NEW DELHI, June 13
The India ship recycling industry is expected to record a revenue growth of approximately 15 per cent this fiscal after two years of decline of 22 per cent in fiscal 2024 and 8.5 per cent in fiscal 2023, said a report by Crisil Ratings. The growth, it added, will be supported by two factors. First, the increased availability of ageing vessels for recycling due to addition of new vessel capacity globally; and second, the higher competitiveness of Indian ship recyclers compared with the key rival nations, Bangladesh and Pakistan.
Per the report, the increased availability of ageing vessels will bring down input cost of ship recyclers. This, along with higher capacity utilization leading to better efficiency, will improve operating profitability by 75 basis points to 6.5 per cent this fiscal.
The credit profiles for Indian ship recyclers will remain stable on higher cash generation and absence of capital expenditure, along with healthy balance sheets. Crisil analysed 22 ship recyclers which account for close to half of the industry revenues of Rs 4,400 crore, to reach the conclusion.
“The addition of ship freight capacity for container and dry-bulk fleet globally will bring down the freight rate over the medium term. In fact, container fleet capacity alone is expected to increase 10 per cent this fiscal. The lower freight rate will make ageing vessels operating beyond their age limit uneconomical due to high repair and insurance cost which in-turn will lead to increase in vessels available for dismantling globally,” said Nitin Kansal, Director, CRISIL Ratings.
While Indian ship recyclers are expected to get the maximum share of the increased volume of condemned vessels, key competitors in Bangladesh and Pakistan are facing a severe crisis of foreign currency availability, which is taking the ship recyclers in these countries longer to complete vessel purchases and the owners of condemned vessels are likely avoiding these markets. For the record, these three countries account for 85 per cent of the global ship recycling volume.
“With higher revenue and improved profitability, the cash flow of ship recyclers rated by CRISIL Ratings is expected to increase 20% this fiscal. Moreover, absence of capex as yard capacity utilisation will remain around 50%, along with healthy balance sheets, will keep credit profiles stable,” said Nilesh Agarwal, Associate Director, CRISIL Ratings. Crisil said that geopolitical disruptions and their impact on freight rates, as well as steel demand, will remain key monitorable, going forward.
