GRSE business model; How GRSE makes the revenue, expenses and future prospect

India is witnessing progressive growth across various sectors such as metals, pharmaceuticals, IT, banking, and many more. The country is placing strong emphasis on becoming more and more indigenous in key areas to ensure national security and self-reliance.

Over the past few years, India has maintained a growth rate of around 6–7%, with similar projections for the future. As this growth continues, new sectors—especially those linked to national security—are also emerging and showing promising development.

Unfortunately, India does not have ideal neighbours, as a couple of them pose a constant threat to national security. However, this situation brings two outcomes: a challenge and an opportunity. While the threat is real, it also creates growth potential in certain sectors—one of the key areas being the defense manufacturing sector.

Garden Reach Shipbuilders & Engineers Ltd. is a leading company in the shipbuilding segment, with the majority of its business coming from this sector. It has delivered nearly 100 warships to the Indian Navy and Indian Coast Guard, showcasing its strong expertise and extensive experience in warship construction. The company offers a range of products specifically designed for the Indian Navy and Coast Guard and which makes the curious to know how the GRSE business model works.

How does GRSE generate revenue

The company has a vision to become a Navratna enterprise by 2030 and to be globally recognized as a top-tier Indian shipbuilder. This kind of forward-looking vision indicates that the company is focused on strong future growth. To achieve such a level, GRSE will need to significantly expand its business and maintain high standards in both its product portfolio and quality assurance.

Currently, the majority of GRSE’s core revenue comes from shipbuilding. Its portfolio includes a diverse range of vessels such as frigates, anti-submarine warfare corvettes, missile corvettes, landing ship tanks, landing craft utilities, survey vessels, fleet replenishment tankers, patrol vessels, WJFAC hovercrafts, and fast interceptor boats, among others.

One of the key highlights worth noting is that the company manufactures nearly 40% of its engines locally, which is a very positive development. Additionally, it is actively working towards increasing the indigenous content in submarines. This effort aligns well with the ‘Make in India’ initiative, aiming to boost domestic manufacturing and reduce dependence on imports.

The company is also involved in the ship repair business, which adds value to its overall operations. However, this segment currently contributes only a limited portion to the company’s total revenue. Despite its primary focus on warship construction, the company also maintains a strong presence in general shipbuilding.

Expenses in GRSE’s Business Model

GRSE’s core business revolves around warship manufacturing, which also drives the majority of its revenue. Naturally, the largest share of its expenses goes toward raw materials used in warship construction. The second major expense is employee benefit costs, which account for the manpower involved in the production and operations.

According to the data, the cost of materials consumed stands at approximately ₹2060.36 crore, making it the highest expense. The second-largest expense is subcontracting charges, followed by employee benefit expenses.

It’s important to note that subcontracting charges are often included as part of material costs, as these payments are made to contractors who assist in various phases of warship construction. This is how the business model functions—by combining in-house manufacturing with specialized outsourced support.

GRSE expenses, as per the company’s core business, primarily relate to the manufacturing of various types of warships and similar products in its portfolio. If we take a closer look, it becomes clear that the majority of the company’s expenses are directed towards employee costs and material costs required to produce these products for consumers.”

If we look at the data, company total expense is nearly 3411 cr. the cost of material consumed and subcontracting charges, which amount is nearly 2584 crore. Additionally, employee benefit expenses, or employee costs, total ₹348 crore. These are the major expenses for GRSE business model.

Future perspective of GRSE business

GRSE has a strong future outlook for its upcoming business, supported by two key reasons. First, India faces national security concerns from its neighboring countries. Second, GRSE has extensive experience in Ship building and maintains a diverse portfolio within its segment.

Since China is strengthening its presence significantly in the South China Sea and East China region, and given that China is a neighbouring country that India has long-standing tensions with, it becomes important for India to also maintain a strong presence. That is why India is focusing on strengthening its Navy and Coast Guard. This development is giving a strong boost to the shipbuilding sector and related companies.

The Indian Ocean covers a vast area of approximately 70,560,000 square kilometres, accounting for about 20% of the Earth’s water surface. It includes key seas and water bodies such as the Bay of Bengal, the Persian Gulf, and the Gulf of Oman. The region sees heavy movement of vessels, submarines, frigates, and other naval assets. Due to such strategic importance, the GRSC (likely referring to a government or defense agency) has a crucial role in monitoring these activities. In the coming time, this monitoring will become even more critical, which is why companies related to this sector are expected to benefit significantly.

Since the GRSE has a strong portfolio that includes vessels, submarines, anti-submarine systems, and frigates, these offerings are crucial. As GRSE provides all of these, it becomes even more important for the company to sell its products to interested buyers. Additionally, several Asian countries do not have good relations with China, which makes them potential buyers of defense equipment. This presents a strong export opportunity for GRSE to sell its products and generate significant revenue through international sales.

The company’s export business is not limited to selling warships. GRSE is also involved in warship building and repair services, which are crucial aspects of its operations. However, while shipbuilding and repair contribute to the business, they may offer limited value addition compared to the export of fully-equipped warships.

The company is also making strong efforts toward indigenization in its operations. Currently, around 40% of its overall production is indigenous, which is a significant achievement. Moreover, in specific segments like anti-submarine warfare vessels and landing craft utility ships, the indigenous content goes up to 80%, showcasing the company’s commitment to self-reliance and make in India initiatives.

If we take a look at the data for the shipbuilding sector, it was valued at $150 billion in 2023 and is expected to expand to $167 billion by 2024 reflecting a CAGR of 3.6%.

As per reports, the global ship repair market is projected to reach around ₹15,000 to ₹16,000 crore over the next six years. This indicates steady growth in that segment. From an Indian perspective, the shipbuilding sector holds massive potential, with opportunities estimated to be in the range of ₹1.5 to ₹2 lakh crore over the next 12 to 15 years. This strong outlook has reinforced the strategic positioning of key players like Mazagon Dock, Cochin Shipyard, and GRSE in the shipbuilding industry.

The company is receiving strong support from the government. When India exports warships globally, it often extends a line of credit to friendly nations with strong diplomatic ties. This line of credit is typically offered at very low interest rates, which encourages these countries to purchase from Indian defense firms. As a result, the company stands to gain significant business from such deals. Additionally, the company offers a wide range of vessels—large, medium, and small—for the Indian Navy and Coast Guard. This diverse product portfolio strengthens its position in the market and contributes to steady business growth.

Also read; Paytm business model

Obstacles for the Company’s Business

While the company has a strong presence in the warship segment, it faces competition from other major Indian players such as Mazagon Dock Shipbuilders and Cochin Shipyard, both of which are well-established in the same space. Additionally, several Asian shipbuilding companies, including China—which is a global leader in this sector—add to the competitive pressure.

Another challenge is India’s limited and carefully allocated defense budget. If geopolitical tensions, particularly with China, ease and a peaceful scenario emerges, the urgency to strengthen naval forces may reduce. In such a case, growth in the defense and shipbuilding sector could slow down, potentially impacting the company’s future business prospects.

Another important factor is the engine capacity and technological innovation in warships. If competitors introduce more advanced engines with better performance and quality assurance, it could impact GRSE’s market position. Additionally, geopolitical relationships play a crucial role in defense exports. If India does not maintain strong diplomatic ties with potential buyer countries, it could negatively affect business. In the defense sector, countries are cautious about purchasing equipment from nations with whom they have strained relations, as they prefer to avoid any future conflict with their defense suppliers. This makes strong international relations essential for sustained growth in defense exports.