India's Top Shipbuilding Stocks

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Mazagon Dock Shipbuilders recently celebrated its 250th Foundation Day.

You read that right. The company which listed barely three years back has been operational for more than two centuries.

From a small dry dock in 1774 to its incorporation in 1934, and subsequently operational under the Government of India since 1960, the completion of 250 years is a milestone.

What is even more striking is that the day was celebrated with inauguration of a midget submarine prototype, a solar electric hybrid boat, and fuel-cell electric ferry.

Shipbuilding companies in India have come a long way in terms of technology innovation. But the last five years have seen the sector pivoting towards profitability in the real sense.

To take you back in history, the shipbuilding industry in India really flourished under Chola kingdom in ancient India.

It was further propelled by the European colonizers and their navy. In ancient India it was used as for the exploration as well as commercial activity.

Shipping is also significant in the current world as 80% of world trade by volume and 70% by value happens via ships. So, if India is to be a key player in the global supply chain, it must become a hub of shipbuilding and repair as well.

The conversion of diesel ships into green fuel vessels and the growing acceptance of 'Made in India' brands have brought a turnaround in the global shipbuilding market.

According to the management of Mazagon Dock Shipbuilders, Indian shipbuilders will have a huge market for commercial vessels from Europe, France, Greece and the Middle East in the next five years.

Currently, the country accounts for about 20% of the market demand for commercial vessels worldwide.

India has started supplying 'green ships' to traditional shipbuilding nations Norway, Germany and the US, boosting its ambition to become a global shipping hub.

The move comes amid an international environmental focus on the shipping industry. While ships are responsible for ferrying the majority of goods around the world, they are also responsible for emitting substantial amounts of greenhouse gases.

The issue has become critical since the global energy crisis caused by the Russia-Ukraine war. The war has sparked renewed interest in making 'green ships' i.e. vessels that typically run on less polluting fuels such as methanol, electricity, green hydrogen and hybrid batteries.

Mazagon Dock recently won an order from Denmark for three commercial vessels worth Rs 3.5 bn. The fact that just 28 of the 802 vessels i.e. 3% of vessels built by the company since 1960 are defence-related, underscores the company's low dependence on defence contracts.

Yet another shipbuilder, Cochin Shipyard recently delivered two fully electric cargo ferries to Norway. And many more orders are in the pipeline.

Cochin Shipyard has also bagged contracts for building two vessels from European clients that will be fuelled by methanol.

In addition, the company has signed contracts with Norwegian clients for building two container vessels to be fuelled by green hydrogen.

As per estimates, the size of the global shipbuilding market is poised to grow from the current US$ 150 bn to US$ 180 bn by 2030.

Apart from Norway and Germany, US, Netherlands. Denmark, and Indian shipbuilders are striking deals closer to home as well. Contracts are also being negotiated with Bangladesh, Sri Lanka, and Myanmar.

Further defence related shipbuilders have their own niche. Garden Reach Shipbuilders & Engineers has a proven capacity to build 20 warships concurrently.

These include 8 large warships and 12 small or medium-sized warships. The company has already delivered defence platforms to Mauritius and Seychelles and will be exporting to Bangladesh next year.

On its part, the Centre is providing funds through the Shipbuilding Financial Assistance Policy (SBFA) to Indian shipyards in order to make India a sought-after destination for technologically advanced green ships.

As per Maritime India Vision - 2030, a clear roadmap has been provided for port modernisation and automation, shipbuilding, ship repair, transition to renewable energy, and increasing share of Indian seafarers across the globe.

Focus is also on developing and operationalising inland waterways for improved connectivity and creating an environment for positive shift from road and rail to waterways.

While the sector's potential is encouraging, investors must be wary of the steep valuations that even some smaller players in the sector are commanding.

The potential challenges posed by changing laws and legal uncertainties, could complicate the companies' business operations, affecting their financial performance and cash flow.

Moreover, the dynamic nature of the policy framework governing defence procurement and manufacturing in India, could introduce an additional layer of uncertainty.

Also, unforeseen environmental costs could pose a challenge, impacting not only the company's future earnings but also the affordability of its products and services.

Delays in deliveries present another risk that could significantly and adversely affect the companies' reputation, and financial condition. Timely and efficient delivery is crucial in the competitive landscape, and any disruptions in this aspect could have far-reaching consequences.

Additionally, the nonavailability of critical imported raw materials in the international market, coupled with exchange rate fluctuations and volatile prices, poses challenges to the company's competitive edge.

It is noteworthy that Indian shipbuilders currently import a substantial 65-70% of their equipment.

This is primarily due to the absence of domestic manufacturing for such equipment in the country. The equipment costs, in turn, contribute significantly to the overall shipbuilding expenses, accounting for about 50-55% of the total cost.

This heavy reliance on imported equipment not only hampers self-sufficiency but also adds to the overall cost of constructing ships.

To address this challenge and enhance cost-effectiveness, fostering a domestic manufacturing ecosystem for shipbuilding equipment becomes imperative.

Now, if you are wondering whether stocks from such high potential sectors could actually have some real risks, let me remind you of two shipbuilding stocks that were listed a decade back - ABG Shipyard and Bharti Shipyard.

If you search for them, you will not find the stocks listed today.

Why is that the case?

ABG Shipyard, a Gujarat-based shipbuilder was accused in India's biggest bank fraud case.

The company apparently created 27 paper companies and used 38 Singapore-based group entities to divert the money borrowed from a consortium of lenders led by the ICICI Bank.

Meanwhile, the NCLT ordered initiation of corporate insolvency of Bharati Defence and Infrastructure (the erstwhile Bharti Shipyard) in June 2017. This was after Edelweiss Asset Reconstruction Company filed an insolvency petition against the company. Thereafter, in January 2019, NCLT directed the liquidation of the company.

In addition, there are several small shipping companies like Shreyas Shipping, Essar Shipping, Sadhav Shipping, Seacoast Shipping etc that have seen valuations soar over the past year despite very vulnerable fundamentals.

It is imperative that investors stay wary of such stocks and keep the history of frauds and valuations in mind before overpaying for the shipping megatrend.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)