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Results highlights
Consolidated revenues at INR6.72bn, registered a YoY and a QoQ rise of 65.2% and
12.1%, respectively. Revenues were 21% higher than our estimates mainly due to sharp
upsurge (over our estimates of INR2bn) from coal mining and trading.
Revenues from ‘coal mining & trading’ and ‘shipping & offshore’ rose 344% YoY (20%
QoQ) and 15.7% YoY (7.2% QoQ) to INR2.7bn and INR3.9bn, respectively.
EBIDTA increased by 34.6% YoY (QoQ decline of 4.8%) to INR1.8bn, in line with our
estimates of INR1.8bn. However, EBIDTA margins declined by 637bps to 28.2% during
the quarter mainly due to higher contribution from low margin coal business (40.1% in
2QFY11 compared to 15.2% in 2QFY10) and in-chartering of vessels.
Hire charges increased 127.7% YoY to INR844m. However, margins in coal business
improved from nil to ~7% QoQ.
MLL reported profit of INR572m in 2QFY11 translating into EPS of INR2.4 compared to
loss of INR194m in 2QFY10. PAT was higher than estimated INR411m.
Standalone revenue increased by 32.9% YoY to INR1.7bn and reported profit of
INR61.5m in 2QFY11 compared to loss of INR439.7m in 2QFY10. MLL (Singapore)
reported growth of 20.7% YoY to USD42.3m in 2QFY11, while net profit remained
stable at USD9.9m.
Better than expected profitability in Coal business
MLL has coal mines in Mozambique and in Indonesia owned by its subsidiaries and is active
in coal trading and handling. Under such arrangements, it performs the drybulk loading,
transportation and discharge activities and all logistical activities in India. The mining business
reported the revenue increase of 343.7% YoY to INR2.7bn and derived one of the best profits
(EBIT of INR132m) since commencement of business in 4QFY09. It has been able to improve
margins significantly as it moves along the learning curve in business.
Recent developments
The company is regularly increasing its tonnage and has added two vessels (one Aframax
crude carrier and one Panamax dry bulk carrier) by 1QFY11 end. Furthermore, MLL
Singapore has entered contract to buy 1994-built gearless Panamax dry bulk vessel and is
expected to join fleet in 3QFY11.
The Company through its wholly-owned offshore subsidiary in Singapore is close to starting
a 7-year project of Mobile Offshore Production Unit (MOPU) and Floating Storage and
offloading unit (FSOU). The charter is expected to commence by December 2010, extended
from earlier date of September 2010, due to improvement in scope of contract. The total
capital expenditure to modify vessels for this project is estimated at INR5.6bn and will have
a revenue contribution of ~INR705m in FY11e and ~INR1.5bn thereafter.
The Company has approved the issue of 27.8m warrants carrying a right to subscribe to
equal number of equity shares at INR1 each on preferential basis to the Promoters at a
meeting held on October 28, 2010 and fixed the price at INR13.7 per warrant, i.e., 25%
of INR55 (the price at which the equity shares will be allotted on exercise of option attached
to the warrants). We have assumed 50% warrant conversion in FY11e resulting into 5.7%
increase in diluted equity to 255m shares and remaining 50% conversion in FY12e, resulting
into diluted equity to 268.9m shares.
MLL (Singapore) - NAV contributes 70% of CMP
MLL holds 72.3% stake in MLL (Singapore) focused on dry bulk shipping with a fleet of 12
owned and 3 in-chartered vessels. The latter contributed a revenue of INR1.9bn in 2QFY11
representing 56% of consolidated revenue. EBIDTA grew by 3.5% to USD20.6m and net
earnings remained flat at USD9.9m. MLL Singapore’s ~80% fleet is contracted for 2HFY11
while the same for FY12e is ~60%. As per the management, the net asset value of fleet stands
at ~USD388m (i.e., ~INR17bn); considering 72% stake is translating into ~INR49/share for
MLL. We have valued MLL Singapore at INR37 per share at ~25% discount to NAV.
Standalone financials - Strong recovery on a QoQ basis
Standalone business, focused on tanker shipping and dredgers has been able to report
profit of INR61m in FY11e which otherwise was impacting consolidated financials in current
challenging time in the shipping sector.
Valuation and recommendation
MLL's capabilities in shipping and coal handling to provide total logistic support in coal
transport will help to capitalise on growing needs of coal import in India. Considering better
than expected performance in 1HFY11, we have revised upwards our revenue estimates
by 6.5% to INR25.2bn in FY11e and by 6.8% to INR28.2bn in FY12e mainly on account of
upward revision in coal revenue from INR7.8bn to INR9.4bn in FY11e. We have upgraded
PAT estimates from INR1.1bn to INR1.9bn and from INR2.1bn to INR2.6bn for FY11e and
FY12e, respectively. However, considering equity dilution, our revised EPS stands at INR7.5
(earlier INR4.9) in FY11e and INR9.8 (earlier INR8.8) in FY12e.
We maintain our valuation method based on book value and net asset value as well as
earnings estimates to factor in the current sentiment as well as value creation opportunities.
Considering NAV of INR74 per share, BV of INR87 in FY12 and 7xFY12e value of INR68,
we are revising our target price from INR73 to INR77. Additionally, the decline in share of
shipping revenue from 86% in FY09 to 47% in FY12e and a discount to book affords high
degree of safety. We reiterate a BUY rating with an upside potential of 15%.
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