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Shipping/Offshore/Shipbuilding
ƒ Sharp uptrend in dry bulk rates while tanker rates decline
The Baltic Dry Index average for Q2FY12 at 1529 was 10.7% higher than
in Q1FY12. Dry bulk freight rates were volatile during the quarter with a
decline in July and sharp upward swing in August and September. The
rise was mainly due to a 39.6% rise in average Baltic Capesize Index.
Capesize vessels witnessed higher demand on account of a change in
the iron ore import pattern of China. Chinese iron ore imports from India
were reduced due to monsoons. They had to be compensated with long
haul from Australian and Brazilian ports, which are conducive for large
size Capesize vessels as compared to smaller Indian ports, which are
more suited for panamax vessels. The Baltic Dirty Index average for
Q1FY12 at 704 was 11.1% lower than in Q1FY12 while the Baltic Clean
Index average for Q2FY12 at 679 was 13.4% lower than Q1FY12. Crude
carrier rates were weak during the quarter as they declined due to low
demand and oversupply of tonnage.
ƒ Offshore vessels utilisation levels remain stable
Utilisation levels for drill ships, semi-subs and jack-up rigs were reported
at 80%, 87% and 80% in August 2011 as against 79%, 87% and 81% in
July 2011, respectively. Utilisation levels and charter rates remained
stable during the quarter.
ƒ Q2FY12E performance (QoQ basis)
The revenues of shipping companies are expected to improve due to
the 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 remain flattish owing to slow execution of existing order
book in the absence of new orders while the performance of offshore
companies in our coverage is expected to remain stable due to high
utilisation levels being maintained.
ƒ Top Pick - Mercator Lines
Mercator Lines (MLL) operates a diversified vessels fleet including dry
bulk, tankers, dredgers and floating production cum storage unit along
with the coal mining and handling business. 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 0.24x FY13
P/BV of | 100 and offers a value buying opportunity.
Company specific view
Company Remarks
Aban Offshore We expect revenues to increase by 11% QoQ as its assets Aban 4 and Aban
Abraham, which were idle for the major part of Q1FY12, would be fully utilised in
Q2FY12 as they have secured long-term contracts. We expect the company to report
a QoQ growth of 12.5% and 27% in EBITDA and PAT, respectively
ABG Shipyard The topline is expected to rise 7% QoQ on the back of an uptick in execution pace and
higher subsidy booking. The operating margin (including subsidy) is likely to improve
on account of higher proportion of export orders being executed and higher
accounting for subsidy
Bharati Shipyard We expect a 10% decline in topline while the operating margin (including subsidy) is
expected to decline from 32.1% in Q1FY12 to 31% in Q2FY12 due to lower execution
of orders due to a diminishing order book and lower subsidy booking. Net profit in
Q2FY12 is likely to decline by 34.2% to | 11.4 crore
GE Shipping Revenue is expected to rise 2.3% QoQ due to induction of a new dry bulk carrier and
two AHTS vessels that were idle in Q1FY12 having secured orders. This will more
than offset the scheduled dry docking of three vessels in Q2FY12. Net profit is
expected to be lower due to the absence of extraordinary income
Global Offshore Revenues are expected to increase QoQ by 29% to | 59.6 crore due to increased
utilisation for MV Kailash and MV Beauecephalus, which remained idle for the major
part of Q1FY12. The EBITDA margin is expected to improve owing to the absence of
modification and mobilisation expense on the above named vessels
Great Offshore Revenue is expected to rise by 7% QoQ in Q2FY12 to | 234.3 crore due to improved
utilisation of its OSVs fleet. The PAT is likely to decline by 67% to |18.1 crore due to
the absence of extraordinary profit of | 48 crore, which was accounted in Q1FY12 on
account of sale of its rig "Amarnath"
Mercator Lines Revenues are expected to rise 4% to ~ | 834.1 crore in Q2FY12 due to the impact of
full utilisation of its FPSU that has secured a seven-year contract and higher utilisation
for its dredging fleet. The EBITDA margin is expected to improve by 140 bps owing to
higher margins for the FPSU and dredging segment
SCI The topline is expected to contract by 7.4% in Q2FY12 to | 900.6 crore due to
weakness in tanker freight rates. We expect the EBITDA margin to rebound from the
abysmally low level of 12% in Q1FY12 to 16.4% in Q2FY12 due to reduction of loss in
the liner segment
Varun Shipping Revenues are expected to rise 36% QoQ to | 113.2 crore in Q2FY12 due to full impact
of the Petrobas order 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 | 7 crore and net loss of | 77.9 crore
Source: Company, ICICIdirect.com Research
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