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Close to bottom; but long way to recovery
Indian shipping companies continue to reel under the
global supply glut which has kept the day rates under
pressure. The net profit for Great Eastern Shipping (GE
Shipping) is expected to be down 45.5% YoY to
Rs526mn. Aban Offshore’s net profit is estimated to
decline 74.3% YoY to Rs621mn. Shipping Corp of India
(SCI) is likely to report losses of Rs520mn vs. loss of
Rs62mn last year. Though the freight rates have reached
historical lows, a recovery in shipping cycle is still far
away as new vessel deliveries would continue to depress
freight rates during 2012. We believe that though the
Indian shipping companies are well diversified, they will
remain impacted by the current downtrend at least in
the near term of one year.
Bunker costs remains high; up 23% YoY; container
and spot charter segment to remain impacted: Price
of bunker oil (fuel for shipping vessels) increased to
record levels of $732 per barrel during Q4FY12 vs.
$598/bbl last year. SCI, which is present in the container
liner segment, would be impacted the most. Its bunker
costs increased 93% in Q3FY12, is likely to go up by 56%
in Q4 to Rs3.8bn leading to a 107bp decline in operating
margins to 10.6%.
Offshore oil services (drilling) industry too remains
under pressure: The offshore drilling industry
continued to remain under pressure during Q4FY12.
According to Rigzone.com, the global rig utilisation rate
remained at a low of 78.4%, although it improved from
77.9% last year. Offshore rig day rates remained stable,
while jack-up market continued to face pricing
pressures. Utilisation of jack-up was at 77% vs. 76%
recorded last year. Demand for deepwater rigs was
strong globally, as fleet utilisation for Semi-subs
improved to 83.7% vs. 81.7% last year.
Top Pick: GE Shipping (Buy with TP of Rs308): We
believe GE Shipping is better placed compared to peers
due to its diversified presence in the offshore segment
and strong under-leveraged balance sheet which is
likely to help it take advantage of the current downturn
and increase fleet at lower costs. Further, it is expanding
only in the offshore segment giving its better visibility
and higher profitability
Sell on SCI and Aban: We have a negative stance on
pure play shipping company SCI with a target of Rs60.
We also maintain Sell on Aban Offshore as concerns
persist with three of its assets idle and others coming for
re-negotiations at the bottom of the day-rate cycle,
over-leveraged balance sheet and high exposure in Iran.
Great Eastern Shipping (Buy; Target Price: Rs308)
Though Q4FY12 consolidated revenue is likely to increase 22.9% YoY, its expected to remain flat
sequentially, with a fall of 1.6% QoQ to Rs7,394mn. This is largely led by decline in dry bulk
freight rates and flat tanker rates. Operating profit is expected to remain under pressure on the
back of lower freight rates but higher operating costs. While its expected to remain flat YoY, we
estimate EBITDA to decline 9.9% QoQ to Rs2,346mn.
EBITDA margin is consequently likely to contract 718bp YoY and 293bp QoQ to 31.7% as higher
operating costs continue to put pressure on shipping business’ profitability.
Adjusted net profit is expected at Rs526mn, down 45.5% YoY, mainly on account of higher
depreciation and interest costs.
During the quarter, Greatship DOF Subsea Projects Private Limited, a wholly owned subsidiary
of Greatship (India) Limited ceased its legal existence under the Fast Track Exit Mode.
Shipping Corp. of India (Sell; Target Price: Rs60)
We expect SCI’s Q4FY12 revenues to increase 23.4% YoY but decline 7.0% QoQ to Rs10,674mn,
led by improvement in the liner business and higher freight fleet size compared to last year.
Operating profit is similarly expected to increase 12.0% YoY but decline 4.4% QoQ to
Rs1,127mn, with operating margin likely to contract 107bp YoY to 10.6%.
We expect SCI to continue to report losses at adjusted net level, with Q4 loss estimated at
Rs520mn from a loss of Rs62mn last year and losses of Rs161mn in Q3FY12. Apart from lower
profit from sale of ships, higher interest cost and depreciation continue to impact profitability.
Net margin will in effect contract to (4.9%) vs. (0.7%) last year.
During the quarter, SCI bought two new built supramax bulk carries (57,100 DWT). The
company also took delivery of one new built AHTSV (anchor handling tug-cum-supply vessel) of
80 ton and contracted to buy another 6 new built AHTSVs of 80 ton bollard pull capacity each.
The company also scrapped a chemical tanker ‘m.t. Sabarimala’ (33,056 DWT), tow handymax
bulk carriers (47,300 DWT each) and one AHTSV.
Aban Offshore (Sell; Target Price: Rs350)
Aban Offshore’s consolidated revenue is expected to decline 5.3% YoY to Rs8,512mn, with 2-3
rigs idle and day rates remain lower for new contracts. The current market rates for jack-ups
continue to remain low on the back of lower rig utilisation levels globally.
Operating profit is expected to decline 16.3% YoY to Rs4,969mn, while operating margin is
likely to contract 768bp YoY to 58.4% on the back of higher operating and employee costs.
Adjusted PAT is likely to decline 74.3% YoY to Rs621mn, on lower operating profitability and
higher interest costs. Adjusted net profit margin in effect is likely to contract 19.6pp YoY to 7.3%
vs. 26.9% last year and 8.4% in Q3FY12.
During Q4, Aban redeemed bonds worth US$160mn (about Rs8bn) along with accrued interest
on DDI Holding AS, a wholly owned subsidiary on its due date (19-Jan-12).
DDI Holding, also redeemed bonds worth US$100mn and Norwegian Kroner 400mn (equivalent
to an aggregate amount of US$170mn or about Rs8.35bn) along with accrued interest, on the
due date (i.e.) March 15, 2012.
Of the 18 rigs, Aban currently has two rigs (Aban V and Deep Driller 7) and one floater (Aban Ice)
idle and ready stacked for operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Close to bottom; but long way to recovery
Indian shipping companies continue to reel under the
global supply glut which has kept the day rates under
pressure. The net profit for Great Eastern Shipping (GE
Shipping) is expected to be down 45.5% YoY to
Rs526mn. Aban Offshore’s net profit is estimated to
decline 74.3% YoY to Rs621mn. Shipping Corp of India
(SCI) is likely to report losses of Rs520mn vs. loss of
Rs62mn last year. Though the freight rates have reached
historical lows, a recovery in shipping cycle is still far
away as new vessel deliveries would continue to depress
freight rates during 2012. We believe that though the
Indian shipping companies are well diversified, they will
remain impacted by the current downtrend at least in
the near term of one year.
Bunker costs remains high; up 23% YoY; container
and spot charter segment to remain impacted: Price
of bunker oil (fuel for shipping vessels) increased to
record levels of $732 per barrel during Q4FY12 vs.
$598/bbl last year. SCI, which is present in the container
liner segment, would be impacted the most. Its bunker
costs increased 93% in Q3FY12, is likely to go up by 56%
in Q4 to Rs3.8bn leading to a 107bp decline in operating
margins to 10.6%.
Offshore oil services (drilling) industry too remains
under pressure: The offshore drilling industry
continued to remain under pressure during Q4FY12.
According to Rigzone.com, the global rig utilisation rate
remained at a low of 78.4%, although it improved from
77.9% last year. Offshore rig day rates remained stable,
while jack-up market continued to face pricing
pressures. Utilisation of jack-up was at 77% vs. 76%
recorded last year. Demand for deepwater rigs was
strong globally, as fleet utilisation for Semi-subs
improved to 83.7% vs. 81.7% last year.
Top Pick: GE Shipping (Buy with TP of Rs308): We
believe GE Shipping is better placed compared to peers
due to its diversified presence in the offshore segment
and strong under-leveraged balance sheet which is
likely to help it take advantage of the current downturn
and increase fleet at lower costs. Further, it is expanding
only in the offshore segment giving its better visibility
and higher profitability
Sell on SCI and Aban: We have a negative stance on
pure play shipping company SCI with a target of Rs60.
We also maintain Sell on Aban Offshore as concerns
persist with three of its assets idle and others coming for
re-negotiations at the bottom of the day-rate cycle,
over-leveraged balance sheet and high exposure in Iran.
Great Eastern Shipping (Buy; Target Price: Rs308)
Though Q4FY12 consolidated revenue is likely to increase 22.9% YoY, its expected to remain flat
sequentially, with a fall of 1.6% QoQ to Rs7,394mn. This is largely led by decline in dry bulk
freight rates and flat tanker rates. Operating profit is expected to remain under pressure on the
back of lower freight rates but higher operating costs. While its expected to remain flat YoY, we
estimate EBITDA to decline 9.9% QoQ to Rs2,346mn.
EBITDA margin is consequently likely to contract 718bp YoY and 293bp QoQ to 31.7% as higher
operating costs continue to put pressure on shipping business’ profitability.
Adjusted net profit is expected at Rs526mn, down 45.5% YoY, mainly on account of higher
depreciation and interest costs.
During the quarter, Greatship DOF Subsea Projects Private Limited, a wholly owned subsidiary
of Greatship (India) Limited ceased its legal existence under the Fast Track Exit Mode.
Shipping Corp. of India (Sell; Target Price: Rs60)
We expect SCI’s Q4FY12 revenues to increase 23.4% YoY but decline 7.0% QoQ to Rs10,674mn,
led by improvement in the liner business and higher freight fleet size compared to last year.
Operating profit is similarly expected to increase 12.0% YoY but decline 4.4% QoQ to
Rs1,127mn, with operating margin likely to contract 107bp YoY to 10.6%.
We expect SCI to continue to report losses at adjusted net level, with Q4 loss estimated at
Rs520mn from a loss of Rs62mn last year and losses of Rs161mn in Q3FY12. Apart from lower
profit from sale of ships, higher interest cost and depreciation continue to impact profitability.
Net margin will in effect contract to (4.9%) vs. (0.7%) last year.
During the quarter, SCI bought two new built supramax bulk carries (57,100 DWT). The
company also took delivery of one new built AHTSV (anchor handling tug-cum-supply vessel) of
80 ton and contracted to buy another 6 new built AHTSVs of 80 ton bollard pull capacity each.
The company also scrapped a chemical tanker ‘m.t. Sabarimala’ (33,056 DWT), tow handymax
bulk carriers (47,300 DWT each) and one AHTSV.
Aban Offshore (Sell; Target Price: Rs350)
Aban Offshore’s consolidated revenue is expected to decline 5.3% YoY to Rs8,512mn, with 2-3
rigs idle and day rates remain lower for new contracts. The current market rates for jack-ups
continue to remain low on the back of lower rig utilisation levels globally.
Operating profit is expected to decline 16.3% YoY to Rs4,969mn, while operating margin is
likely to contract 768bp YoY to 58.4% on the back of higher operating and employee costs.
Adjusted PAT is likely to decline 74.3% YoY to Rs621mn, on lower operating profitability and
higher interest costs. Adjusted net profit margin in effect is likely to contract 19.6pp YoY to 7.3%
vs. 26.9% last year and 8.4% in Q3FY12.
During Q4, Aban redeemed bonds worth US$160mn (about Rs8bn) along with accrued interest
on DDI Holding AS, a wholly owned subsidiary on its due date (19-Jan-12).
DDI Holding, also redeemed bonds worth US$100mn and Norwegian Kroner 400mn (equivalent
to an aggregate amount of US$170mn or about Rs8.35bn) along with accrued interest, on the
due date (i.e.) March 15, 2012.
Of the 18 rigs, Aban currently has two rigs (Aban V and Deep Driller 7) and one floater (Aban Ice)
idle and ready stacked for operations.
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