The Indian ship recycling industry will see revenue grow nearly 15 percent this fiscal year after two years of decline of 22 percent in fiscal 2024 and 8.5 percent in fiscal 2023. The growth will be supported by two factors. First, the increased availability of aging vessels for recycling is due to the addition of new vessel capacity globally.
Second, the higher competitiveness of Indian ship crews compared with the key rival nation, Bangladesh
and Pakistan. The increased availability of aging vessels will bring down input costs for ship recyclers. This, along with higher capacity utilization leading to better efficiency, will improve operating profitability by 75 basis points (bps) to 6.5 percent this fiscal year.
Higher cash generation and the absence of capital expenditure (capex), along with healthy balance sheets, will keep credit profiles stable for Indian ship recyclers. A CRISIL Ratings analysis of 22 ship recyclers, accounting for close to half of the industry’s revenues of Rs 4,400 crore, indicates as much. “The addition of ship freight capacity for containment and dry-bulk fleets globally will bring down the freight rate over the medium term.
In fact, container fleet capacity alone is expected to increase by 10% this fiscal year. The lower freight rate will make aging vessels operating beyond their age limit uneconomical. due to high repair and insurance costs, which will lead to an increase in vehicles available for dismantling globally,” said Nitin Kansal, Director, CRISIL Ratings.
Indian ship recyclers are expected to grab a lion’s share of the increased volume of condemned vessels, given their higher competitiveness, leading to likely volume growth of around 20–23 percent. Key competitors Bangladesh and Pakistan are facing a severe crisis of foreign currency availability, and ship recyclers in these countries are hence taking longer to complete vessel purchases and thus owning condemned vessels, likely avoiding these markets. For the record, these three countries account for 85 percent of the global ship recycling volume.
Operating margins are improving this fiscal year for two reasons. First, increased availability of condemned vessels is likely to bring the purchase cost down by nearly 6 percent, while output (scrap steel) prices are expected to remain firm. Second, the increase in volume of ship recycling will lead to better cost efficiency, as capacity utilization is seen improving to nearly 50 percent.