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SHIPPING
q The dry bulk market is persistently facing problem of oversupply of ships
pegged at 10 to 12% per annum (Gross supply of 231 mn tonnes in the
next 3 to 4 years) and that is putting the various Baltic Indices and
freight rates under pressure. However the month of August and September
2011 saw the Baltic Index moving up ~ 30% with the cape Index
gaining almost 60%. While the other Baltic Indices reported little or no
movement. It is important to note that the Capesize represent more than
60% of the main Baltic Index. Lot of activity was reported in the spot
cargo for larger ships in August which led to freights increasing by 15 to
30% on different routes. Indian companies have very limited presence in
large sized vessesls like Capesize. Little activity was seen in the
Panamax, Supramax and the Handymax segments; not enough to boost
sentiment and freight levels in the month. The orderbook to fleet ratio
currently stands at 37% - down from 52% in December 2010.
q The oversupply of vessel is a serious concern even in the crude tanker
market. Activity has slowed down in all the key segments of tanker primarily
due to sluggish world economy and the debt crisis in Europe.
Charters are withholding cargoes in anticipation of better freight rates.
This is negatively impacting the market with number of ships exceeding
the number of cargoes.
q With slowing consumer demand and burgeoning order book,even the
container market was weak in Q2FY12 and is estimated to remain flattish
in near term.
q Even shipping asset prices have slipped by 5 to 10 % across segments impacting
the NAV and replacement cost of most of the companies.
q Higher bunker cost is also having a negative impact on the companies.
Shipping Corporation of India (Reduce: TP - Rs 110)
n We expect SCI's Q2FY12 revenues to remain flat YoY and decrease ~5 % QoQ
to Rs 8,800 mn, led by subdued tanker market and falling container market.
n Operating profit is expected to fall considerably to Rs 610 mn which translates
into an operating margin of ~7 %, falling almost 1600 bps YoY from ~ 23%
primarily due to higher bunker cost and subdued freight market.
n Net profit is expected at Rs 350 mn against loss of Rs 59 mn in Q1FY12 and
profit of Rs 2,505 mn in Q2FY11. The YoY fall would be primarily due to poor
freight market, lower gains from sale of ships and higher interest impact this
quarter vs. last year.
n We also estimate the gross NAV of the company to have fallen from Rs.133 in
June quarter to around Rs 127 in the current quarter.
Great Eastern Shipping Company (Accumulate: TP - Rs 315)
n Q2FY12 consolidated revenue is expected to decline ~ 2 % YoY and remain
flattish QoQ to Rs 6,200 mn, primarily due to weak tanker market. However the
offshore segment is expected to do well in the quarter with Brent crude sustaining
above $100 per barrel in the quarter.
n Operating profit is expected at Rs 2170 mn which translates into an operating
margin of ~35 %, falling almost 300 bps YoY from 38% primarily due to higher
bunker cost and subdued freight market.
n Net profit is expected at Rs 690 mn against negligible profit of Rs 965 mn in
Q1FY12 and profit of Rs 1,717 mn in Q2FY11. The YoY fall would be primarily
due to lower gains from sale of ships and also very weak tanker market..
n The company currently has a fleet of 35 ships aggregating 2.54 mn dwt. In FY12
till date, the company took delivery of 2 Kasramax (each of 81,000 dwt) and a
Supramax of 57,000 dwt. The company also sold a very old tanker Jag Lakshya
1989 built having a capacity of 152,000 dwt. Unfortunately, the company had
cancelled a new build order of 3 VLCCs, deliveries for which were scheduled in
FY12 and FY13. This was primarily due to poor market conditions and poor shipping
market outlook. If we observe the trend for the last 3 years - the company
has been net seller of ships in the market. Under current circumstance where the
shipping market is estimated to remain weak atleast for the next two years, we
expect GESCO to resist from adding ships to its fleet - which is a prudent measure
as many ships currently are burning cash. We expect GESCO to focus more
on the offshore subsidiary.
n Net NAV at end of current quarter is estimated at Rs.335 per share which includes
investment of Rs 16 bn by the parent in the offshore subsidiary. (GIL).
n With poor market conditions, GESCO has deferred the plans of the IPO of GIL
which we had anticipated to come by 2HFY12E. We now expect the IPO to
come in FY14E when GIL achieves some scale in revenues and profits.
Mercator Lines Ltd (Buy: TP - Rs 48)
n Q2FY12 consolidated revenue is expected to increase ~ 21 % YoY and increase
~ 2% QoQ to Rs 8100 mn with significant contribution from the coal segment
(~62%).
n Even the offshore segment is expected to do well in the quarter with Brent crude
sustaining above $100 per barrel in the quarter. However the shipping segment
with heavy exposure to dry bulk segment is expected to report subdued numbers.
The coal segment (Oorja holdings) is expected to report revenue of Rs 5100
mn (+12% QoQ; +90 % YoY).
n Operating profit is expected at Rs 1458 mn which translates into an operating
margin of ~18 %, declining almost 920 bps YoY from 27.23% primarily due to
higher bunker cost, weak dry bulk market and increasing share of low Ebidta
margin coal business.
n Net profit for Q2FY12 is expected at Rs 150 mn against Rs153 mn in Q1FY12 and
Rs 518 mn in Q2FY11. The YoY fall would be primarily due to lower Ebidta
margins because of weak dry bulk market.
n The latest net NAV that we had estimated in the month of August 2011 for the
company is Rs 42/ share.
n MLL is looking forward to get the 100% mining subsidiary listed (Oorja holding
ltd) which would lead to significant value unlocking for the parent company (an
upside of ~5 to 10% from the current levels). However, due to poor market conditions,
the listing of Oorja holding may get deferred to the next financial year
(FY13E) which can be a dampener for the company which is already struggling
with weak shipping business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SHIPPING
q The dry bulk market is persistently facing problem of oversupply of ships
pegged at 10 to 12% per annum (Gross supply of 231 mn tonnes in the
next 3 to 4 years) and that is putting the various Baltic Indices and
freight rates under pressure. However the month of August and September
2011 saw the Baltic Index moving up ~ 30% with the cape Index
gaining almost 60%. While the other Baltic Indices reported little or no
movement. It is important to note that the Capesize represent more than
60% of the main Baltic Index. Lot of activity was reported in the spot
cargo for larger ships in August which led to freights increasing by 15 to
30% on different routes. Indian companies have very limited presence in
large sized vessesls like Capesize. Little activity was seen in the
Panamax, Supramax and the Handymax segments; not enough to boost
sentiment and freight levels in the month. The orderbook to fleet ratio
currently stands at 37% - down from 52% in December 2010.
q The oversupply of vessel is a serious concern even in the crude tanker
market. Activity has slowed down in all the key segments of tanker primarily
due to sluggish world economy and the debt crisis in Europe.
Charters are withholding cargoes in anticipation of better freight rates.
This is negatively impacting the market with number of ships exceeding
the number of cargoes.
q With slowing consumer demand and burgeoning order book,even the
container market was weak in Q2FY12 and is estimated to remain flattish
in near term.
q Even shipping asset prices have slipped by 5 to 10 % across segments impacting
the NAV and replacement cost of most of the companies.
q Higher bunker cost is also having a negative impact on the companies.
Shipping Corporation of India (Reduce: TP - Rs 110)
n We expect SCI's Q2FY12 revenues to remain flat YoY and decrease ~5 % QoQ
to Rs 8,800 mn, led by subdued tanker market and falling container market.
n Operating profit is expected to fall considerably to Rs 610 mn which translates
into an operating margin of ~7 %, falling almost 1600 bps YoY from ~ 23%
primarily due to higher bunker cost and subdued freight market.
n Net profit is expected at Rs 350 mn against loss of Rs 59 mn in Q1FY12 and
profit of Rs 2,505 mn in Q2FY11. The YoY fall would be primarily due to poor
freight market, lower gains from sale of ships and higher interest impact this
quarter vs. last year.
n We also estimate the gross NAV of the company to have fallen from Rs.133 in
June quarter to around Rs 127 in the current quarter.
Great Eastern Shipping Company (Accumulate: TP - Rs 315)
n Q2FY12 consolidated revenue is expected to decline ~ 2 % YoY and remain
flattish QoQ to Rs 6,200 mn, primarily due to weak tanker market. However the
offshore segment is expected to do well in the quarter with Brent crude sustaining
above $100 per barrel in the quarter.
n Operating profit is expected at Rs 2170 mn which translates into an operating
margin of ~35 %, falling almost 300 bps YoY from 38% primarily due to higher
bunker cost and subdued freight market.
n Net profit is expected at Rs 690 mn against negligible profit of Rs 965 mn in
Q1FY12 and profit of Rs 1,717 mn in Q2FY11. The YoY fall would be primarily
due to lower gains from sale of ships and also very weak tanker market..
n The company currently has a fleet of 35 ships aggregating 2.54 mn dwt. In FY12
till date, the company took delivery of 2 Kasramax (each of 81,000 dwt) and a
Supramax of 57,000 dwt. The company also sold a very old tanker Jag Lakshya
1989 built having a capacity of 152,000 dwt. Unfortunately, the company had
cancelled a new build order of 3 VLCCs, deliveries for which were scheduled in
FY12 and FY13. This was primarily due to poor market conditions and poor shipping
market outlook. If we observe the trend for the last 3 years - the company
has been net seller of ships in the market. Under current circumstance where the
shipping market is estimated to remain weak atleast for the next two years, we
expect GESCO to resist from adding ships to its fleet - which is a prudent measure
as many ships currently are burning cash. We expect GESCO to focus more
on the offshore subsidiary.
n Net NAV at end of current quarter is estimated at Rs.335 per share which includes
investment of Rs 16 bn by the parent in the offshore subsidiary. (GIL).
n With poor market conditions, GESCO has deferred the plans of the IPO of GIL
which we had anticipated to come by 2HFY12E. We now expect the IPO to
come in FY14E when GIL achieves some scale in revenues and profits.
Mercator Lines Ltd (Buy: TP - Rs 48)
n Q2FY12 consolidated revenue is expected to increase ~ 21 % YoY and increase
~ 2% QoQ to Rs 8100 mn with significant contribution from the coal segment
(~62%).
n Even the offshore segment is expected to do well in the quarter with Brent crude
sustaining above $100 per barrel in the quarter. However the shipping segment
with heavy exposure to dry bulk segment is expected to report subdued numbers.
The coal segment (Oorja holdings) is expected to report revenue of Rs 5100
mn (+12% QoQ; +90 % YoY).
n Operating profit is expected at Rs 1458 mn which translates into an operating
margin of ~18 %, declining almost 920 bps YoY from 27.23% primarily due to
higher bunker cost, weak dry bulk market and increasing share of low Ebidta
margin coal business.
n Net profit for Q2FY12 is expected at Rs 150 mn against Rs153 mn in Q1FY12 and
Rs 518 mn in Q2FY11. The YoY fall would be primarily due to lower Ebidta
margins because of weak dry bulk market.
n The latest net NAV that we had estimated in the month of August 2011 for the
company is Rs 42/ share.
n MLL is looking forward to get the 100% mining subsidiary listed (Oorja holding
ltd) which would lead to significant value unlocking for the parent company (an
upside of ~5 to 10% from the current levels). However, due to poor market conditions,
the listing of Oorja holding may get deferred to the next financial year
(FY13E) which can be a dampener for the company which is already struggling
with weak shipping business.
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