As tides shift, MDL lays new keel

MDL's present-day-80-acre shipyard originated in a small dry dock in 1774 (Photo: Bhaswar Kumar)

  The sentiment was expressed emphatically by MDL’s Chairman and Managing Director (CMD), Navy Captain Jagmohan (retired), who has been at the helm since April: “Shipbuilding is nation-building. It brings technology, employment, industrial growth, and both military and commercial security.” MDL can indeed claim a share of credit for building the nation’s security: delivering INS Nilgiri in 1972, the first major warship built in India from keel up; INS Shalki in 1992, the first Indian-built submarine (German-designed Shishumar-class); and INS Delhi in 1997, the first guided-missile destroyer and then-largest vessel designed and built in country.

  Located on the eastern edge of South Mumbai, and nestled along a curving inlet of the Arabian Sea that forms part of Mumbai Harbour, MDL’s history dates back to the construction of a small dry dock in 1774, around which the present-day 80-acre shipyard evolved. Incorporated as a private limited company in 1934 and taken over by the government in 1960, MDL has since built 805 vessels, including 30 warships and eight submarines. It has also built a range of cargo, passenger, and support vessels. The Navratna defence public sector undertaking (DPSU) has enjoyed steady tailwinds in recent years: its profits surged 4.8 times to ₹2,324.88 crore between 2020–21 (FY21) and FY25, and it closed FY25 with an order book worth ₹32,260 crore, with several major projects underway, including stealth frigates for the Navy and offshore platforms for the Oil and Natural Gas Corporation (ONGC).  

  A key factor behind MDL’s pole position in defence shipbuilding has been the decades-long practice of procurement through nomination. This process grants a government-owned company upfront approval for an acquisition, with the contract awarded without competitive bidding. But with 2025 marked as the year of reforms, the Ministry of Defence (MoD) has renewed its nearly decade-old pledge to phase out the practice.

  In January, MDL and its partner, the German firm ThyssenKrupp Marine Systems (TKMS), emerged as the sole contender for the ₹70,000 crore P-75(I) project, after a proposal by Larsen & Toubro (L&T) and Spanish shipbuilder Navantia was declared non-compliant. Once the order is finalised, MDL will build six advanced conventional submarines, specifically designed by TKMS to meet Indian requirements and equipped with an air-independent propulsion system to extend underwater endurance.  MDL began contract negotiations with the MoD in early September, and Jagmohan expected the deal to be signed by March 2026. The rub, however, is that although the project is being executed under the Strategic Partnership model — aimed at “progressively building indigenous capabilities in the private sector to design, develop and manufacture complex weapon systems” — the government eventually permitted MDL to enter the fray as well.

  Speaking at the Mumbai headquarters, Jagmohan cautioned that ending nominations — except perhaps for aircraft carriers — and adopting competitive bidding did not account for the structural differences between shipyards. “In its current form, MDL will not be competitive under such circumstances,” said the CMD. He explained that, when bidding for an order, the basic ship cost and the cost of equipment and materials together account for nearly 90 per cent of the total. All shipyards, he added, were essentially competing on the remaining 10 per cent, which came down to manpower and overhead costs. 

  He cited the example of Goa Shipyard Ltd (GSL), where he previously served as director of corporate planning, projects, and business development. “GSL’s overheads are a fifth of MDL’s. Except for financing, infrastructure upgradation, and maintenance costs, L&T probably doesn’t have any overheads at all.” Turning to his current charge, he noted that MDL employed around 6,000 people, carried a wage bill of approximately ₹1,000 crore, and operated expansive — though relatively older — infrastructure. “Our fixed costs are high. Unlike private firms, I can’t resort to aggressive layoffs to compete with leaner shipyards.” Nonetheless, he said that discussions with employee unions had taken place, acknowledging that layoffs could be on the horizon in a competitive environment.

  A former Navy officer described Jagmohan as “an aggressive leader who speaks his mind”. Reflecting these traits, the MDL CMD outlined an ambitious expansion plan to anchor the company’s future even with a storm brewing.

  Given that a substantial share of a warship’s cost lies in the systems and components it houses, the first pillar is backward integration: to begin producing these items in-house. “There aren’t many equipment manufacturers in the country — maybe three or four in each category — because they have to be qualified by the Navy,” said Jagmohan. “The market is tilted in their favour, and profit margins go to them.” Once MDL delivers a ship, its engagement largely ends, apart from maintenance and refits years later. But equipment makers also supply a range of spares — which can make up as much as 15 per cent of the equipment cost — and continue earning revenue from a vessel throughout its 30-year service life.

  “While organic growth is possible, we could also acquire an equipment manufacturer and leverage our strengths as a Navratna to scale it up significantly,” he said. Two key components MDL might start producing are integrated platform management and power generation systems. With the Defence Research and Development Organisation increasingly licensing out systems they have developed, MDL is also eyeing those opportunities. “We can be the production agency for torpedoes and decoy systems developed by these labs,” he said.

  Asked how firm these plans were, the CMD replied: “It boils down to survival, especially if the government mandates open competition for all ships, including destroyers and submarines.”

  Another key pillar is reviving MDL’s offshore platform manufacturing business. Once among the country’s largest players in the sector, MDL scaled down operations around 2002. In the years that followed, L&T emerged as the dominant player in the space. After re-entering the segment about two years ago, MDL currently holds ₹7,500 crore worth of projects from ONGC and has bid for another ₹8,000 crore project, with a decision expected by end-September.

  Jagmohan expected offshore projects to contribute ₹4,000–5,000 crore to MDL’s projected ₹12,500 crore revenue this financial year. With ONGC’s annual requirement for pipelines and offshore platforms estimated at ₹10,000 crore, MDL aims to capture half that value annually, setting a ₹5,000 crore target going forward as well.

  But it is the third pillar that stands out as the most ambitious: a possible expansion of MDL’s footprint in commercial shipbuilding. “More than 90 per cent of our revenue comes from defence today, and we hope to rebalance this share to about 70 per cent,” Jagmohan said.

  A defence consultant, who did not wish to be named, said, “Fresh orders will run out in about five years if nomination is discontinued, making diversification inevitable.” The consultant added that Garden Reach Shipbuilders & Engineers Ltd, another DPSU shipyard, was also exploring partnerships to build commercial vessels.

  The government’s plan to set up eight shipbuilding and repair clusters (five greenfield and three brownfield), therefore, came at an opportune moment for MDL. The government has reportedly finalised all eight locations, with nearly 15,000 acres either identified or under consideration across five coastal states: Odisha, Andhra Pradesh, Tamil Nadu, Gujarat, and Maharashtra.

Jagmohan said MDL was looking at the east coast in particular, citing better water depth for larger vessels and lower dredging requirements compared with the west. He indicated that Thoothukudi in Tamil Nadu and Dugarajapatnam in Andhra Pradesh’s Tirupati district were likely candidates for MDL’s greenfield shipbuilding cluster. HD-Korea Shipbuilding & Offshore Engineering has reportedly shown interest in Thoothukudi as well.

  With the CMD noting that a cluster would need to include at least a 1,000-acre shipyard and another 1,000 acres for ancillary industries — essentially “a whole city” — and require an overall investment exceeding ₹15,000 crore, the feasibility and associated risks become critical questions.

  The defence consultant argued that MDL could succeed by virtue of being cash-rich and having skilled manpower. The company closed FY25 with cash and cash equivalents totalling ₹5,285.39 crore. “They’ll need foreign tie-ups, which are possible, given Korea’s shipbuilding order book exceeds its production capacity,” the consultant noted. In 2024, China, South Korea, and Japan accounted for 55, 28, and 13 per cent of global shipbuilding by gross tonnage, respectively. 

  However, Kuljit Singh, partner and national infrastructure leader at EY India, noted that while geopolitical dynamics and government support were aligning to make commercial shipbuilding an attractive proposition, it demanded far stricter adherence to timelines than warship building. “Although we benefit from cost arbitrage, the gap in construction timelines between Indian public shipyards and East Asian shipbuilders is substantial. PSUs should ideally enter into joint ventures with foreign partners to address this challenge. However, if India is to fully capitalise on the current opportunity, encouraging private Indian shipyards to form such partnerships may prove to be more effective,” he said.

  Agreeing that commercial shipbuilding differed significantly from warship construction, Jagmohan said that MDL was already in discussions with Korean and Japanese players. “We will partner with them and they will give us the technology. In return, they will receive about 26 per cent shareholding in the shipyard,” he said. The selected foreign partner would handle commercial shipbuilding operations for the initial years, introducing efficiencies that would allow MDL to build vessels such as a very large crude carrier — with capacities ranging between 200,000 and 320,000 deadweight tonnage (DWT) — in 18 months. “We want to match the scale and efficiency of a Korean, Chinese or a Japanese shipyard in India,” he said, adding that while regular video conferences were ongoing, mutual visits between MDL and the foreign shipyards were planned, with the Ministry of Ports, Shipping and Waterways also involved.

  While the exact location of MDL’s cluster was yet to be finalised, Jagmohan was confident that with Budget 2025–26’s shipbuilding announcements being implemented, results would begin to materialise on the ground within five years. “At least the first phase of the new shipyard — a dry dock and associated workshops — should be ready within that time frame."

  The CMD is banking on collaboration and enablers: teaming up with the Koreans could allow MDL to avail of long-term loans of up to 30 years at just one per cent interest from South Korea’s export-import bank, and since the investment in the cluster's first phase is going to be greater than ₹5,000 crore, the state government will provide a subsidy of almost 30 per cent. “It’s a phenomenal combination,” he said. The defence consultant also pointed out that the state governments on the east coast could provide land and infrastructure as their equity in the project.

  In essence, Jagmohan’s expansion plan seeks to align MDL with the government’s Maritime Amrit Kaal Vision 2047, which targets India’s rise from its current 16th position to among the top 10 global shipbuilding nations by 2030 and the top 5 by 2047. India’s shipbuilding output stood at 0.041 million gross tonnes in 2024, which could rise to 4.5 million by 2047 if even three of the proposed clusters materialise, according to Jagmohan. 

  Towards this end, MDL in September signed a memorandum of understanding with Tamil Nadu’s investment promotion and facilitation agency to explore the development of a greenfield shipyard on the east coast. Days later, the Union Cabinet approved an almost ₹70,000 crore four-pillar package to revitalise the shipbuilding and maritime ecosystem. This includes the extension of the Shipbuilding Financial Assistance Scheme (SBFAS or SBFAP 2.0) until March 31, 2036, with a total corpus of nearly ₹25,000 crore. The revised scheme also introduces a Shipbreaking Credit Note. A National Shipbuilding Mission will be established to oversee the implementation of all related initiatives. To provide long-term financing, the Cabinet also approved a ₹25,000 crore Maritime Development Fund, which comprises a ₹20,000 crore Maritime Investment Fund and a ₹5,000 crore Interest Incentivisation Fund. In addition, a Shipbuilding Development Scheme, with an outlay of nearly ₹20,000 crore, has been introduced to support the mega shipbuilding clusters and establish the India Ship Technology Centre.

  However, India’s past bid to corner a larger slice of global shipbuilding had missed the mark. Launched in 2016 for a 10-year period, the SBFAP 1.0 had limited impact: only ₹385.16 crore, or 9.6 per cent, of the ₹4,000 crore allocation was utilised till December 2024.

  EY India’s Singh also cautioned against assuming that India only needs to compete with China, Korea, and Japan to expand its shipbuilding share. “It’s not inconceivable that a fifth entrant could emerge and outcompete us. In the 1990s, there was a belief that we would naturally become the second-largest textiles player after China, but that never happened,” he said, adding, “There’s a limited window to get our act together, and speed is of the essence.”

  MDL is already undertaking physical and geographical expansion. It has entered into a definitive agreement to acquire a majority stake in Colombo Dockyard PLC, Sri Lanka’s largest shipyard, for approximately ₹452 crore. Jagmohan expected the acquisition to be completed by early December, with the aim of securing a minimum 51 per cent equity stake, potentially rising to 65–70 per cent. “It is an excellent facility, with all the processes and the culture of a Japanese shipyard, thanks to Onomichi Dockyard having held a substantial stake in it previously,” he said.

  Marking MDL’s first international foray and underscoring its ambition to evolve into a global shipbuilding enterprise, the Colombo facility is expected to return to profitability within the next year. “We will, in due course, also begin debt repayments. We anticipate that approximately 50 to 60 per cent of its revenue will come from ship repair, and the remainder from commercial shipbuilding,” Jagmohan said, adding, “Our plan is to grow the Colombo yard’s revenue from about ₹1,000 crore to ₹1,500 crore.”

  He noted that the Denmark-based client mentioned earlier had a requirement for 30 multi-purpose vessels and was keen to source them from the Colombo yard. In the longer term, if foreign subsidiaries of Indian companies are permitted to bid for Indian defence projects, the facility could also pursue Coast Guard orders and Navy repair contracts. “We will bring in a lot of business to the Colombo Dockyard,” said Jagmohan, not ruling out further expansion in Sri Lanka.

  Closer to home, MDL owns 40 acres at Nhava, Navi Mumbai, where it plans to develop a greenfield shipyard in phases. In the short term, existing infrastructure will be used for shipbuilding and repair. Longer-term plans include a shiplift, wet basin, workshops, and a repair hub to handle large vessels and submarines. Separately, MDL has taken about 15 acres on a 29-year lease from the Mumbai Port Authority, adjacent to its southern boundary, to support large-vessel construction and refits. A new 12,000-tonne capacity floating dry dock was also under construction for next-generation vessels. Overall, MDL’s approved capital expenditure stood at over ₹5,000 crore.

  Capable of constructing 11 submarines and 10 warships simultaneously, MDL has a shipbuilding capacity of 80,000 DWT, exceeded only by private player Swan Defence and Heavy Industries Ltd (900,000 DWT) and PSU Cochin Shipyard Ltd (235,000 DWT). Once Nhava is fully developed, MDL expects this capacity to rise to 200,000 DWT. 

  Ultimately, the greenfield shipbuilding cluster animated Jagmohan the most. “The government is correcting a historical gap” he said. Emphasising that MDL was aligned with its vision for India to account for 10 per cent of global shipbuilding, he added, “MDL should not be seen merely as a company, but as a strategic asset — both for warship building and for advancing the Maritime Amrit Kaal Vision 2047.”