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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 to the 66th Annual General Meeting of your Company and apprise you on its performance during the year 2017-18. I am delighted to state that your company has consolidated its position during the year under review and despite many operational challenges, your company has posted profits for the third year in a row. This is indicative of the commitment of the company to transform itself into ‘Mini Ratna’ by the year 2019-20.

The Company’s Accounts for the year ended 31 Mar 2018 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

International Shipbuilding Industry continued to remain under  pressure during the FY 2017-18. Your company therefore has to largely depend on domestic shipbuilding orders. Domestic shipbuilding industry mainly comprises Five Public Sector Shipyards and a few large private sector shipyards. Due to reduction in shipbuilding orders in global market, the Indian shipbuilders mainly depend on defence shipbuilding orders. However, Government of India’s focus on development of Inland waterways has created opportunities for Indian shipbuilders. Besides this, Government of India’s resolve to strengthen the coastal security has also created business avenues for domestic shipbuilders. 
 
The domestic shipbuilding industry remained highly competitive and the industry players have been competing aggressively for the projects. In such a scenario, your Company has geared up to seize the opportunities available in the market and grow in a highly competitive environment.
 
I now move on to the performance and other aspects of our Company during the period under review.
 
Company Performance
 
The year 2017-18 continued to be highly 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 third year. During the year 2017-18 your Company achieved a total income of Rs 651.67 Cr and a Value of Production of Rs 644.78 Cr. Value of Production of your company have shown an increase of 3% year on year basis and that too with a very low order book position. The value of the production has been the highest since inception of the company and the total income has been the third best since inception of the company.
 
During the year 2017-18, your Company has posted an operating profit of                Rs.69.80 Cr as against Rs 37.49 Cr the previous year thus recording an increase of 86% year on year. This shows the operational efficiency; the company has achieved over last year despite many legacy liability issues. The operating profit this year has been the highest since inception of the company.    
 
Your company has achieved profit after tax (PAT) of Rs 20.99 Cr as against Profit of Rs 53.77 Cr reported last year. The dip in the net profit over the last year is attributable to the creation of provision of Rs 51.35 Cr towards Essar Oil Claim which was an exceptional item. I will elaborate the issues related to Essar Oil a little later. 
 
The operational indices of the company have also 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 1231.51 Cr and Rs. 619.43 Cr respectively. 
 
Execution of shipbuilding & Ship Repair Projects
 
During the year under review, all three business segments i.e. Shipbuilding, Ship repair and submarine refit have contributed towards achieving the highest Value of production this year (2017-18). 
 
In the shipbuilding front, the flagship project of the company i.e. VC 11184 has been progressing satisfactorily and the vessel is in an advanced outfitting stage. The basin trials of the vessel have been completed on 23 Mar 2018 and the delivery is scheduled by end of Dec 2018. The last of the five Inshore Patrol Vessels has completed sea trials and the vessel has been delivered in May 2018. Keels of the 06 nos. 10 Ton BP Tugs have been laid and the construction is progressing satisfactorily. Your company is putting in all efforts to deliver all six tugs by the end of current fiscal. With completion of the aforesaid vessels, all legacy projects would have been completed and the yard would be geared up to take future projects. 
 
In the ship repair front, the yard has undertaken repair of 10 vessels which includes completion of major refits of INS Kesari and INS Magar. The yard has received accolades for its quality work from Indian Navy and the company’s prime customers. 
 
In the submarine division, the normal refit of INS Sindhuvir has commenced with effect from 10 Aug 2017 and by the end of the financial year, 30% of the refit has been completed. The project is on track and the yard is putting all efforts to undock the submarine by end of current fiscal.
 
Order Book Position & Future Business avenues
 
As on date, the balance order book value for ship construction is about Rs 132 Cr. During the year under review, the yard has aggressively participated in the competitive bidding process. Your company has emerged as lowest bidder and thus winning two major shipbuilding orders worth Rs 2250 Cr i.e. 02 Nos Diving Support Vessels and 04 Nos 50Ton Bollard Pull Tugs for Indian Navy. Contract finalization for the aforesaid orders is in progress and is likely to be completed in the current fiscal. Further, your company has also signed contract for 04 Nos Pontoons at a cost of Rs 10 Cr with Naval Dockyard Visakhapatnam. The order book position would improve significantly by the end of current fiscal. Your company has initiated preliminary works for the aforesaid projects so that the construction of these projects could commence as per schedule. 
 
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 shelved the proposal of strategic partnership with Hyundai Heavy Industries, South Korea and now the company has floated a global tender for finalization of design collaborator for the project. Upon finalization of design collaborator and other terms & conditions for the project, your company would sign the contract with Indian Navy.
 
Another important high value project pertains to two Special Operation Vessels. These are also known as midget submarines for which your company is in receipt of letter of offer. Your company is in the process of finalization of RFP for Design Collaborator and the global tender for the finalization of design collaborator is expected to be floated in the current fiscal post receipt of clearance from the Indian Navy.
 
Your company has been aggressively participating in various ship repair tenders and has been successful in some of them. Ship repair being a lucrative business segment, specific thrust is being given to secure the ship repair orders and keep the dry dock occupied throughout the year. 
 
Your Company also proposes to undertake MRLC of 3rd Sindhugosh Class submarine ‘INS Sindhuratna’ at the yard. Your company has submitted its bid for the said refit. Technical evaluation of the bid has been concluded and further course of action is awaited from the customer.
 
Financial Status & Operational Challenges
 
The financial position of the company continues to be challenging. The yard has a negative net worth of Rs 619.43 Cr and accumulated losses of Rs 1231.51 Cr has been a hindrance in the qualification process of bidding. Your company has submitted a proposal for financial restructuring mainly focusing on book adjustments with zero cash out go from the exchequer. The proposal aims to make the net worth positive and strengthen financial parameters of the company. Presently the proposal is under active consideration by the Government of India.
 
During the year, the company has faced many operational challenges due to legacy liabilities towards Essar Oil Claims and Pending employee liabilities. The Claims of Essar Oil has posed a serious financial challenges to the Company. During the year, your company has paid Rs 40 Cr to Essar Oil Limited as part of the claim and under the direction of Hon’ble High Court of Andhra Pradesh which has adversely affected the liquidity position of the company. 
 
Further, the arbitration with ONGC has crystalized during the year under review and PMA has given the award in favour of your company. However, ONGC has preferred an appeal against the said award with Cabinet Secretary and the matter is now subjudice. Due to the appeal made by the ONGC, the expected receivable from ONGC have been delayed and is now subject to disposal of the appeal by Cabinet Secretary.
 
Besides this, past outstanding liabilities such as wage revision arrears and leave encashment arrears have put pressure on the company financials. Even though, the company has partially paid wage revision arrears and leave encashment arrears, the employees of the company have made several representations to liquidate the same at the earliest.
 
MoU Grading
 
The Performance of the company for the year 2017-18, based on the self-appraisal is “Good” 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 is expected to achieve “Excellent” grading for Corporate Governance for the financial year 2017-18 in terms of the said guidelines. 
 
Although vacancies exists for Independent Directors on the Board of Directors, the administrative ministry has been apprised of the same.
 
Yard Modernization
 
Presently, the first phase of the modernisation i.e. the Refurbishment and replacement of Machineries and Infrastructure (RRMI) is under progress with financial support from Govt. of India.  As on 31 Mar 2018, orders worth Rs 171.93 Cr have been placed. Out of which work for Rs 142.95 Cr has been completed. Tenders valued at Rs 23.43 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 per MNRE guidelines, installation of 02 MW rooftop Solar PV system has been undertaken at HSL through M/s Cleanmax Enviro Energy Solutions Pvt Ltd. The entire project including design, supply, erection, testing, commissioning including warranty, operation & maintenance would be undertaken by M/s Clean Max without any operational expenditure and capital expenditure from the yard side. HSL is required to buy the generated power from M/s Clean Max at a cost of Rs 3.939/kWh as against Rs 5.60/kWh grid power of APEPDCL. This would enable your company to save around Rs 40 lakhs per year. 
 
Skill Development
 
The yard’s initiatives in the field of skill development include training of Trade, diploma & degree apprentices as well as vocational trainees. 78 ITI apprentice trainees, 47 engineering graduates and 21 Diploma Trainees were trained in their respective streams during the year 2017-18. On the job training and project work was also extended to 1960 students of various engineering colleges, management institutions and marine institutes. Your company also extends Industrial Training to the students of various professional institutes. At present four Cost Accountancy trainees and one Company Secretary Trainee have been engaged as a part of skill development programme. 
 
Besides this, a batch of 25 officers have been exposed to Indian Institute of Management, Visakhapatnam as part of management development programme. This is in addition to the Management Development programs organised in house. 
 
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 is exempted from earmarking dedicated funds for CSR. During the Year 2017-18, an amount of Rs.11.41 lakhs was spent towards various CSR related activities ie., Free Medical Camp, Blood donation camp, renovation of Schools & Colleges under the control of HSL. Apart from these, free electricity & water was provided to six educational institutions operated in HSL colony for the benefit of the students of surrounding areas. 
 
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. Several cleanliness drives were organised during the year to sensitise our employees, residents of the township and nearby area. Swatchata Pakhwada was organised twice during the year i.e. from 18 Sep 2017 to 02 Oct 2017 and 01 Dec 2017 to 15 Dec 2017. Your company has undertaken sanitation of yarada hill (a major dumping ground in and around scindia). Various rallies, march past, mini marathons were conducted to spread the message for a clean & green life under ‘SWTACHTA HI SEWA’ programme.    
 
Indigenisation & Make-in-India Campaign
 
Your Company has been contributing towards the Make-in-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) A rotational transfer policy has been promulgated in order to ensure the right person at right job.
 
(b) Various junior & senior level officers were promoted during the year under the Career Promotion Plan. 
 
(c) Despite financial constraints, two instalments of wage revision arrears were paid. Further leave encashment dues of the retired employees who have retired upto Mar 2014 have been paid. 
 
(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) 76th 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.        
 
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
31 Aug 2018