Pipavav Defence, Mazagon Dock join hands to build warships

Pipavav Defence and Offshore Engineering, formerly Pipavav Shipyard, will form an equal-stake joint venture company with state-run Mazagon Dock to execute defence orders for the Indian Navy, foreign naval forces and offset contracts.

“Mazagon Dock has selected us as a partner and the formalities to create the new joint venture company will be completed in the next few weeks,” said Nikhil Gandhi, chairman, Pipavav Defence. The joint venture would be named Mazagon Dock Pipavav Ltd.

Mazagon, which executes orders for the Indian Navy, is reported to have an order book of close to Rs one lakh crore, including warships, and the new venture is expected to help execute a part of the order book.

Mazagon had floated expression of interest from various shipyards in the country for a strategic partnership. According to sources, close to eight shipbuilding companies had expressed interest for it.

While the JV would take up defence orders from the Indian Navy, foreign navy and other offset orders, Pipavav Defence, as a separate entity, would continue to focus on orders from other forces like army, airforce, home and security and segments such as specialised merchant and offshore.

At present, the JV is of a strategic nature and does not involve investment from both parties. It will ensure optimal utilisation of the existing facilities that both shipbuilding companies own, Pipavav said.

Gandhi said the venture will help Mazagon Dock execute its orders at a faster pace. For instance, one of the existing projects with the joint venture will cut timeframe to seven years from 13 years.
Analysts see the JV as a huge positive for Pipavav, which would increase its utilisation levels.

“However, there needs to be more clarity on what would the revenue share be for Mazagon’s existing order book. It will surely help in increasing utilisation levels for Pipavav,” said Kejal Mehta, analyst, Prabhudas Lilladher.

Plans to offload stake in Pipavav Defence to a global player is also on the cards.

“The international player is keen on the stake, but certain regulatory issues from their side are being ironed out,” said Gandhi.

Pipavav Defence order book stands at around $1.5 billion, out of this 7-8% is in the offshore, 42% in the defence segment and the remaining are export orders.

Pipavav Defence has been upbeat on defence orders from both domestic and foreign front.

Gandhi sees opportunities to the tune of $25-30 billion from the Indian Navy alone. In the past one year, the company has entered into various strategic partnerships with global players in the defence shipbuilding segment.