Ship building: Reinstate subsidy

Shipbuilding industry globally is going through a rough patch. Commercial new building order has become a rarity for the industry in the last 10 months and the industries across the world were forced to rely solely on orders /demand from government and public sector enterprises. With the global economy going into economic recession, shrinking global trade and softened freight rates, liquidity crunch the orders already places were cancelled putting more hardship on the global shipbuilding industry. 

Indian shipbuilding industry part of the global shipbuilding industry with about just 1% market share has also seen new orders dried up barring couple of defence orders. 

Industry expectation

1. Reinstate 30% shipbuilding subsidy, which expired on Aug 14, 2007.

2. Separate shipbuilding fund for shipping industry.

Stock to watch

ABG Shipyard, Bharti Shipyard

Analyst expectation

With the GOI agreeing for disbursal of shipbuilding subsidy for ongoing contracts entered upto August 14, 2007 there is greater possibility for increased allocation in the Union Budget 2009-10 paving way for clearance of dues for the domestic shipyards.  The possibility of reinstatement of shipbuilding subsidy appears remote.  But if it is given, which is long overdue, it can be a great booster for the industry.

Summary

The industry players will benefit either of increased allocation for shipbuilding subsidy in the budget as well as reinstatement of shipbuilding subsidy. While the former will bring in enough cash flow for the players the latter will enhance the competitive edge for the industry. On the negative side, if the customs / excise duty on steel, non ferrous metals are hiked, it will adversely affect the ship building industry.