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Shipping/Offshore/Shipbuilding
Dry bulk rates improve while crude tanker rates decline in Q1FY12
The Baltic Dry Index average for Q1FY12 at 1381 was 1.2% higher
than in Q4FY11. Dry bulk freight rates were volatile during the
quarter with a decline in April and recovery in the initial part of June.
However, the later half of June has seen a decline on account of
rising iron ore inventory and lower imports by China. The Baltic
Dirty Index average for Q1FY12 at 796 was 3.9% lower than in
Q4FY11 while the Baltic Clean Index average for Q1FY12 at 784 was
12.2% higher than Q4FY11. Crude carrier rates were weak during
the quarter as they declined due to low demand and oversupply of
tonnage.
Offshore vessel utilisation levels remain stable
Utilisation levels for drill ships, semi-subs and jack-up rigs was
reported at 79%, 86% and 80% in May 2011 as against 77%, 84%
and 80% in April 2011, respectively. Utilisation levels showed signs
of improvement but did not translate into a significant rise in charter
rates, which remained stable during the quarter.
Q1FY12E performance (QoQ basis)
The revenues of shipping companies are expected to improve due
to an up move in dry bulk freight rates but weakness in tanker
freight rates would limit the growth. The performance of
shipbuilding companies is expected to be better with a pick-up in
execution while the performance of offshore companies in our
coverage is expected to remain stable due to high utilisation levels
being maintained.
Top pick - Mercator Lines
Mercator Lines (MLL) operates a diversified fleet of 30 vessels
including dry bulk, tankers, dredgers and floating production cum
storage unit along with coal mines in Indonesia. MLL is well placed
to ride the volatility of the shipping business due to a diversified
revenue stream and long-term charter contracts. MLL is trading at
0.39x FY13 P/BV of | 103 and offers a value buying opportunity.
Company specific view
Company Remarks
Aban
Offshore
We expect revenues to decline by 5% QoQ as its assets Aban 3 and Aban 4 have
been deployed at lower day rates. EBITDA is expected to be lower by 3% due to
lower revenues. We expect the company to report a flattish PAT of | 152.6 crore in
Q1FY12
ABG
Shipyard
The topline is expected to rise 10% QoQ on the back of higher subsidy booking. The
operating margin is likely to rebound owing to higher proportion of export orders
with better margins being executed, compared to Q4FY11, which had lower margin
domestic coast guard orders
Bharati
Shipyard
We expect a 7% decline in topline while the operating margin (including subsidy) is
expected to decline from 35.6% in Q4FY11 to 32.2% in Q1FY12 due to lower
subsidy booking. Net profit in Q1FY12 is likely to decline by 42.8% to | 21.8 crore
GE Shipping Revenue is expected to rise 10.8% QoQ due to induction of three new dry bulk
carriers to the fleet. We expect a recovery in the operating margin to 43% from
38.6% due to a decline in expense on hire of chartered ship due to purchase of a rig
from Mercator Lines, which was earlier on charter hire basis
Global
Offshore
Revenue is expected to increase QoQ by 14.6% to | 58.4 crore due to increased
utilisation for MV Mahananda and MV Poorna, which remained idle in the
preceding quarter. The EBITDA margin is expected to improve by 170 bps owing to
better day rates
Great
Offshore
Revenue is expected to rise significantly QoQ in Q1FY12 to | 240.1 crore due to
improved utilisation of its OSVs fleet. PAT is likely to decline owing to the absence
of extraordinary profit of | 55 crore, which was accounted in Q4FY11 on account of
a change in inventory policy
Mercator
Lines
Revenue is expected to rise 2.8% to ~ | 801.8 crore in Q1FY12 due to a rise in coal
trading activity and better day rates for its FPSU that has secured a seven-year
contract. PAT is expected to improve in Q1FY12 due to the absence of
extraordinary loss of | 42 crore on sale of a rig in the preceding quarter
Pipavav
Shipyard
Revenue is expected to rise by 11.6% to ~ | 292.3 crore in Q1FY12 as execution
gains pace and the company launched its first two ships. PAT for Q4FY11 was
higher due to one-time reversal of expenses to the tune of | 30.28 crore while PAT
for Q1FY12 is expected to be at | 21.6 crore
SCI Topline is expected to contract by 3.0% in Q1FY12 to | 839.0 crore due to
weakness in tanker freight rates. We expect the EBITDA margin to remain subdued
owing to high bunker costs though QoQ we expect the margin to improve from the
abysmally low level of 11% in Q4FY11 to 14.7% in Q1FY12
SEAMEC Topline is expected to rise by 31.0% in Q1FY12 to | 36.7 crore due to deployment
of SEAMEC I on a long-term contract. Expected low fleet utilisation (59%) and high
dry docking expense owing to the old fleet will impact its operating performance.
We expect it to report a net loss of | 9.6 crore in Q1FY12
Varun
Shipping
Revenue is expected to rise 22% QoQ to | 101.8 crore in Q1FY12 due to securing a
long-term contract for three AHTS vessels. Though fleet utilisation is expected to
improve, lower EBITDA margin due to reduction in owned fleet would result in
Varun reporting EBITDA of | 4 crore and net loss of | 80 crore
Source: ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shipping/Offshore/Shipbuilding
Dry bulk rates improve while crude tanker rates decline in Q1FY12
The Baltic Dry Index average for Q1FY12 at 1381 was 1.2% higher
than in Q4FY11. Dry bulk freight rates were volatile during the
quarter with a decline in April and recovery in the initial part of June.
However, the later half of June has seen a decline on account of
rising iron ore inventory and lower imports by China. The Baltic
Dirty Index average for Q1FY12 at 796 was 3.9% lower than in
Q4FY11 while the Baltic Clean Index average for Q1FY12 at 784 was
12.2% higher than Q4FY11. Crude carrier rates were weak during
the quarter as they declined due to low demand and oversupply of
tonnage.
Offshore vessel utilisation levels remain stable
Utilisation levels for drill ships, semi-subs and jack-up rigs was
reported at 79%, 86% and 80% in May 2011 as against 77%, 84%
and 80% in April 2011, respectively. Utilisation levels showed signs
of improvement but did not translate into a significant rise in charter
rates, which remained stable during the quarter.
Q1FY12E performance (QoQ basis)
The revenues of shipping companies are expected to improve due
to an up move in dry bulk freight rates but weakness in tanker
freight rates would limit the growth. The performance of
shipbuilding companies is expected to be better with a pick-up in
execution while the performance of offshore companies in our
coverage is expected to remain stable due to high utilisation levels
being maintained.
Top pick - Mercator Lines
Mercator Lines (MLL) operates a diversified fleet of 30 vessels
including dry bulk, tankers, dredgers and floating production cum
storage unit along with coal mines in Indonesia. MLL is well placed
to ride the volatility of the shipping business due to a diversified
revenue stream and long-term charter contracts. MLL is trading at
0.39x FY13 P/BV of | 103 and offers a value buying opportunity.
Company specific view
Company Remarks
Aban
Offshore
We expect revenues to decline by 5% QoQ as its assets Aban 3 and Aban 4 have
been deployed at lower day rates. EBITDA is expected to be lower by 3% due to
lower revenues. We expect the company to report a flattish PAT of | 152.6 crore in
Q1FY12
ABG
Shipyard
The topline is expected to rise 10% QoQ on the back of higher subsidy booking. The
operating margin is likely to rebound owing to higher proportion of export orders
with better margins being executed, compared to Q4FY11, which had lower margin
domestic coast guard orders
Bharati
Shipyard
We expect a 7% decline in topline while the operating margin (including subsidy) is
expected to decline from 35.6% in Q4FY11 to 32.2% in Q1FY12 due to lower
subsidy booking. Net profit in Q1FY12 is likely to decline by 42.8% to | 21.8 crore
GE Shipping Revenue is expected to rise 10.8% QoQ due to induction of three new dry bulk
carriers to the fleet. We expect a recovery in the operating margin to 43% from
38.6% due to a decline in expense on hire of chartered ship due to purchase of a rig
from Mercator Lines, which was earlier on charter hire basis
Global
Offshore
Revenue is expected to increase QoQ by 14.6% to | 58.4 crore due to increased
utilisation for MV Mahananda and MV Poorna, which remained idle in the
preceding quarter. The EBITDA margin is expected to improve by 170 bps owing to
better day rates
Great
Offshore
Revenue is expected to rise significantly QoQ in Q1FY12 to | 240.1 crore due to
improved utilisation of its OSVs fleet. PAT is likely to decline owing to the absence
of extraordinary profit of | 55 crore, which was accounted in Q4FY11 on account of
a change in inventory policy
Mercator
Lines
Revenue is expected to rise 2.8% to ~ | 801.8 crore in Q1FY12 due to a rise in coal
trading activity and better day rates for its FPSU that has secured a seven-year
contract. PAT is expected to improve in Q1FY12 due to the absence of
extraordinary loss of | 42 crore on sale of a rig in the preceding quarter
Pipavav
Shipyard
Revenue is expected to rise by 11.6% to ~ | 292.3 crore in Q1FY12 as execution
gains pace and the company launched its first two ships. PAT for Q4FY11 was
higher due to one-time reversal of expenses to the tune of | 30.28 crore while PAT
for Q1FY12 is expected to be at | 21.6 crore
SCI Topline is expected to contract by 3.0% in Q1FY12 to | 839.0 crore due to
weakness in tanker freight rates. We expect the EBITDA margin to remain subdued
owing to high bunker costs though QoQ we expect the margin to improve from the
abysmally low level of 11% in Q4FY11 to 14.7% in Q1FY12
SEAMEC Topline is expected to rise by 31.0% in Q1FY12 to | 36.7 crore due to deployment
of SEAMEC I on a long-term contract. Expected low fleet utilisation (59%) and high
dry docking expense owing to the old fleet will impact its operating performance.
We expect it to report a net loss of | 9.6 crore in Q1FY12
Varun
Shipping
Revenue is expected to rise 22% QoQ to | 101.8 crore in Q1FY12 due to securing a
long-term contract for three AHTS vessels. Though fleet utilisation is expected to
improve, lower EBITDA margin due to reduction in owned fleet would result in
Varun reporting EBITDA of | 4 crore and net loss of | 80 crore
Source: ICICIdirect.com Research
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