Cochin Shipyard: The quiet compounder in India's maritime revival
Backed by new facilities, technology partnerships, and a record order book, Cochin Shipyard is emerging as India’s most competitive player in global shipbuilding.
When you buy into a business, you want to know what you are really buying. Is it a one-trick pony that lives and dies by a single customer? Or is it a sturdy workhorse that can pull steady earnings through all kinds of weather?
In the case of Cochin Shipyard Ltd (CSL), that question goes to the heart of what makes a company truly durable.
For years, CSL built some of the Indian Navy’s most complex ships—aircraft carriers, patrol boats, and anti-submarine vessels. That made for impressive headlines, but it also made CSL’s fortunes depend heavily on government contracts.
At one point, almost ₹9 out of every ₹10 in its order book came from defence. Reliable, yes. But also limiting. After all, a company tied too tightly to the government’s budget cycles can only grow as fast as those cycles allow.
Now, CSL stands at an important turning point. The company has recently invested billions of rupees in two major projects: the New Dry Dock (NDD) and the International Ship Repair Facility (ISRF).
These are the foundation of a strategic shift, away from a narrow focus on defence and toward broader, higher margin international shipbuilding and ship repair.
Can CSL use these assets to change its business model in a way that produces steadier, fatter profits over time?
Two businesses under one roof
It helps to think of CSL as two businesses:
1. Shipbuilding
This business builds new ships, ranging from aircraft carriers and patrol vessels to commercial tankers and platform supply vessels. These projects are large, complex, and long. They tie up huge amounts of working capital.
Additionally, these contracts are mostly fixed-price, so CSL cannot pass cost overruns back to the customer. That is why shipbuilding margins have historically been modest. In Q1FY26, the Ebit margin was just over 8%.
2. Ship repair and upgrades
This side handles maintenance, refitting, and modernization. Jobs run faster, cash comes in quicker, and margins are higher. In Q1FY26, Ebit margin for repairs was 44.2%. Repair may only account for about 7% of the long-term order book, but its profits are higher. That profit cushion helps cover the fixed costs of the new NDD and ISRF.
Strategic growth initiatives
CSL’s future growth hinges on how effectively it leverages the major investments it has already made and collaborates with the right partners.
The new facilities that came online in January 2024 now give the company a platform to compete for larger and more profitable work.
1. New Dry Dock (NDD): The new dry dock allows CSL to build much larger ships than before, including Suezmax oil tankers, big container ships, and Capesize bulk carriers. With this dock, the company can now target up to six large carriers annually, a significant step up from its earlier position.
2. International Ship Repair Facility (ISRF): The ISRF is aimed at capturing the shortage of global ship repair capacity. This will be a driver of high margins. The work here is short-cycle, high-value, and can provide a steady cash flow while the larger shipbuilding projects mature over time.
3. Block Fabrication Facility: CSL is planning a new block fabrication yard near Kochi. This ensures that large ship projects can be handled at a faster pace. The investment is necessary if the company is to move from single, complex defence projects to higher-volume commercial work.
Leveraging partnerships to build a real advantage
CSL signed an MoU in July 2025 for long-term cooperation with HD Korea Shipbuilding & Offshore Engineering (HD KSOE). This agreement brings in advanced shipbuilding technology and operating standards that can help India compete with established South Korean and Chinese yards.
India’s natural edge lies in labour. The average shipyard worker costs approximately $1,200 per year, compared to more than $21,000 in South Korea. On paper, that gives India one of the strongest labour cost advantages in the world.
However, in practice, this benefit has been offset by expensive financing, a heavy dependence on imported materials, and slow logistics, characterized by high port charges and weak road links. The new Dry Dock, along with the technology transfer from HD KSOE, aims to close that gap.
Also, the government’s decision to classify large ship projects as infrastructure opens the door to cheaper capital.
Together, these steps allow CSL to use its labour advantage more effectively.
CSL is positioning itself for export and commercial work. The success of this plan depends on how quickly it can scale operations at the New Dry Dock and absorb technology from HD KSOE.
Building for a greener future
Cochin Shipyard is participating in India’s transition to cleaner maritime transportation. Alongside Mazagon Dock Shipbuilders, it is building one of the country’s first ships powered by green hydrogen fuel cells, using homegrown technology.
The project is backed by the National Green Hydrogen Mission, which has allocated approximately ₹115 crore for infrastructure and technology development through FY26.
This early involvement gives CSL a head start. It keeps the company aligned with future fuel mandates and places it at the centre of emerging hydrogen hubs at Tuticorin and Paradip.
In 1Q FY26, Cochin Shipyard turned in a strong performance. Revenue from operations was up about 39% from the same period last year, driven mainly by the ship repair business.
Even with higher fixed costs from the new facilities coming online, profitability held steady. Operating profit rose roughly 36% year-on-year, with margins essentially unchanged, and net profit moved up sharply as well.
In FY26, revenue grew 25.8% to ₹4,820 crore. Operating profit rose to ₹1,280 crore, up from ₹1,190 crore on-year. Net profit advanced to ₹830 crore from ₹780 crore. Margins remained healthy despite the costs of expansion projects.
Order book and revenue visibility
Cochin Shipyard’s order book remains strong and well-balanced. In FY26, the company reported a backlog of about ₹21,100-22,500 crore, which translates into nearly five years of revenue visibility.
Defence contracts still form the bulk of the order book, but the mix is changing. The share of defence projects has decreased from about 88% a few years ago to 66% as of June 2025.
Commercial shipbuilding now accounts for roughly 27%, with export orders making up around 20% of the total value. Ship repair contributes another 7%, or about ₹1,500 crore.
This marks real progress in diversification. CSL’s revenue is becoming broader, less dependent on government orders, and better positioned to handle changes in demand.
Management guidance and long-term trajectory
Management expects revenue to grow meaningfully on the back of their new facilities coming online and a strong order book in execution.
They are targeting higher profit margins. Beyond this year, they laid out a plan for sustained growth over the next 5-10 years.
Large facilities like the New Dry Dock take time to translate into profits because shipbuilding cycles run long. In contrast, the International Ship Repair Facility is expected to deliver right away.
That means profitability depends heavily on getting high-margin repair work through the system quickly, while the shipbuilding side ramps up more slowly.
Instead of focusing solely on new builds, CSL is increasingly leaning into maintenance, repair, and overhaul (MRO) contracts. These are high-margin and short-cycle, and they feed directly into the ISRF.
The recent large MRO contract with the defence ministry is an example of this. It locks in stable defence-related repair work while international customers like Maersk bring in commercial volume.
Final due diligence note
Cochin Shipyard is in a strong strategic position. Its foundation is secured by sovereign defence mandates, which provide reliable visibility into future revenues.
At the same time, the company has transitioned from simply building capacity to utilizing that capacity on high-volume international projects.
But the risks should not be ignored. Long-cycle defence contracts tie up working capital and leave the company exposed to execution delays.
New facilities, while impressive, create immediate pressure to fill capacity and scale utilisation quickly. If the assets are not fed with enough high-margin work, profitability will be impacted.
Success depends on external and internal factors. Externally, the stability of partnerships with Maersk and HD KSOE will determine whether the commercial order flow is durable.
Internally, governance and operational discipline will determine whether CSL can deliver at the promised scale.
Investors should evaluate the company's fundamentals, corporate governance, and stock valuation as key factors when conducting due diligence before making investment decisions.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
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