SHIPPING  :Q4FY12 RESULTS PREVIEW :Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight10042012.pdf


SHIPPING
 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. During the quarter all the baltic indices remained flat. Some activity was reported in the spot cargo for larger ships
in January and February 2012 which led to freights increasing marginally
by 5 to 10% on different routes. Little activity was seen in the Panamax,
Supramax and the Handymax segments, but not enough to boost sentiment and freight levels in the month. The orderbook to fleet ratio currently stands at 36% - down from 52% in December 2010.
 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.
 With slowing consumer demand and burgeoning order book,even the
container market was weak in Q4FY12 and is estimated to remain flattish
in near term.
 Even shipping asset prices have slipped by 5 to 10 % across segments
impacting the NAV and replacement cost of most of the companies.
 Higher bunker cost is also having a negative impact on the companies.
Shipping Corporation of India (Reduce: Target Price - Rs 60)
 We expect SCI's Q4FY12 revenues to increase 12% YoY and remain flat QoQ to
Rs 9,751 mn, led by increasing fleet size and flattish tanker market.
 Operating profit is expected to again remain flat Rs 1150 mn which translates
into an operating margin of ~12 %.
 Net profit is expected at Rs 850 mn against loss of Rs 62 mn in Q4FY11 and
profit of Rs 739 mn in Q3FY12. Profit is not expected to grow significantly due to
poor freight market, lower gains from sale of ships and higher interest impact
this quarter vs. last year.
 We also estimate the gross NAV of the company to have corrected from Rs 95 in
the previous quarter to around Rs 90 in the current quarter.
Great Eastern Shipping Co (Accumulate: Target Price -Rs 270)
 Q4FY12 consolidated revenue is expected to increase ~27 % YoY and remain
flattish QoQ to Rs 7,610 mn. The offshore segment is expected to do well in the
quarter with Brent crude sustaining above $100 per barrel in the quarter.
 Operating profit is expected at Rs 2,655 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.
 Net profit is expected at Rs 600 mn against profit of Rs 756 mn in Q3FY12 and
profit of Rs 514 mn in Q4FY11. The QoQ fall would be primarily due to lower
gains from sale of ships and also flattish tanker market