Knowledge Marine & Engineering Works Ltd: Increased government support should support growth prospects

By 2025, Knowledge Marine & Engineering Works Ltd will focus on reducing its capital & operational costs, enhancement of fleet, optimizing capacity utilization and enhancement of market share.
Given the company’s strong outlook, it has strategised to diversify into several new business segments such as developing Fishing Harbours, river dredging, rock dredging, entering into Cutter Suction Dredger (CSD) Market, ship building, etc.

Company profile:

Knowledge Marine & Engineering Works Ltd initiated its business in 2015. Today, the company is considered as an established player in dredging and small-craft business segment in India. Over last 5 years, it has evolved from small ship-repair unit to dredging and ship-owning company. The company is being led by team of youngsters (Naval Architect, Marine Engineer, Mechanical Engineer, CS, Lawyer and CA). The company has over 100 employees.

Business model of Knowledge Marine & Engineering Works Ltd

Business model of Knowledge Marine & Engineering Works Ltd focuses on providing value addition to ports and marine establishments with help of holistic, innovative and environmentally sustainable solutions in areas of Marine Engineering and Construction. The company carries out its operations through 3 different business segments: 1) Owning and operating marine crafts, 2) Dredging and 3) Repairs and maintenance / refits of marine crafts and marine infrastructure.

Track record of management

Mr. Saurabh Daswani is the company’s Managing Director and he has done his Post-Graduation Diploma in Business Administration (Finance) from Symbiosis. After completing his graduation from Gujarat University in commerce, he pursued Inter CA and Inter CS. He has over 8 years of hands-on experience in Overall Management of the company. He is an expert in Budgeting and Cost Control and gives most profitable scenario. Because of his role in the company, he has complete grasp over P&L Account of the company.

Mrs. Kanak Kewalramani is the company’s Whole Time Director & CFO. She is a CS from Institute of Company Secretaries of India and has obtained certification in 2008. After completing her bachelorette of law from State Law College, Bhopal (M.P.), she went on to pursue Post-Graduation Diploma in Business Administration (Finance) from Symbiosis. Her experience spans across 14 years in areas of compliance, law, finance and taxation of several listed and unlisted companies.

Mr. Sujay Kewalramani is Chief Executive Officer of Knowledge Marine & Engineering Works Ltd. He has done his M.Sc. in Naval Architecture and Marine Engineering from University of New Orleans and completed B.E. in Naval Architecture and Marine Engineering from State University of New York Maritime College. He completed his Post Graduation Diploma in Business Management from Emeritus Institute of Management. Mr. Sujay Kewalramani has more than 17 years of experience in areas of ship building, repairing, marine operations and dredging industry. Apart from this, he undertook several capital dredging projects.

Financial performance of Knowledge Marine & Engineering Works Ltd

During FY22, Revenue from operations of Knowledge Marine & Engineering Works Ltd grew from INR3,328.22 Lacs in FY21 to INR6,110.63 Lacs in FY22. Further, percentage in PAT significantly increased from 20.53% in FY21 to 34.15% for FY22. In FY22, the company held 50% shareholding in KMEW Offshore Private Limited, 70% in M/s Indian Ports Dredging Private Limited and 74% in M/s. Knowledge Infra Ports Private Limited. By end of FY22, the company had strong order book of over INR210 crores, having average tenure of 2.5 years. Operationally, FY22 saw the company executing 4 dredging contracts and completing more than 6 million cubic meters of dredging. Its operational revenue saw an increase of 84% and EBIDTA went up by 53% on year-over-year basis in FY22. Capital management strategy of the company to reduce debt overhang by repaying debts before tenure of contract supported it to reduce cost of debt to 7.5% vis-à-vis more than 15% earlier.

For half-year ended March 2023 (1H23), the company’s total revenue came in at INR7,980.67 lakhs in comparison to INR4,219.86 lakhs in 1H22. Knowledge Marine & Engineering Works Ltd saw profit of INR 2,336.28 lakhs in 1H23 against INR1,632.97 lakhs in 1H22.

Industry analysis

Experts believe that global dredging market is expected to touch a valuation of US$22.3 billion by 2032. Government sector activities including coastal protection, trade activities, and mining projects, currently make up for over 40% of dredging services. East Asia should be a dominant player with booming mining and trade activities, having share of 29.6% in global share.

Seaports is expected to make a predominant share of dredging services which are required to carry out maintenance repeatedly because of soil erosion or soil degradation in that area. Underground mining will be another activity which will make up for ~27% of dredging services share.

Investment is expected to rebound in industrialized & developing economies and emerging markets because of domestic demand. Emergence of mega-cities, most of which are in flood-prone zones, is expected to provide a push to growth of dredging services. US dredging market is expected to compound at ~2.1% to touch around ~US$ 1.5 billion by 2032 end as a result of increased investments for improvement of port infrastructure and increased mineral output.

In India, there has been a focus on self-dependence on fuel technology. As a result, industries including energy, mining, and oil and gas are expected to support demand for dredging service. Higher capital investments and maintenance of dredging activities at Indian ports should stem growth of dredging services in upcoming years, with sales expected to compound at ~3.4%, reaching a valuation of US$796.6 million by 2032.

Future prospects of Knowledge Marine & Engineering Works Ltd

Talking about order book visibility, the company has expressed interest in projects worth ~INR1,100 crores and, till now, order wining success ratio stands at over 50%. The company bids for only those contracts which have target of minimum 30% EBITDA margin. The company has plans to tie up with private organisations like ITD Cementation & L&T for dredging works. It continues to explore markets related to Dam disiltation.

The company is quite optimistic about Indian port infrastructure and expects it to grow in long-term. This should provide accelerating growth opportunity to ancillary support industries including dredging companies. Indian government continues to focus on expanding sea infrastructure so that direct trade lines can be allowed to its ports. This should help avoid transit ports which can reduce lead times for critical supplies and improve financial viability of local ports. This can help in further growth of geographies.

Indian dredging and marine time industry should see significant growth expansion over upcoming years. Indian government’s plans to come up with new waterways and ports and upgrade and expand current ports should account for majority of such expansion.

Demand for dredging should touch ~170 million cubic metres in coming years at present major ports. Apart from this, minimum 8 dredging projects are being considered at present non-major ports, with expected 18 million cubic metres of material to be dredged as part of such projects.

Shareholding pattern of Knowledge Marine & Engineering Works Ltd

Promoters of Knowledge Marine & Engineering Works Ltd continue to hold ~67.09% in the company at end of June 2023, with Mr. Kanak Sujay Kewalramani holding ~37.32%. Since majority of holding is being held promoters, it appears that interests of promoters are aligned with that of the company’s shareholders.

While FIIs hold ~0.58% at end of June 2023, public investors make up ~32.33% of the company’s total shareholding.  

Risks for Knowledge Marine & Engineering Works Ltd

Modest scale of operations and dependence on shipping and maritime industry are some of main risks for the company. Though revenues of the company grew significantly in fiscal 2023, these were modest in fiscal 2022. Modest revenues can limit its pricing power with suppliers and customers, and benefits about economies of scale.

Knowledge Marine & Engineering Works Ltd carries out operations in tender-based industry, that has pre-defined criteria regarding track record and physical infrastructure. Certainty of the company’s business depends on timely order execution, which again relies on a range of external factors including customer clearances and any change at customers’ end.

Valuation and investment rationale

Stock of Knowledge Marine & Engineering Works Ltd currently trades at ~31.3x in comparison to sectoral average of ~72.23x, hinting that investors can consider going long on this stock. Stock price growth is expected to be supported sound operating efficiency and healthy financial risk profile.

Operating margins of the company remained healthy at more than 15% over previous 3 years ended fiscal 2022.  Apart from this, its operating efficiency should remain healthy as a result of high economies of scale and in-house capabilities to refurbish vessels offering competitive advantage in comparison to its peers. Return on capital employed ratio came in at 46.47% for fiscal 2022 and should sustain around ~46%-48% for FY23. The company has sound liquidity as its cash accrual is expected at INR43-60 crore per annum in fiscals 2024 and 2025 in comparison to yearly repayment obligation of INR8-10 crore. Cash and cash equivalents came in at INR22.57 crore as on March 31, 2022.   

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