Indian Ship Recycling Industry: Growth Drivers, Competitive Edge, And Financial Outlook

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The Indian ship recycling industry is poised for a revenue growth of approximately 15% in this fiscal year, rebounding after two consecutive years of decline—22% in fiscal 2024 and 8.5% in fiscal 2023. This resurgence is fueled by an increased availability of ageing vessels for recycling and enhanced competitiveness of Indian ship recyclers compared to their counterparts in Bangladesh and Pakistan.

Factors Driving Growth

The primary drivers of this growth are the addition of new vessel capacity globally, which is increasing the availability of older ships for recycling, and the higher efficiency of Indian ship recyclers. This increased supply of ageing vessels is expected to reduce input costs for recyclers. Furthermore, better capacity utilization is anticipated to improve operating profitability by 75 basis points to 6.5%.

Competitive Advantage

Indian ship recyclers are set to benefit significantly from the current economic conditions in rival countries. Both Bangladesh and Pakistan are experiencing severe foreign currency shortages, leading to delays in vessel purchases. This situation makes Indian recyclers more attractive to ship owners, positioning them to capture a substantial portion of the global ship recycling market, which these three countries dominate.

Financial Outlook

With higher revenue and improved profitability, Indian ship recyclers are expected to see a 20% increase in cash flow this fiscal year. The industry’s credit profiles are likely to remain stable, supported by healthy balance sheets and the absence of capital expenditure, as capacity utilization remains around 50%. Additionally, key financial metrics such as interest coverage and gearing ratios are projected to improve to 4 times and 1.1 times, respectively, up from 3.6 times and 1.2 times over the past three fiscal years.

While the outlook is positive, potential geopolitical disruptions and their impact on freight rates and steel demand will require careful monitoring.

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Source: CRISIL Ratings