Knowledge Marine & Engineering Works Ltd Management Discussions

BUSINESS OVERVIEW

Knowledge Marine & Engineering Works Limited is an India-based company engaged in the business of Dredging, Owning, Chartering/Hiring along with manning, operation and technical maintenance of Marine Crafts and Repairs/ Maintenance of Marine Crafts and Marine Infrastructure and allied works in India and Myanmar. Its fleets include pilot boat, speed patrol boat, survey boat, grab dredger, trailing suction hopper dredger, mooring launches and service boat. Its operational marine assets include River Pearl 1, River Pearl 2, River Pearl 3, River Pearl 4, River Pearl 5, River Pearl 6, River Pearl 7, River Pearl 8, River Pearl 9, River Pearl 10, River Pearl 11 and River Pearl 12. Its subsidiaries and Associate Company includes Indian Ports Dredging Private Limited, Knowledge Infra Ports Private Limited and KMEW Offshore Private Limited.

Dredging is an excavation operation that is generally done at least partially underwater in shallow water locations to collect bottom sediments and dispose of them at a new site. It is a method of moving natural resources from one section of the sea environment to another using specialized dredging vessels. Dredgings major goal is to maintain rivers and ports passable, as well as to build new ports, coastal protection, land reclamation, and the extraction of sediments such as sand and gravel for use in the building industry. The global dredging market size is expected to grow from $12.11 billion in 2022 to $12.58 billion in 2023 at a compound annual growth rate (CAGR) of 3.9 %. The Russia-Ukraine war disrupted the chances of global economic recovery from the COVID-19 pandemic, at least in the short term. The war between these two countries has led to economic sanctions on multiple countries, a surge in commodity prices, and supply chain disruptions, causing inflation across goods and services and affecting many markets across the globe. The dredging market is expected to grow to $14.39 billion in 2027 at a CAGR of 3.4% (source: The Global Research Company).

The Asia Pacific dredging market is experiencing growth largely due to the regions growing population. This increase has led to a higher demand for oil exploration and telecommunications sourced from underwater locations, driving up the need for subsea activities. The main hotspots for these activities in Asia Pacific can be found primarily in Vietnam, Australia, China, Malaysia, and Indonesia. Similarly, the North American dredging market is also growing, attributed to a surge in offshore oil & gas activities. The demand within the dredging market has also observed an uptick in European countries like France, Germany, and the UK due to an accelerated increase in marine activities. Forecast trends suggest growth in demand for the dredging market in regions like Latin America and the Middle East & Africa in the forthcoming future. As per estimates, Latin America and the Middle East & Africa are going to see exponential growth in demand for dredging services.

The rising urbanization and the prevalence of market players demanding raw materials supplies have been driving the growth of the market. The rising demands of supply of raw materials across the globe have led to an increase in trading activities. This have ultimately led to the rise in the growth of the market. Moreover, the rising urbanization and constructional activities have also led to the growth of the dredging market. The growing investment in environmentally friendly and sustainable technologies further offers numerous growth opportunities to the dredging market. Additionally, the rising need for sedimentation-preserving activities and the adoption of advanced technologies for such activities is also boosting the markets growth. The rising construction of ports and waterways are also the factors creating significant lucrative growth opportunities for the market. But the high costs and the investment costs required for the initial setup and maintenance of the systems are further expected to obstruct market growth.

The Indian dredging market is driven largely by the trade segment, with dredging demand coming from major and non-major ports. At present, the annual dredging market in India for major ports is estimated to be approximately 80 million cubic metres (MCM), and the total dredging market stands at about 121 MCM with maintenance dredging consulting to be around 70% of the domestic market (Source: India Infoline and Indian Infrastructure). Indian ports are gearing th em selves up to handle more cargo by accommodating deep draft vessels, and aspire to meet international port infrastructure standards in order to achieve economies of scale. As a result, ports are taking measures to improve basic infrastructure such as deepening and widening channels, creating new dock arms, and implementing automation. A parliamentary committee has also recommended increasing the draft depth of all ports under the Sagarmala Programme, as per their respective cargo profiles, to handle larger vessels. The development of new Greenfield ports will also drive the demand for dredging. Given these prospects, coupled with new developments coming in from Navy, national waterways and off shore exploration, scope of Indian dredging industry seems vast.

Essential Role of Indian Shipping Industry in the Economy: The Indian shipping industry has consistently been a significant component of the countrys economic sector, notably in cargo transportation. The industry is crucial in the transportation of crude oil, petroleum products, and other cargos. It is worth noting that maritime transport facilitates a substantial portion of the countrys trade - approximately 95% in volume and 68% in value.

Additionally, the ports within the country handle nearly 90% of EXIM (Export-Import) cargo by volume and around 70% by value.

With the constant growth in trade needs, the expansion of port capacity has been given top priority. Alongside expanding the major ports capacities, the government has initiated steps to optimize operational efficiencies. This incorporation is achieved through mechanization, digitization, and simplifying processes. Resultantly, over the years, there has been a notable increase in the installed capacity and the amount of cargo handled by the major ports. Parameters such as average turnaround time and average output per ship berth day have also seen significant improvements. This strategic progress and prioritization have evolved the shipping industry to be more efficient and reliable.

As per studies carried out in the Sagarmala Programme, projections suggest a considerable escalation in cargo traffic at Indian ports to approximately 2500 MMTPA by 2025, a substantial rise from the present handling capacity of 1500 MMTPA. This strategic blueprint takes into account several key elements, including enhancing the operational efficiency of the ports, increasing the capacity of existing ports, and introducing new port developments. As part of Project Unnati, international performance standards have been adopted to amplify efficiency and productivity key performance indicators (KPIs) across 12 major ports. All these abodes well for the domestic dredging industry. (Source: India Infoline) Guidelines on undertaking dredging at major ports issued by Ministry of Shipping: The Ministry of Ports, Shipping and Waterways has issued fresh Dredging guidelines for all Major Ports to follow. According to the updated guidelines, Major Ports with management control of a Ports Owned Dredging Company have authorization to assign dredging projects to the firm, following board approval from the Trustee/Director of the Port. It is stipulated that whenever this method of project allotment is implemented, the principle of competitive market price discovery, considering the same quality and conditions, should be adhered to. This guideline aims to guarantee top efficiency in cost, time, and quality during the execution of dredging projects. The Ministry of Shipping now mandates all major ports to invite open competitive bids for both capital and maintenance dredging tasks. This development is predicted to facilitate the dredging service provider Company in securing more projects directly from the promoter ports.

The need to import and export goods, as sparked by globalization, made shipbuilding an important strategic industry. Although Europe remains a crucial market for the production of cruise vessels, the East Asian region dominates shipbuilding with China, South Korea, Japan being the largest shipbuilding nations in the world. China alone received 49% of all shipbuilding orders in 2021, making it a global shipbuilding powerhouse. The ship demolition activity is also centered in South East Asia, with Bangladesh, India, and Pakistan accounting for about 76% of the global ship scrapping activity (Source: Statista). As per estimates, the Shipbuilding market is expected to surpass USD 53,310 million by 2027, which is an increase from its current value of USD 34,000 million in 2022. This growth is projected to have a compound annual growth rate (5.5%) between 2023 and 2027 (Source: Market Watch). India is endowed with a 7,500 km coastline and an infrastructure of 14 major ports and 200 minor/intermediate ports offers vast opportunities in ship building and ship repairing services. Indias Ship Building Market is estimated to be USD 7.11 Bn in 2023 and is expected to reach USD 8.76 Bn by 2028, growing at a CAGR of 4.57%.

As per estimates, the central plans to offer cash subsidies, lower taxes and other incentives to bolster its shipbuilding industry. The plans include subsidies so that at least 50 new vessels can be built as well as the granting of "infrastructure status" to the industry which would help with financing from banks. In addition to significantly increasing production volumes in the shipbuilding industry, the central government state support programs strategic goal is to boost the capacity of the national merchant fleet. This includes maintaining the export cargo base and assuring raw materials and merchandise import into the country.

India has an extensive network of inland waterways, including rivers, canals, and backwaters, covering over 20,000 kilometers in length. Inland water transport has enormous potential in India as a mode of transportation for both passengers and cargo. Priority development of National Waterway-1 was undertaken through the Jal Vikas Marg Project (JVMP), which includes Arth Ganga, it is expected to give an economic boost of Rs.1,000 crores to the economy over the next five years. The government is eyeing an investment of Rs. 35,000 crores by 2047 to create a network of waterways in the country. The inland waterways can play a crucial role in realising Prime Minister (PM) vision of making India a zero-carbon emission country by 2070.

India has 7,517 Km long coastline with 14,500 Km of potentially navigable waterways and strategic location on key international maritime trade routes. To promote port-led development in the country, the government has introduced Sagarmala Programme. 802 projects totalling Rs.5.54 Lakh crore worth of investment have been identified to be implemented under the Programme by 2035.

The countrys maritime sector plays a crucial role in its overall trade and growth, with 95% of the countrys trade volume and 65% of the trade value being undertaken through maritime transport.

With the objective of propelling India to the forefront of the Global Maritime Sector, Ministry of Ports, Shipping and Waterways has formulated Maritime India Vision 2030 (MIV 2030), a blueprint to ensure coordinated and accelerated growth of Indias maritime sector. MIV 2030 identifies over 150 initiatives across 10 themes covering all the facets of the Indian maritime sector and is a comprehensive effort to define and meet national maritime objectives.

The Indian Rivers Inter-link is a large-scale civil engineering project that aims to effectively manage water resources in India by linking Indian rivers by a network of reservoirs and canals to: Enhance irrigation and groundwater recharge, reduce persistent floods in some parts and water shortages in other parts of India. Under the National Perspective Plan (NPP), the National Water Development Agency (NWDA) has identified 30 links (16 under Peninsular Component

& 14 under Himalayan Component) for preparation of Feasibility Reports (FRs). Estimated cost for all Inter Linking of Rivers projects is Rs. 8.44 lakh crore. Currently, Ken-Betwa Link project is the first ILR project under NPP, which is under implementation.

The financial statements of the company were compiled adhering to the Indian Accounting Standards (also known as ‘Ind AS), as per the notification from the Ministry of Corporate Affairs following Section 133 of the Companies Act 2013 (‘Act), along with the Companies (Indian Accounting Standards) Rules 2015 as they have been updated, and other relevant clauses within the Act. The credit facilities of the Company have received affirmation, noted by a long-term rating of CRISIL BBB/Stable and a short-term rating of CRISIL A3+. The forecast for the long-term rating continues to be stable.

(Amount in Rs. Lakhs)

The Company is exposed to normal industry risk factors. The Company manages these risks, by maintaining a prudent financial profile and by following healthy business and risk management practices.

The internal control and risk management system is organised and adapted in accordance with the principles and criteria accredited as per the applicable laws and regulations. It is an essential part of the general organisational structure of the Company and engages a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, observing and supporting committees. The control and risk committee and the head of the audit department work under the supervision of the Board-appointed Statutory Auditors.

Knowledge Marine considers that its dynamic edge lies within its people. The Companys people bring to the stage a cross industry experience, technological experience and domain knowledge. The Companys HR culture is embedded in its ability to abolish age-old norms in a bid to improve competitiveness. The Company always takes decisions which are in accordance with the professional and personal goals of employees, thereby achieving an ideal work-life balance and improving pride association. The Company maintains and enjoys harmonious relations with its human resource at all levels.

This statement made in this section describes the Companys objectives, projections, expectations and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.