Dearth of fresh orders to hit shipyards

Dearth of fresh orders to hit shipyards
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First Published: Fri, Jan 02 2009. 11 02 PM IST

Executing orders: ABG Shipyard’s facility in Surat, Gujarat. India’s largest private listed shipbuilder received its last order in June. Ashesh Shah / Mint
Executing orders: ABG Shipyard’s facility in Surat, Gujarat. India’s largest private listed shipbuilder received its last order in June. Ashesh Shah / Mint
Updated: Fri, Jan 02 2009. 11 02 PM IST
Mumbai: Indian ship makers may maintain profit growth in 2009-10 but order flows will deteriorate further as shipping services firms, stung by a credit crisis and plunging sea rates, put expansion plans on hold and cancel orders.
ABG Shipyard Ltd, India’s largest private listed shipbuilder, received its last order in June, worth Rs585 crore. Rival Bharati Shipyard Ltd, which has orders worth Rs4,800 crore, is mostly executing old ones.
“In terms of financials, they are not going to be impacted as they already have booked orders till 2010-11,” said Anand Sharma, a Mumbai-based independent shipping consultant. “So, if in 2009 there are no fresh orders, it will give them an indication that worse is around (the corner). In such a situation, 2010 calendar year could be bad financially.”
Executing orders: ABG Shipyard’s facility in Surat, Gujarat. India’s largest private listed shipbuilder received its last order in June. Ashesh Shah / Mint
State-run Shipping Corp. of India has postponed its Rs5,000 crore expansion plans by at least six months while Essar Shipping Ports and Logistics Ltd recently cancelled orders for three vessels.
Shipping firms overseas are also going slow on expansion, making it tougher for shipyards to survive, analysts said.
Industry estimates show around 30% of the orders for dry bulk carrier ships globally could be cancelled because of lack of finance and a drop in charter rates since September.
Baltic Dry Index, the barometer of global trade demand, slumped 92% in 2008, on a global financial crisis, falling commodity prices and slowing economic growth, closing the year at 774 points, a level last seen in 1987. Trade volumes of iron ore, coal, grains, fertilizers, cement and oil—drivers of freight boom—are also shrinking on fears of recession and access to export finance.
“All they (Indian shipyards) need to ensure now is that their orders do not get cancelled. If fresh orders are not coming in, it is still okay,” said an analyst with a foreign brokerage who didn’t want to be identified.
However, shipbuilders in India are hopeful they can face the challenge.
“We are on a sound footing. We have not faced any cancellations yet. We are more focused on executing our orders,” Dhananjay Datar, chief operating officer, ABG Shipyard, said in a telephone interview.
“Everything now depends on how the global financial markets pan out. If it brings any new surprises, I don’t know,” Datar said, adding the company expects to grow at around 30% in FY10.
In the year ended March, ABG’s net profit grew 38% to Rs160 crore on net sales of Rs970 crore.
Bharati Shipyard, which clocked 47% growth in profit last year, expects to maintain a 35-40% growth rate, a senior official of the company said on condition of anonymity.
The company earns 70% of its revenue from offshore supply vessels, which has not seen a slowdown yet, analysts said.
Shares in ABG have lost nearly half its value in 2008, underperforming the CNX Midcap index’s 28% fall. Bharati Shipyard tanked 80% in the period.
“There is a concern, of course. But the impact is not significant. Whoever has the requirement will have to place orders. Negotiations are going on. Fresh orders will be there,” the Bharati Shipyard official said.
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First Published: Fri, Jan 02 2009. 11 02 PM IST