should not expect a huge kind of a jump, et cetera, but if we are able to maintain that level, that will be very good for us.

[Operator]

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

[Sunil J. Shah, Co]

Yes. Sir, my question is in context -- sir, am I audible?

[Vipin Kumar Saxena, Chairman & MD]

Yes, yes, yes.

[Sunil J. Shah, Co]

Yes. Right, sir. Sir, I had asked this even last time. Sir, just want to know the process of succession planning. I believe, sir, in your tenure, company has done exceedingly well, but there were some reports and -- that somebody has to fill in your shoes. Sir, how does that process work? And any update on all of that, if you could please let us know.

[Vipin Kumar Saxena, Chairman & MD]

See, everybody's tenure is defined by the -- your assignment and appointment. And my assignment was there for the 5 years, okay? That is supposed to be getting over by this month's end. So as of now, that is the news. And as far as the succession plan is concerned, the teams are geared up. And whenever the interview happens for the next CMD, next CMD would take over and get going on the taking care of the company.And I think the -- as of now, I can only assure all of you that the company has already come to a level and a growth path in all its dimension, which I expect that the next CMD, whenever he takes over and other team members, the Director of Finance, Director of Personnel, and new Director of Shipbuilding, who would be -- who has already been appointed, but his ACC clearance is required -- yet to come. So put together, the entire team is fully geared up to take forward the agenda of growth of the company and the company is absolutely on the right track. So I think we should not really worry and bother much about the change of the top leadership.

[Sunil J. Shah, Co]

Yes. Sir, any update on the OFS? Anything happening there? Because I'm just trying to connect here 2 things in terms of the CMD who comes on board and takes up this leadership thing. Till that time, the workers would be in abeyance? Or any update which is coming there?

[Vipin Kumar Saxena, Chairman & MD]

I really do not know at this point of time that is there any plan for the OFS in this quarter. To my mind, I have not heard of anything unless the government decides something else. In my thoughts, probably -- they would probably look for the next CMD in maybe the next financial year if at all they are looking for OFS to happen.

[Sunil J. Shah, Co]

Sir, any possibility or any chance of you getting an extended period of association with the company?

[Vipin Kumar Saxena, Chairman & MD]

See, everything is on government's hands. One cannot -- one should not guess or think and anything can happen -- nobody knows. So I will leave it to the government to think and decide about that. But as of [Technical Difficulty]

[Sunil J. Shah, Co]

Sorry, sir, I cannot hear you. I'm not getting the last few words. Hello?

[Operator]

Members of the management, we lost your audio. Ladies and gentlemen, we lost the lines of the management. We would request you to please hold the line while we call them back.[Technical Difficulty]Ladies and gentlemen, please stay connected while we join the management back to the conference. Thank you for patiently waiting. We have the line for the management reconnected. Over to you, sir.

[Vipin Kumar Saxena, Chairman & MD]

Yes. I hope that what I've already told you about my tenure completing by end of this month. And I'm not -- I'm yet to hear anything from the ministry or the government about anything more. So let's assume that it is -- as of now it stands that it will be getting completed on time. And -- can you hear me?

[Sunil J. Shah, Co]

Yes, sir. Very much. Please go ahead, sir.

[Vipin Kumar Saxena, Chairman & MD]

So that's how things are. And the other one is that about the OFS you asked, and OFS is something, which is really not known to me as to what is the plan at this juncture and whether they'll wait for the next CMD or to go for the OFS, really, I don't have any substantial input. So I will not be able to make a guess out of that.

[Sunil J. Shah, Co]

Sir, we all hope that sanity prevails, and we have many, many con calls with you and get understanding and you have a long tenure with us, as in the company and as well as from the investors side. So thank you very much for all the things that have been done in the company and the organization. You have seen this company grow from leaps and bounds in your tenure, sir. Thank you very much, sir. And I really sincerely hope we all can have many calls and be associated for a long period of time.

[Vipin Kumar Saxena, Chairman & MD]

Thank you so much for the kind words -- very, very nice and kind words. Thank you so much. God bless you.

[Operator]

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

[Vipin Kumar Saxena, Chairman & MD]

Thank you very much, everybody. Thank you, Gaurav, from Concept IR for organizing this conference call. And I would like to pay my sincerest gratitude and thanks to all my investors, all friends and everybody who have been part of this company all throughout since listing and subsequently joining the company. And your faith and confidence that has been posed in the company's performance. And I've heard some very kind, nice words about me and for the company. I can only assure you all that the company is on the right trajectory of growth path. As I see that, I explained to you about the ongoing projects and the way they made improvement in the internal efficiency, all the processes. And of course, a lot of infrastructure augmentation that has taken place, and other plans that have been done by the company. The way things are going on, I feel that there's no disruption furthermore. This year, it would be the -- perhaps the best year in the history of the company. That's what I'm hoping. And also from here on, the company is going to be showing a much more better and steeper kind of growth trajectory. And therefore, all of you must watch out and continue to have belief and faith in the performance of the company. Wishing you and everybody a safer, healthier times ahead. do take care of yourself and the family. All the very best to you all. Thank you very much.

[Operator]

Thank you all for attending this conference call. If you have any further queries, please send an e-mail to [e-mail]. I repeat, the email ID is [e-mail]. On behalf of Garden Reach Shipbuilders & Engineers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.