Cochin Shipyard Ltd has issued a letter of acceptance to Larsen & Toubro Ltd after the country’s biggest engineering and construction firm placed the lowest bid on a tender issued by the state-run shipbuilder for the engineering, procurement and construction (EPC) contract of a new dry dock – the third at the yard that went public last year.

“Cochin Shipyard has issued a letter of acceptance to L&T on April 27 for the contract which is as good as a work order,” a Shipping Ministry official said. “On the basis of the letter of acceptance, L&T will have to submit a bank guarantee to CSL ahead of signing a formal contract,” he added.

L&T’s winning bid was about ₹1 crore less than the ₹1,799-crore estimated by the shipyard for the work, a person briefed on the bid, said.

Cochin Shipyard sold shares in an initial public offering (IPO) in August 2017 to part-fund a ₹2,769-crore expansion plan comprising construction of a ₹1,799-crore new dry dock and a ₹970-crore international ship repair facility at the Cochin Port Trust.

The company said that its existing two dry docks permit building of ships up to 110,000 dead weight tons (dwt) and repair ships of up to 125,000 dwt.

These limitations have restricted our ability to expand our business by constructing larger vessels, for which we believe there is greater demand and on which we believe we can achieve better profit margins and by increasing our annual output, according to documents filed by Cochin Shipyard with the market regulator SEBI for the share sale.