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Shipping Corporation of
India
F2Q11: In-line Results
Quick comment – we remain EW: SCI’s revenues and
earnings still remain exposed to volatility in freight rates
across asset classes. In addition, SCI has managed
maintenance costs in F1H11 (down 46% YoY); however,
this tends to be volatile and we think it is likely to spike
up in 2H11e, given the age profile of the company’s fleet.
The stock trades at 9.5x F12e EV/EBITDA and 1.1x PB,
in line with its long-term average. We believe that could
further limit upside. In the near term, stock performance
should be driven by news flow around 1) proposed
follow-on-offer; and 2) the company’s intent to acquire a
minority stake in shipyard.
What's new: SCI reported Sep-10 earnings at Rs1.2bn
(adjusted for profit on sale of ships), around 4% ahead of
our estimates. Revenue improved 4% YoY but declined
3% sequentially to Rs8.8bn. Core EBITDA margins were
down 160bps sequentially to 23% (they improved YoY
on a low base), resulting in 10% lower EBITDA at Rs2bn.
This was 5% ahead of our estimate largely because of
lower expenses – maintenance and charter hire. On a
reported basis, earnings were Rs2.5bn, driven by Rs1.3
bn of gains on sale of ships.
Expansion plans: SCI currently has a fleet of 74
vessels with total dead weight tonnage based capacity
of 5.1mnt. The company has around 29 vessels on order
across asset classes, which are likely to be delivered
over the next three years. Management has plans to
double SCI’s capacity over the next 4-5 years at an
estimated capital expenditure of around $4bn. Recently,
management also evinced interest in acquiring a
minority stake in an Indian shipyard, which could lead to
further capex.
Strong balance sheet is a positive: SCI had gross
debt of Rs38bn and net debt of Rs11bn as of September
2010, implying net debt/equity of 0.2x. This should gain
further strength from the proposed equity offer and
would bode well for the expansion plans.
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