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Mercator Lines:: Value buy…
MLL reported a subdued Q3FY11 performance as the company posted a
marginal net profit. The surge in revenue was solely attributable to the
coal division, which contributed more than 50% to the topline while the
tanker division reported a dismal set of numbers. Going ahead, the
contribution of the coal division to the topline is expected to be higher
as MLL scales up coal trading and mining activities. However, as coal
trading is a low margin business, the overall operating margin for the
company is expected to remain modest, going ahead. Subsequent to
the end of the quarter the company contracted to sell its jack up rig.
With this sale the company has completely exited the offshore business
and intends to focus and scale up its floating production and storage
business. The company operates a diversified fleet of 30 vessels, which
along with long-term contracts provides a hedge against the volatile
shipping business. With the recent price correction, the stock is trading
at 0.39x its FY12 book value of | 103 and offering a value buying
opportunity for investors.
Weakness in tanker market leads to subdued performance in Q3FY11
MLL reported a 15.8% QoQ rise in revenue to | 777.7 crore. The rise in
topline was led by a surge in revenue from coal trading and coal mining,
which constituted 52% i.e. | 404 crore of the total revenue for the
quarter. The Singapore subsidiary of the company, which handles the
dry bulk business, reported an improvement in operating days to 1,521
days while TCE declined to $26,000 per day. The consolidated EBITDA
margin declined from 28.1% in Q2FY11 to 17.7% in Q3FY11. The
company posted a net profit of | 1.6 crore in Q3FY11, which was
substantially lower than the net profit in Q2FY11.
Valuation
At the CMP of | 40, the stock is trading at 5.1x FY12E EPS of | 7.8 and
0.39x FY12E book value of | 103.09. We have valued MLL on a P/BV and
P/E multiple basis to arrive at price target of | 46. We recommend a BUY
rating on the stock
Freight rates are expected to be volatile over the next one year. This
could lead to fluctuations in the operating performance of the company.
Further weakness in tanker freight rates in Q4FY11 could lead to a
subdued performance of the tanker division of the company. Rise in
crude oil prices would also lead to higher bunker costs and exert pressure
on operating margins. However, MLL is well placed to ride the volatility of
the shipping business due to inherent advantages such as diversified
revenue stream, presence across segments, long-term charter contracts,
a comfortable debt equity ratio and strong management capability.
At the CMP of | 40, the stock is trading at 5.1x FY12E EPS of | 7.8 and
0.39x FY12E book value of | 103.09. We have valued MLL on a P/BV and
P/E multiple basis to arrive at a price target of | 46 and recommend a BUY
rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mercator Lines:: Value buy…
MLL reported a subdued Q3FY11 performance as the company posted a
marginal net profit. The surge in revenue was solely attributable to the
coal division, which contributed more than 50% to the topline while the
tanker division reported a dismal set of numbers. Going ahead, the
contribution of the coal division to the topline is expected to be higher
as MLL scales up coal trading and mining activities. However, as coal
trading is a low margin business, the overall operating margin for the
company is expected to remain modest, going ahead. Subsequent to
the end of the quarter the company contracted to sell its jack up rig.
With this sale the company has completely exited the offshore business
and intends to focus and scale up its floating production and storage
business. The company operates a diversified fleet of 30 vessels, which
along with long-term contracts provides a hedge against the volatile
shipping business. With the recent price correction, the stock is trading
at 0.39x its FY12 book value of | 103 and offering a value buying
opportunity for investors.
Weakness in tanker market leads to subdued performance in Q3FY11
MLL reported a 15.8% QoQ rise in revenue to | 777.7 crore. The rise in
topline was led by a surge in revenue from coal trading and coal mining,
which constituted 52% i.e. | 404 crore of the total revenue for the
quarter. The Singapore subsidiary of the company, which handles the
dry bulk business, reported an improvement in operating days to 1,521
days while TCE declined to $26,000 per day. The consolidated EBITDA
margin declined from 28.1% in Q2FY11 to 17.7% in Q3FY11. The
company posted a net profit of | 1.6 crore in Q3FY11, which was
substantially lower than the net profit in Q2FY11.
Valuation
At the CMP of | 40, the stock is trading at 5.1x FY12E EPS of | 7.8 and
0.39x FY12E book value of | 103.09. We have valued MLL on a P/BV and
P/E multiple basis to arrive at price target of | 46. We recommend a BUY
rating on the stock
Freight rates are expected to be volatile over the next one year. This
could lead to fluctuations in the operating performance of the company.
Further weakness in tanker freight rates in Q4FY11 could lead to a
subdued performance of the tanker division of the company. Rise in
crude oil prices would also lead to higher bunker costs and exert pressure
on operating margins. However, MLL is well placed to ride the volatility of
the shipping business due to inherent advantages such as diversified
revenue stream, presence across segments, long-term charter contracts,
a comfortable debt equity ratio and strong management capability.
At the CMP of | 40, the stock is trading at 5.1x FY12E EPS of | 7.8 and
0.39x FY12E book value of | 103.09. We have valued MLL on a P/BV and
P/E multiple basis to arrive at a price target of | 46 and recommend a BUY
rating on the stock.
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