Indias shipbuilding ambitions run into rough weather

Ambitious plans by domestic firms to boost India?s shipbuilding capacity in the next two to three years by investing some Rs20,000 crore may have to be whittled on the back of the current credit crunch and a downturn in global shipping, say experts. “The changed situation would require some degree of reworking on their plans,” said Arvind Mahajan, national industry director, infrastructure and government, at audit and consultancy firm KPMG Advisory Services Pvt. Ltd.

The Indian shipping industry started eyeing a bigger share of the international market after an ordering frenzy in 2007, which tempted companies to expand capacity and attracted firms such as Larsen and Toubro Ltd, Adani Group, Apeejay Shipping Ltd and Mercator Lines Ltd to start building ships. But just when the local industry was beginning to gain global acceptability, orders for new ships reduced to a trickle due to slower demand for cargo movements as economies in the US and Europe weakened.

“New orders have slowed down significantly,” said Dhananjay Datar, chief financial officer at ABG Shipyard Ltd. Last year, ABG had bumper orders for 33 ships worth Rs4,340 crore between April 2007 and March, and opened a new facility earlier this year at Dahej to add to its existing facility at Surat, both in Gujarat. This year, ABG has bagged orders for building just seven ships valued at Rs3,240 crore. A bulk of this came from an order last week for constructing two offshore oil drilling rigs valued at Rs2,350 crore from Essar Oilfields Services Ltd.

“The silver lining, though, is that Indian yards are sitting on healthy order books, which will see them through till 2011-12. We are also not seeing any cancellation of orders so far unlike some of our global rivals,” said Datar.

Bharati Shipyard Ltd, the country?s second-biggest private sector shipbuilder, has secured only one order since April for two offshore vessels worth Rs293.16 crore from Norwegian Offshore Shipping Ltd. New entrants Larsen and Toubro and Pipavav Shipyard Ltd have not added to their order books of Rs2,112 crore and Rs4,360 crore, respectively, this fiscal year.

The Shipyards Association of India (SAI), a lobbying body that represents Indian shipbuilders, says there is no change in investment plans but admits getting finance has become a problem. “Getting funds is going to be tough for those firms whose balance sheets are not strong,” said an SAI official, who did not want to be named. “Those having strong balance sheets will be able to raise funds but only at a higher cost. So, firms will have to plan it out and restructure their investments.”

India has some 23 yards that are building some 250 ships that would together cost at least Rs24,000 crore, up from an order book of Rs816 crore in 2002, when the subsidy scheme was introduced. The country?s shipbuilding capacity was projected to double from the current 2.8mt to 4mt of cargo carrying capacity by 2012, and to 19mt by 2017, aided mainly by cost competitiveness and availability of skilled and cheap labour, according to a recent industry-funded report prepared by KPMG. India would then have a 7.5% share of the global market, up from less than the current 1%.