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RAdm L V Sarat Babu, NM, IN (Retd)
Chairman & Managing Director

 

Dear Shareholders,  It gives me immense pleasure to welcome you all to the 67th Annual General Meeting of your Company and apprise you on its performance during the year 2018-19. I am delighted to state that your company has strengthened its position during the year under review and despite many operational challenges, your company has posted profits consecutively for the fourth year in a row.

The Company’s Annual Accounts for the financial year ended on 31st Mar 2019 along with Board’s Report, Auditor’s Report and Nil Comments of C&AG have already been circulated to all concerned.  Before I enumerate various aspects of company’s performance, progress, modernization, future plans and other issues related to employee welfare, let me briefly highlight the ship building industry scenario which has significant effect on our company’s performance.

Shipbuilding Scenario

The shipping and shipbuilding scenario for the year 201819 had begun on brighter note for mercantile marine after a sluggish year in 2017-18.
 
The Indian shipbuilding industry currently accounts for a mere 1% of global shipbuilding market. At present India has 27 Shipyards of which 19 belong to the private sector. The current cumulative shipbuilding capacity of Indian Shipyards is around 0.5 million deadweight tonnage. Shipping transport industry/freight or cargo industry has 235 shipping companies in India of which Shipping Corporation of India is the largest accounting for about 33% of the total tonnage. India has one of the largest merchant shipping fleets with about 997 vessels and is ranked 17th in the world.
 
Your company has been dependent on domestic ship/ submarine building/ repair orders viz., defence and commercial orders. The Long Term perspective plans of the Indian Navy and Coast Guard offer a road map indicative of the planned growth of our two important clientele. Also, the refit plans of various ships and submarines give insight on the probable business opportunities.
 
However, the opportunities are expected to improve and increase as India has set its course to be a 5 trillion economy in the decade ahead. With a necessity for capacity enhancement, shipping industry will enhance its fleet strength, improve and construct new ports, shipping industry will enhance its fleet strength, improve and construct new ports, shipping and logistic parks- inland and along the coast, apart from improved thrust in the inland waterways and the untapped coastal shipping.
 
I now move on to the performance and other aspects of our Company during the period under review.
 
Company Performance
 
The year 2018-19 continued to be challenging in so far the operations of the Company are concerned. Despite various operational challenges, it is indeed my privilege to report that your Company has further strengthened its performance and posted profits consecutively for the fourth year in a row. During the year 2018-19 your Company achieved a total income of Rs 605.53 Cr and a Value of Production of Rs 594.90 Cr. Value of Production of your company has been decreased as compared to previous year due to lean order book position of the company.
 
During the year 2018-19, your Company has posted an operating profit of Rs.68.08 Cr as against Rs 69.80 Cr reported in the previous year. Even though, the operating profit has been marginally decreased over last year due to lean order book, the operating profit margin has been increased to 11.43% from 10.85% recorded previous year. This is the testimony of the operational efficiency, the company has achieved during last four years despite many operational challenges and legacy liabilities.    
 
Your company has achieved profit after tax (PAT) of Rs 36.24 Cr as against Profit of Rs 20.99 Cr reported last year. This translates to a 73% growth on year on year basis. 
 
The operational indices of the company have also been improved significantly. These indices are now comparable to other profit making domestic shipyards and some of the indices are even better.          
 
The accumulated losses and negative net worth of the company has also been reduced to Rs 1195.27 Cr and Rs. 577.08 Cr respectively. 
 
Execution of shipbuilding & Ship Repair Projects
 
During the year under review, Submarine Division has contributed maximum to the Value of Production of the Company by recording all time high value of Production of Rs 317.80 Cr. The Value of Production from Shipbuilding and Ship Repairs have been declined by 52% and 15% respectively due to lean order book. 
 
In the shipbuilding front, the flagship project of the company i.e. VC 11184 has been progressing satisfactorily and the vessel is in the trials phase. The vessel is likely to be delivered in the current fiscal.  During the year 201819, we have delivered 07 vessels which include One Inshore Patrol Vessel to Indian Coast Guard, One 50 Ton BP Tug to M/s Deen Dayal Port Trust, 03 Nos 10 Ton BP Tugs to Indian Navy and Two Pontoons to the Naval Dockyard, Visakhapatnam. Besides this, one more 10 Ton BP Tugs was also handed over to Indian Navy in Jul 2019. With two more deliveries of 10 Ton BP Tugs, the yard is all set to complete all legacy projects. 
 
Presently, 02 Diving Support vessels and 04 no 50 Ton Tugs are under construction. These projects are on schedule and the yard is putting all efforts to achieve key milestones in these projects by the end of the current fiscal.
In the ship repair front, the yard has undertaken repair of 12 vessels. During the year under review the ship repair business remained relatively lean as compared to previous year due to low order book. However, our strategies to bag major ship repair orders during the year have yielded results. The yard has bagged two major ship repair orders of Rs 150 Cr besides regular refit orders. During year under review major thrust in ship repair was to timely delivery, customer satisfaction and quality of repair work. 
 
I have already said that, the submarine division has exhibited outstanding performance by posting an all-time high VoP in the year 2018-19.  The physical progress of the refit is as per the schedule and the boat has been undocked on 22 Jul 2019. The yard is putting its all-out efforts to ensure delivery by Nov 2019.
 
Order Book Position & Future Business avenues
 
As on date, the balance order book value for ship construction is about Rs 2689 Cr, majority of which comprises 02 Diving Support Vessel and 04 Nos 50 Ton BP Tugs for Indian Navy.  The construction of these ship building orders have been commenced. 
 
With regard to nominated high value shipbuilding projects i.e. five nos Fleet Support Ships whose AoN cost is about Rs 9045 Cr, the yard has finalized M/s Anadolu Shipyard of Turkey as the design collaborator. Detailed negotiation on various techno commercial terms are in progress with the firm and the contract for design collaboration would be signed in the current fiscal. Post signing of contract with Design collaborator, contract for construction of FSSs will be signed with Indian Navy.
 
As brought out earlier, the management has adopted new strategies to bag high value Ship repair orders and have been successful in them. The yard has bagged two high value ship repair orders of Indian Navy worth Rs 150 Cr. In order to increase the Ship repair business, a “Milan” workshop was conducted with various reps of contractors/ owners of the vessels in shipping industry.
 
Your Company also proposes to undertake MRLC of another EKM Class submarine and in the process of bidding for it. Further, the yard has also expressed its interest in construction of 06 Submarines for Indian Navy under the Project 75 (i) in collaboration with Adani Defence System & Technolgies Ltd (an adani group company and a subsidiary of Adani Enterprises Ltd). Towards this, the yard is in the process of formation of a Joint Venture with Adani Defence System & Technolgies Ltd with the approval of GoI/ NITI Ayog for Special Purpose Vehicle (SPV). The SPV will submit its bid for construction of 06 Submarines and will undertake construction if emerged as the lowest bidder. 
 
Financial Status & Operational Challenges
 
As brought out in previous general meetings, the financial position of the company continued to be challenging. The yard has a negative net worth of Rs 577 Cr and accumulated losses of Rs 1195 Cr has been a hindrance in the qualification process of bidding in some of the lucrative shipbuilding tenders. The proposal for financial restructuring with zero cash outgo is still under consideration by the Govt of India and a positive decision will alleviate the situation of the company.
 
With regard to the Essar oil Claims, the yard has deposited a total of Rs 68 Crs with Essar Oil as a part of the claim and under direction of the Hon’ble High Court of Andhra Pradesh in addition to the amount of Rs 40 Cr deposited in the year 2017-18. Thus the stay granted by the High court has become permanent. Towards this, Govt of India has sanctioned a loan of Rs 169 Cr to meet its legacy liabilities which has eased the situation of liquidity but since the rate of interest is higher than the market rate, the yard will be deprived of taking its benefit. MoD has been requested to consider reduction of interest rate.
 
With regard to the appeal made by ONGC against the PMA award, the decision of Committee of Secretaries is yet to come. Since ONGC is not eager for any amicable solution and that the matter is being delayed, the receivable expected from the said award could not be realized during the year under review. 
 
Past outstanding employee liabilities such as Wage Revision Arears (2009) and Leave encashment arrears have remained as a cause for concern. Despite various financial challenges, the company has cleared 60% of outstanding wage revision arrears (2009) and Leave Encashment dues upto Mar 2015.
 
MoU Grading
 
The Performance of the company for the year 2018-19 based on the self-appraisal is “Excellent” in terms of the MoU signed with the Ministry of Defence.
 
Corporate Governance
 
Your Company is complying with the Guidelines on Corporate Governance for CPSEs issued by the Department of Public Enterprises (DPE). Necessary disclosures have been made in this regard in the Corporate Governance Report which forms part of the Board’s Report. The Company has achieved “Excellent” grading for Corporate Governance for the financial year 2018-19 in terms of the said guidelines. Vacancies of Independent Directors has been apprised to the Administrative Ministry.
 
Yard Modernization
 
The first phase of the modernisation i.e. the Refurbishment and replacement of Machineries and Infrastructure (RRMI) is presently under progress with financial support from Govt. of India.  As on 31 Mar 2019, orders worth Rs 189.57 Cr have been placed. Out of which work for Rs 161.91 Cr has been completed. Tenders valued at Rs 31.28 Cr are under progress.
 
As part of infrastructure upgradation, implementation of SAP ERP solution along with PLM is in progress. The SAP ERP system is expected to ‘GO LIVE’ in current fiscal. 
 
As brought out in my previous addresses, your company has completed installation and commissioning of 02 MW rooftop Solar PV system at HSL through M/s Cleanmax Enviro Energy Solutions Pvt Ltd. The project was implemented in OPEX model as prescribed by SECI and the tariff is fixed at Rs 3.939 per kWh. Post commissioning of Solar Power plants in HSL, the yard has been paying Rs 3.939 kWh as against Rs 5.50 per kWh from Andhra Pradesh Eastern power distribution company Ltd. Thus the yard was able to save around Rs 1.02 Cr per annum towards the electricity consumption. Encouraged with the trend, the yard is in process of installation & commissioning of 1 MW solar power plant in the current fiscal. 
 
Skill Development
 
The yard’s initiatives in the field of skill development include training of Trade, diploma & degree apprentices as well as vocational trainees. 21 ITI apprentice trainees, 27 engineering graduates and 14 Diploma Trainees were trained in their respective streams during the year 201819. On the job training and project work was also extended to 1555 students of various engineering colleges, management institutions and marine institutes. Your company also extends Industrial Training to the students of various professional institutes. Your Company also extends  industrial training for professional courses such as CMA & CS courses under skill  development. 
 
Corporate Social Responsibility
 
As per DPE guidelines and Companies Act 2013, considering an average net profit for the immediately preceding three financial years, your shipyard has fixed a budget of Rs 63 lakhs during the year 2018-19. Against this, the yard could spend only Rs 3.36 lakhs. Balance amount could not be spent due to the adverse liquidity position of the company due to payment of legacy liabilities during the year under review.
 
Major CSR related activities undertaken during the year was ie., Free Medical Camp, Blood donation camp, support to educational institutions by the way of free electricity & water etc. A detailed report on CSR is placed as annexure to the Board’s Report 2018-19 in accordance with the Section 135 of the Companies Act 2013 and rules made thereunder.
 
Swatchh Bharat Campaign
 
Your Company fully adheres to the Hon’ble Prime Minister’s Nationwide Swachh Bharat Campaign with the awareness and participation by all employees and residents of nearby area with an aim to make it a mass awareness movement and bring about a lasting change in the mindset. A voluntary program was initiated which invites every employee to spend at least 02 hours a week towards cleanliness of their surroundings.
 
Under “Swathta hi seva” program, various cleanliness drives were organised to sensitise employees, residents of township and people residing in surrounding areas. Swatchata Pakhwada was conducted thrice during the year from 24 Aug 2018 to 07 Sep 2018, 15 Sep 2018 to 02 Oct 2018, and 01 Dec 2018 to 15 Dec 2018. Various rallies, march past and mini marathons were conducted to spread the message for a clean and green life.
 
Indigenisation & Make-in-India Campaign
 
Your Company has been contributing towards the Makein-India Campaign in a bigway.  It has set-up a MAKE IN INDIA cell and launched MAKE IN INDIA portal in its website for vendors, with an objective of ensuring maximum indigenisation. The portal caters to the requirements of prospective vendor’s information. Efforts are also being made to identify potential indigenous vendors in line with “Make in India” initiative of Government of India. Besides this various measures have been taken for promoting indigenous defence manufacturing in the MSME sector and same has been elaborated in Board’s Report as a separate section under Make in India initiatives. 
 
Industrial Relations
 
The Company maintains harmonious industrial relations with the work force. The recognised and the supporting trade unions of the shipyard are constructive in their contribution towards improvement of the company. Periodical interaction of C&MD with all the employees is being held for enabling them to be aware of the ongoing company affairs and to avoid communication gaps. 
 
Morale, Motivation & Welfare Measures
 
During the year under review, following important measures that have been taken to boost morale and improve motivation levels of the company. 
 
(a) Pay revision of officers w.e.f 01 Apr 2018 has been considered by the Board and forwarded to Ministry for approval. The wage revision for workers and staff has also been considered and forwarded to Ministry for approval in the current fiscal.
 
(b) Various Junior and senior level officers were promoted during the year under review. 
 
(c) Despite financial constraints, one instalment of wage revision arrears was paid. With this 60% of outstanding wage revision arrears  has been cleared. Further leave encashment dues of the retired employees who have retired upto Mar 2015 have been paid. The total cash out go was Rs 19.95 Cr in the year 2018-19. 
 
(d) Regular interaction have been held by C&MD with all employees irrespective of Cadre. 
 
(e) Interdepartmental Sports events were organised for employees to foster team spirit. 
 
(f) To improve the better living conditions of employees in HSL Township, your Company renovated 20 numbers (C, F & G type) quarters for the officers, 24 Nos. (B1 & B2 type) quarters for the staff and 34 Nos (R & D type) quarters for staff & workmen.
 
(g) 77th Foundation Day and Founders Day of HSL was celebrated to commemorate the foundation of Shipyard and to pay tributes to the Founder of Shipyard, Shri Seth Walchand Hirachand.        
 
Awards
 
The shipyard has also been bestowed with ‘Governance Now’ award in the category of ‘Resilient Growth’ on 17 Jan 2019 for its remarkable financial performance. The Governance Now Awards recognizes the efforts of Public Sector Undertakings (PSUs) that have been a key to the country’s growth. Further, HSL also received the prestigious ‘SKOCH AWARDS 2019’ in the category of “Corporate Excellence – Turnaround” on 29 June 2019.
 
Acknowledgements
 
I would like to place on record our gratitude and appreciation for the assistance, co-operation and guidance received by the Company from various Ministries of the Government of India, especially the Ministry of Defence, Department of Defence Production, the Integrated Headquarters (Navy)/MoD, the Indian Coast Guard, Comptroller & Auditor General of India, Controller of Defence Accounts (Navy), Government of Andhra Pradesh, Flag Officer, Eastern Naval Command and look forward to their continued support in the future.   I acknowledge with gratitude the continued patronage and support received from the Company’s clients, OEMs and Vendors. I also thank the Classification authorities, Company’s Bankers and Auditors for their help and co-operation. I thank all my colleagues on the Board for their harmonious support and immense encouragement. My special appreciation to the collective efforts of the entire HSL Team working tirelessly to make the company profitable. 
 
Thank You,
 
 
Visakhapatnam
27 Sep 2019