Built around 250 years ago, Mazagon Dock Shipbuilders Ltd (MDL) is a key pivot of the national naval defence programme. The traditional constraints that its strengths have operated under are now dissipating and it is on course to do justice to its multi-dimensional track record. Commodore Rakesh Anand, CMD of MDL, talks across different aspects of the journey with Pankaj Joshi.
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With its kind of track record, why would MDL be classified as a Mini-Ratna?
In terms of quality of work, I do not think we could be inferior to any Navratna. However, we are today a Mini-Ratna because some conditions for the upgradation are yet to be satisfied. The official parameters for a Navratna specify some standards in the areas of capital expenditure, revenue growth and merit-led export market presence. Now let us look at our position. Our current portfolio consists of surface vessels and submarines. One particular constraint on our activity growth is space availability. Today we have a work area of 75 acres and we have 13 frontline platforms with all the paraphernalia in that space. Nowhere in the world can a yard of this size have comparable facilities. We have had experts telling us that this kind of work would need around 120 acres. Right now, across those platforms, we are working on eight surface vessels and five submarines.
With this constraint, our diversification also gets impacted. Over the last five years, we have laid out a good expansion blueprint for our upcoming facility at Nhava Sheva in the vicinity of JNPT. We have procured a land parcel of 40 acres and the process of getting the title is on. Another positive development from the viewpoint of space availability is that there is an offer from the MbPT for a site absolutely adjoining to ours on the southern side. This site, around 13 acres in size, would be available on a 30-year lease which can be similarly extended in the normal course of things. We would be able to build a dry dock at that site. These augmentations will definitely boost our capacity and ability to ramp up our turnover. To our current portfolio of work, we will then add ship and submarine repairs, and also actively seek orders from overseas markets.
For exports, we can look at light frigates, offshore patrol vessels, offshore support vessels, missile boats and so on. Some good potential markets would be South-East Asia (Philippines, Vietnam, Myanmar), African nations (Senegal, Egypt, Nigeria, Algeria), and even the Middle East (the UAE). As far as the market risk is concerned, we think that with government agencies involved and the consequent process of guarantees, we would be quite secure. The lack of infrastructure was inhibiting this process. Now we can be quite aggressive to get orders from overseas. We expect to be putting in a capex of Rs 2,500 crore over the next three-four years, which is in addition to our capex programme of around Rs 1,000 crore done at our current site in the past five years.
Ten years back, we could handle six submarines and today we can handle 11 at a time, that too across two versions – up to six metres, and the other to eight metres and beyond. In FY2018, we clocked a revenue of around Rs 4,500 crore which is the high point till now, but that will be surpassed very soon. Today, without any export or repairs orders, MDL has an order book of Rs 52,000 crore which is to be delivered across seven years. Once the enhanced facilities get on stream, we expect an annual turnover of Rs 7,000-8,000 crore. This estimate assumes only steady state revenue from the current facility, with the entire increase coming from export and ship repairs businesses. In summation, we are on the verge of take-off with proper facilities now to properly leverage the skills that we have acquired over a period. We see no issues in fulfilling the Navratna requirements in the next three-five years.
» On the operations front, delivery delays and linked penalties are a regular feature. Can you give your perspective on the matter and the causes?
To understand Mazagon Dock, maybe we can step back a bit. In India the history of shipbuilding is pretty much linked to MDL, which was incepted in 1774. In India, there is only one shipyard with capabilities to make destroyers and conventional submarines, and worldwide we are ranked sixth. In India again, we are leaders in the process of modular construction, which is being implemented, among others, in the current seven stealth frigate project (17-A class frigate). Once this is done, we would have established the methodology for modular construction of warships. World leaders (at least five-seven shipyards) are working in this manner and India must follow suit. All this is indigenous. At the time of Independence, we did not inherit anything in the name of heavy industry, we had to build it from scratch. Our true ‘Make in India’ started in 1955.
When the policy makers stated that India will have a builder’s navy and not a buyer’s navy. They picked out three shipyards— Mazagon, Garden Reach and Goa Shipyard – for warship construction. We got the first order for the Leander class frigate (Nilgiri class), the first warship proposed to be built here, in 1966. In that context it is understandable that our second area of priority was in indigenisation, with the help of the Navy. Today, in surface vessels we have achieved 70 per cent indigenisation and in submarines it is lower at 30 per cent. The primary reason for lower level in submarines is that turbines are inevitably imported – the CIS nation companies, GE from USA – as are the weapon propulsion systems. Today we have developed a vendor base of around 600, concentrated largely in Mumbai, Pune, Surat and Vadodara.
With this background, let us look at the late delivery matter. First and foremost, freezing of the specifications does not normally happen. The Navy also sees technology evolution across the time frame which delays deliver of vessel but we implement that development even if that means some delay. We call this as telescopic design – numerous iterations in designs cause delays. You would appreciate that each design change impacts not only the equipment to be installed, but also the installation area, the connected wiring and the software control alignment. Second is our indigenisation mandate as a defence PSU. It is our responsibility to increase and strengthen the domestic ecosystem. So this happens, but at a cost.
We get a hit on the late delivery side of 4 per cent of the order value, and our vendors get a lot less. In this, you must also factor in the possibility of outsourced overseas equipment being delayed. So in order of impact these are our main causes – telescopic design, indigenisation priority and delays in imported equipment. One thing you must appreciate is benefit of learning curve, which is best when you have an order of seven-eight vessels at a time, like what we have now. Here we foresee tremendous benefits visible from the fourth ship – time to deliver, quality checks and modifications, trials and tests.
» How much does manpower impact you and what is your view on acquisitions of shipyards now or sometime later? On the workforce side, if you see, there is no issue. Firstly we are located in Mumbai region which has a lot of Industrial Training Institutes and such institutions which give us a good basic-level supply of recruits. Second is that we train 625 apprentices in our own facility. Between these two, we would be able to scale up manpower at short notice. Regarding scale up through acquisitions, we would not be so keen. The global shipping and related industries are a function of global GDP and in the current protectionist climate, we do not see any quick upside. This is not the time to acquire dockyards with financial overhang, better to build capacity on marginal cost basis as we are doing