Mitsubishi may buy stake in L&T Shipbuilding
Japanese engineering major, Mitsubishi Heavy industries may consider buying a stake in Larsen and Toubro's subsidiary, L&T Shipbuilding, as it looks to set up its first shipbuilding base outside Japan, Economic Times reports.
"Mitsubishi Heavy Industries plans to acquire a stake in L&T Shipbuilding within a few years to secure its first shipbuilding base overseas," Hisashi Hara, head of shipbuilding and ocean development of Mitsubishi was quoted as saying by Japanese media while presenting the company's business plan on Wednesday.
L&T Shipbuilding, a subsidiary of domestic infrastructure major, Larsen and Toubro signed an agreement in December last year with Mitsubishi for technological assistance, ranging from design drawings to quality control.
MV Kotwal, president, heavy engineering at L&T said that the company has not had any discussions with Mitsubishi on the issue, but added that the company will take an appropriate call on the matter if it comes up for discussion. "We have also heard that about the same, but we have not had any discussions on the same. If and when it comes up, we will look into the matter. But so far, we have not had any discussions," Kotwal told ET.
L&T also said that the company is open to partnerships that add long term value to any of their businesses. "We can neither confirm nor deny any speculation on a stake sale to Mitsubishi. While not commenting on equity infusion in this specific case, we are always open to partnerships that add long term value to any of our businesses," the statement added.
Mitsubishi's plans come when Indian shipyards including Pipavav Defence, Bharati Shipyard and ABG shipyard have been struggling to receive orders from domestic and international shipping companies.
While Indian shipyards only contribute 0.1% of the global shipbuilding industry, shipyards in China, Japan and South Korea produce more than 75 % of the vessels manufactured globally. This has forced the domestic companies to woo the local defence sector."The only logical reason why L&T will look to sell some stake to Mitsubishi is to help the company while bidding for defence projects," said an analyst with a local brokerage who did not want to be quoted as he is not authorised to speak with the media.
Having a strong partner, like in the case of Pipavav, can help L&T when they bid for defence projects, he added. Mitsubishi would have also seen a strong potential in the domestic defence space," said an analyst with a leading domestic brokerage who did not want to be quoted as he is not authorised to speak with the media.
In 2011, the government agreed to allow public private partnerships in the defence sector and Mazagon Dock was the first to get off the block. At stake are defence contracts worth thousands of crores of rupees to build the Indian Navy's requirement of warships in the coming years.
Another financial analyst said that the shipbuilding business of L&T has not been performing well and the company made too many errors in executing their projects. "With their shipbuilding underperforming, they are probably looking to exit the business or invite a partner to infuse some money into the company," he added.
L&T shipbuilding has established shipbuilding facilities at Hazira in Gujarat and is also developing a shipyard at Kattupalli, near Chennai in Tamil Nadu. L&T and Mitsubishi also operate two joint ventures to manufacture power-related equipment, including super-critical boilers, and steam turbines and generators, which they signed in 2007.