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Varun Shipping: Under stress…
Varun Shipping Co (Varun Shipping) reported yet another quarter of
dismal performance in Q3FY11 with the topline contracting to the
lowest level in almost three years. EBITDA margin has contracted to
under 3% with EBITDA of | 2.9 crore. The interest (| 52.4 crore) and
depreciation (| 43.5 crore) resulted in a net loss from operations of |
86.1 crore in Q3FY11. The operational performance of Varun Shipping is
likely to be under pressure for another couple of years as freight rates
continue to remain subdued. The sale and lease back arrangement
would continue to put a strain on the EBITDA margin and the
performance could deteriorate further in the absence of extraordinary
gains from sale of assets. The company has sold two AHTS vessels in
Q3FY11, to enable repayment of debt. In the absence of a turnaround in
operations, debt servicing could become a concern. Further pledge of
shares by the promoters is an added concern for the company.
Disappointing performance continues in Q3FY11
Varun Shipping reported a QoQ decline in topline of 21% at | 122.3
crore in Q3FY11 as against | 154.1 crore in Q2FY11. The decline in
revenue was on account of weakness in crude tanker freight rates and
AHTS charter rates. The company reported a negligible EBITDA margin
at 2.3% as against 3.1% in Q2FY11. The dismal EBITDA can be attributed
to depressed freight rates along with a rise in charter hire expenses on
account of a sale and lease back arrangement executed in the previous
few quarters. The company reported a net profit of | 11.8 crore in
Q3FY11, which included a gain of | 97.9 crore on sale of assets.
Excluding this, the operating loss would have been | 86.1 crore.
Valuation
At the CMP of | 28, the stock is trading at 0.7x FY12E book value of | 40.
We have valued the stock at 0.60xFY12 P/BV basis to arrive at a price
target of | 24. We maintain our SELL recommendation on the stock.
The operational performance of Varun Shipping has been under pressure
for the last 18 months as all segments in which the company operates i.e.
LPG, crude tankers and AHTS vessels have witnessed a softening of
freight rates. Crude oil tanker rates along with LPG carrier rates are
expected to remain sluggish, going ahead, while AHTS vessel rates are
expected to improve, going ahead.
At the CMP of | 28, the stock is trading at 0.7x FY12E book value of | 40.
We have valued the stock at 0.60x FY12 P/BV basis to arrive at a price
target of | 24. We maintain our SELL recommendation on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Varun Shipping: Under stress…
Varun Shipping Co (Varun Shipping) reported yet another quarter of
dismal performance in Q3FY11 with the topline contracting to the
lowest level in almost three years. EBITDA margin has contracted to
under 3% with EBITDA of | 2.9 crore. The interest (| 52.4 crore) and
depreciation (| 43.5 crore) resulted in a net loss from operations of |
86.1 crore in Q3FY11. The operational performance of Varun Shipping is
likely to be under pressure for another couple of years as freight rates
continue to remain subdued. The sale and lease back arrangement
would continue to put a strain on the EBITDA margin and the
performance could deteriorate further in the absence of extraordinary
gains from sale of assets. The company has sold two AHTS vessels in
Q3FY11, to enable repayment of debt. In the absence of a turnaround in
operations, debt servicing could become a concern. Further pledge of
shares by the promoters is an added concern for the company.
Disappointing performance continues in Q3FY11
Varun Shipping reported a QoQ decline in topline of 21% at | 122.3
crore in Q3FY11 as against | 154.1 crore in Q2FY11. The decline in
revenue was on account of weakness in crude tanker freight rates and
AHTS charter rates. The company reported a negligible EBITDA margin
at 2.3% as against 3.1% in Q2FY11. The dismal EBITDA can be attributed
to depressed freight rates along with a rise in charter hire expenses on
account of a sale and lease back arrangement executed in the previous
few quarters. The company reported a net profit of | 11.8 crore in
Q3FY11, which included a gain of | 97.9 crore on sale of assets.
Excluding this, the operating loss would have been | 86.1 crore.
Valuation
At the CMP of | 28, the stock is trading at 0.7x FY12E book value of | 40.
We have valued the stock at 0.60xFY12 P/BV basis to arrive at a price
target of | 24. We maintain our SELL recommendation on the stock.
The operational performance of Varun Shipping has been under pressure
for the last 18 months as all segments in which the company operates i.e.
LPG, crude tankers and AHTS vessels have witnessed a softening of
freight rates. Crude oil tanker rates along with LPG carrier rates are
expected to remain sluggish, going ahead, while AHTS vessel rates are
expected to improve, going ahead.
At the CMP of | 28, the stock is trading at 0.7x FY12E book value of | 40.
We have valued the stock at 0.60x FY12 P/BV basis to arrive at a price
target of | 24. We maintain our SELL recommendation on the stock.
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