Shipping/Offshore/Shipbuilding ƒ Dry bulk charter rates soften while tanker rates firm up ƒ :Q3FY15 Result Preview : ICICI Securities, report

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Shipping & Logistics Monthly Report: Nov’14 :: ICICI Securities, link

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SHIPPING MARKET UPDATE (OCTOBER 2014) Kotak Sec PDF link

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SHIPPING MARKET UPDATE (OCTOBER 2014)
Supply side pressure has eased in across segments
Despite fresh ordering in the last 6 months, the order book to fleet ratio in
the dry bulk segment has improved to 22.5% from 23.5% QoQ and from
30% YoY, while in dirty tanker segment the ratio has remained flat at 12%
QoQ and improved from 19% YoY. Even asset prices across segments have
improved ~2% QoQ and ~10% YoY which would help the NAV of shipping
companies. With demand improving especially from China for bulk and for
crude from Europe and US, the shipping markets have improved in the last 2
quarters and expected to move up from current level. Currently we estimate
scrapping to be equal to or more than new order placement which is
positive for the sector. With continuous reduction in global shipping order
book, we expect stable shipping market for H2FY15 with shipping
companies including SCI and GE Shipping reporting improved financial
performance. We recommend investors to BUY SCI (Target price Rs.77) and
BUY GE Shipping (Target Price. Rs.450).


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Shipping & Logistics Monthly Report: Sep’14 :: ICICI Securities, PDF link

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• The Baltic Dry Index (BDI) posted strong growth of ~52%
MoM in August 2014 to 1147 levels against 755 in July’14.
However, level of inventory of iron ore in China declined
sharply by 4.7% and steel output by 1.4% on MoM basis
indicating decline in consumption by Chinese steel mills.
Going ahead, rates are expected to taper down in near term

• Baltic Dirty Tanker index declined ~16% MoM post
strengthening ~11% in the month of July 2014. As refineries
in US and Europe approach maintenance, activity has slowed
down and freight rates eased. VLCC and Suezmax segments
rates declined nearly 12% and 40% MoM. The Baltic Clean
Tanker Index (BCTI) remained flattish on MoM basis with a 2%
decline to 545 levels

• Railway Passenger earnings for the month of August ’14
increased by~10% MoM whereas Goods earnings declined
by nearly 2.2%. On an YTD basis, passenger earnings
increased by 20% YoY to | 17745 crore, whereas goods
revenue rose by 10% YoY to | 41061 crore. Earnings from
fertilizer declined 14.5% whereas that from coal, iron-ore and
steel is up 26.4%, 23% and 25.6% respectively on YoY basis.

• Container volumes at major ports rose by ~5% YTD and 3.2%
YoY in August 2014 to 677000 TEUs. For Q1FY15 container
volumes have increased by 3.4% to 1934000 TEUs. JNPT
which is the largest container port of India saw container
volumes increasing by 7.3% YTD to 1861000 TEUs, while
Chennai port container volume grew 3.6% to at 371000 TEUs.

Outlook
Dry bulkers
With Chinese inventory remaining high, demand might suffer
consequently rates are expected to taper in the short term. Over the
longer term too we expect rates to remain frail as fleet addition already
done during 2013 (8% of current global fleet) and further 20% of current
capacity to be added by CY16 will weigh negatively on the freight rates as
well as the asset prices.

Tanker
Tanker segment charter rates continued their strong momentum in VLCC
and Suezmax segment till the first half of the month but post that it
declined as refineries in US and Europe approach maintenance. Suezmax
rates continue to decline throughout the month as VLCCs took up their
market. Aframax rates too declined but were marginally supported by
activity in North Sea and Mediterranean region as Libyan oil makes a
comeback. Going ahead, we expect tanker segment freight rates to firm
up particularly for the VLCC segment.

Offshore vessels
Offshore vessels utilisation is expected to remain healthy and flattish amid
average crude price for Aug 2014 remaining at $102/barrel. We expect
higher utilisation and firm charter rates in the near to medium term.


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Shipping Monthly Report – April 2014 :: ICICI Securities

Shipping Monthly Report – April 2014
• The Baltic Dry Index (BDI) gained ~8% in March 2014 to 1362
level on the back of increased iron ore inventory by China.
Iron ore stocking by China increased ~8% MoM and 52% YoY
buoyed by 6% growth in steel output on a YoY basis.
Capesize rates were supported by Chinese demand, which
started to weaken towards the end of the month. Panamax
rates also softened in absence of grain and soya bean cargo

• Tanker indices remained under pressure for the month as
tonnage availability outstripped demand. The Baltic Clean
Tanker Index (BCTI) declined ~ 3%MoM to 610 levels whereas
the Dirty Tanker Index (BDTI) also shed ~4% MoM to 700
levels in March 2014. Category wise, VLCC and Aframax rates
declined 34% and 11% MoM whereas Suezmax rates firmed
up by 20%

• LPG carrier rates for the VLGC and LGC (57000 cbm) segments
gained ~8% MoM in March 2014 whereas MGC (57000 cbm)
segment rates across categories continued to remain steady
for March 2014

• Utilisation levels on an MoM basis for drill ships remained
flattish at 89% in March 2014. Semi-subs and jack-ups
utilisation also continued to remain flattish at 89% and 88%
respectively, in March 2014

Shipping Monthly Report – September 2012 • :: ICICI Securities

Shipping Monthly Report – September 2012
• The Baltic Dry Index (BDI) contracted 22% in August 2012
hovering around a six-month low of 703. Concerns over the
Chinese economy slowing down and US drought continue to
plague the industry along with the burden of excess
additional tonnage. The Baltic Capesize and Panamax index
rates tapered off by 2% and 25%, respectively, on a MoM
basis. Baltic Supramax and Handymax index continued to
slump by 17% and 19%, respectively, MoM due to US
drought woes
• The Dirty Tanker Index (BDTI) was down marginally by 2%.
However, the Clean Tanker Index remained flattish posting
no gains on an MoM basis. VLCC time charter yields (TCY)
rates continued to face the brunt slumping below operating
level. Suezmax rate were down 67% on an MoM basis.
Aframax rates showed some signs of relief posting a modest
gain of 4% on an MoM basis.
• LPG freight rates remained flattish across all segments.
However, the medium carrier segment (MGC – up to 35000
cbm) was down nearly 1% MoM
• Utilisation levels for drill ships, semi-subs and jack-ups
continue to remain at elevated levels at 90%, 91% and 82%,
respectively, providing stability to rates in August 2012

Shipping Monitor [ PDF ] AE rates not at the bottom?::CIMB

Shipping Monitor  [ PDF ]

AE rates not at the bottom?

NEUTRAL - Maintained

- by Raymond YAP, CFA

Asia-Europe container rates continue to slide due to weak demand and excess capacity deployed, while transpacific rates are holding up. VLCC and capesize rates inched higher last week, but rates are still unable to cover cash operating expenses. We remain Neutral on the sector as valuations have corrected to reflect tough market conditions. OOIL and SITC are Outperforms because of their relatively strong financial performances. We recently upgraded Pacific Basin to Trading Buy as the company is disposing its loss-making RoRo business. We also like quality names like MISC for the long term. RDD

Ports - A port of entry; sector update:: Edelweiss, PDF link

The Indian ports sector is on the cusp of a renewed growth phase largely due to an intense focus on transportation economics, legacy issues at government-owned ports, and rising demand for minerals and goods. Besides, Indian GDP has a subtle linkage to global trade; hence, we expect the weakening global economy to have a muted impact on the country’s cargo growth. With capacity addition at major ports lagging due to delayed approvals/bid-outs by the government, more proficient private ports are reaping the benefits. Initiate coverage on Essar Ports with ‘BUY’, Gujarat Pipavav Port with ‘REDUCE’ and maintain our ‘BUY’ recommendation on Adani Ports.

Shipping Monitor [ PDF ] Carriers fight to keep rates afloat NEUTRAL - CIMB

Shipping Monitor  [ PDF ]

Carriers fight to keep rates afloat

NEUTRAL - Maintained

- by Raymond YAP, CFA

Shipping Monitor [ PDF ] :: CIMB

Shipping Monitor  [ PDF ]

Will the gloom ever end?

NEUTRAL - Upgrade

- by Raymond YAP, CFA

A client asked last week how it felt to be staring at never-ending gloom in the shipping sector. Not elating, for sure but opportunities are aplenty for investors who look beyond the immediate horizon. Last week, MISC’s share price rose 8% after falling 41% in the past year. Could this signal the start of a sector-wide share price recovery? Perhaps, but investors will have to wait 1½ years or more to reap the fruits. Given the sharp fall in share prices, we upgrade our sector view to Neutral from Underweight, and highlight quality names such as MISC, Pacific Basin and OOIL for the long haul.

Shipping Monitor [ PDF link ] Container spot rates ease further :: CIMB

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Shipping Monitor  [ PDF ]

Container spot rates ease further

UNDERWEIGHT - Maintained

- by Raymond YAP, CFA

Last week, the SCFI spot rates fell by up to 4% wow on the US and European trades, suggesting that the weak demand environment is unable to absorb the capacity reactivated for the summer. We forecast another 1½ months of decline until the US peak season in July. Container rates will continue weakening until carriers begin to idle ships from October. We are Neutral on the container shipping sector, with OOIL as our top pick, given the recent sharp share price correction. We remain Underweight on the dry bulk and tanker shipping sectors.

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

Shipping/Offshore/Shipbuilding ƒ : Q4FY12 Result Preview: ICICI Securities, PDF Link

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http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf

Shipping/Offshore/Shipbuilding
ƒ Dry bulk freight rates decline due to oversupply, lower demand
The Baltic Dry Index (BDI) average for Q4FY12 at 880 was 46% lower
than in Q3FY12. Of the constituents of BDI, the quarterly average for the
Baltic Capesize Index (BCI) declined by 51% QoQ to 1612 while the
quarterly average for Baltic Panamax index and Baltic Supramax index
declined 45% and 41% to 1019 and  835, respectively. Oversupply
across categories, high Chinese iron ore inventory and lower demand
from China negatively impacted the demand for dry bulk carriers.
Hence, this resulted in a severe decline in freight rates. Indian shipping
companies normally have a healthy long term charter to spot ratio.
However, in the current scenario, companies are averse to entering into
long term contracts and prefer the spot market as freight rates are much
below their historic yearly averages and locking the vessels for a longer
period at current freight rates does not appear lucrative.
ƒ Tanker freight rates remain range bound
The Baltic Dirty Tanker Index (BDTI) average for Q4FY12 at 812 was 1%
higher than in Q3FY12 while the Baltic Clean Index average for Q4FY12
at 687 was 5.9% lower than Q3FY12.  In the near term, tanker freight
rates could see a positive momentum owing to escalating tension
between European nations and Iran. However, over the longer term,
crude oil tanker freight rates are expected to remain subdued owing to
the oversupply of tonnage with 11% of present fleet expected to be
delivered in 2012, which would handicap the market.
ƒ Q4FY12E performance (QoQ basis)
We expect Q4FY12E revenues of the I-Direct shipping universe to
remain flattish with QoQ growth of 0.9% to | 5267 crore due to
continued depressed freight rates across various vessel categories. Due
to sustained low rates and high fleet age, Q3FY12 had seen a substantial
sale of old vessels while the net fleet size has reduced in spite of some
new vessel inductions among companies under I-Direct coverage. On
the EBITDA margin front, we expect a marginal improvement from
27.2% in Q3FY12 to 27.7% in Q4FY12E owing to the induction of high
margin offshore vessels. We expect the I-Direct shipping universe to
register 40% QoQ decline in net profit to | 200.1 crore, owing to lower
extraordinary income from profit on sale of vessels. On the stock wise
profitability front, we expect positive growth in profitability of Aban,
ABG Shipyard and Pipavav Defence. In contrast, we expect lower profits
for GE Shipping, Mercator with SCI to report a loss due to lower
extraordinary income.

April 2012 -Freight Forward :ICICI Securities, PDF link

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http://content.icicidirect.com/mailimages/ICICIdirect_FreightForward_April2012.pdf


S h i p p i n g   M o n t h l y   Re p o r t   –   A p r i l   2 0 1 2
• BDI continued its recovery after the crash in January 2012. In
March 2012, it recorded gains for the second consecutive
month with an MoM increase of 25% to 934. Panamax and
Supramax indices rose on an MoM basis by 26% and 45%,
respectively, and led to the rise in BDI in spite of BCI
declining by 8%. Increase in  shipments of minor bulks and
coal within the Pacific Basin has resulted in higher demand
for smaller vessels like Panamax, Supramax and Handysize
while lower iron ore export from Brazil to Asia has resulted
in lower demand for Capesize vessels leading to weakness in
Capesize freight rates

Shipping & Offshore Services: Q4FY12 Results Preview : Centrum

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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.

Container traffic hits a speed breaker ::Centrum

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Container traffic hits a speed breaker
Volumes at India’s 12 major ports continued to decline in
FY12 mainly led by the fall in iron ore volumes. Overall,
volumes declined 5.8% YoY to 43.7mn tonnes. However,
the trend in sequential improvement witnessed for the
last 5 months was broken with a 10.6% MoM drop in
overall thru-put. This is a particular phenomenon
witnessed in the month of Feb for the last 3 years when
there is a sudden drop in volumes sequentially which
later recovers in March. Volumes for POL (Petroleum, Oil
& Lubricants), Coal and other cargoes increased YoY
while iron ore and containers were major laggards. Iron
ore traffic continued its decline, falling 55.8% YoY and
5.8% MoM to 4.1mn tonnes. Container traffic too
mirrored the overall traffic trend declining 7.7% YoY and
by a sharper - 18.0% MoM given that during January it
had recorded its highest volumes in the last two years.
􀂁 Container volumes falter: Containerised traffic declined
7.7% YoY and 18.0% MoM to 0.56mn TEUs – its usual
trend in last two years for the month of February.
Volumes decline in Feb and then recover in March as Q4
has traditionally been the strongest quarter. Volumes at
JNPT declined 5.7% YoY and 18.5% MoM to 0.32mn TEUs.
Chennai port’s container traffic however fell sharply by
14.7% YoY and 20.4% MoM to 0.11mn TEUs.
􀂁 Iron ore throughput continues to remain low: Iron ore
traffic continued to remain low with volumes declining
55.8% YoY to 4.1mn tonnes. The Baltic Dry Index (BDI)
(an indicator of global demand for dry bulk commodities
including iron-ore and coal) continued to remain low
post the sharp fall in January, led by the glut in global
dry-bulk supply and slower demand. BDI was down 40%
YoY and 34% MoM to close at 738 on 28-Feb-12.
􀂁 Traffic mixed across ports: Kandla and Mumbai ports
reported healthy traffic with a growth of 11.9% YoY to
6.8mn tonnes and 17.9% YoY to 5.1mn tonnes
respectively on the back of POL volumes. JNPT and
Paradip reported small declines in overall volumes. While
JNPT faltered on POL & containers, Paradip lost on iron
ore volumes. Traffic at Mormugao and Vizag were the
worst affected by the ban in iron ore mining leading to
lower iron ore port volumes.
􀂁 Container volumes likely to remain steady: We expect
container volumes to remain healthy in FY13 despite
adverse global economic environment and perform
better than in FY12. For FY12YTD container volume
growth (in TEU terms) was 3.3%. We prefer GDL in the
container logistics space.

Freight Forward : March 2012: ICICI Securities pdf link

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S h i p p i n g   M o n t h l y  R e p o r t   –   M a r c h   2 0 1 2
• February 2012 saw some semblance of sanity after the Baltic
Dry Index (BDI) had crashed by 61% in January, 2012. The
BDI rose by 10% MoM to 750 levels. Capesize, Panamax and
Supramax indices recovered to an extent and increased on a
MoM basis by 6%, 15%, and 9%, respectively. Demand for
iron ore and coal fixtures rose towards the end of February
but the huge over-availability of tonnage kept tabs on the up
move in freight rates
• The Dirty Tanker Index declined by 4% MoM to 784 while the
Clean Tanker Index rose by 11% to 723 in February 2012.
VLCC, Suezmax and Aframax vessels started February on a
weak note but recovered in mid month only to see a decline
in freight rates towards the end of the month. Product
carriers, on the other hand, weakened during the first half of
the month and rose towards month end
• LPG freight rates in February 2012 displayed a strong trend.
VLGCs recorded smart gains of ~ 22% MoM while LGCs day
rates rose the highest with a gain of 58% while MGCs saw
an increase in day rates in the range of 11-33%
• Utilisation levels for drill ships declined from 80% to 78%
while semi-subs and jack-ups utilisation declined 100 bps
and stood at 84% and 81%, respectively, in February 2012
Outlook
Dry bulkers
In the near term, dry bulk freight rates are expected to rebound after the
Chinese industrial sector restarts post the New Year holidays, which
would lead to an increase in seaborne trade and increased demand for
vessels. Over the longer term, freight rates are expected to remain weak
due to high level of Chinese iron ore inventory and significantly high fleet
addition over the next two years.
Tankers
In the near term, tanker freight  rates could see a positive momentum
owing to escalating tension between European nations and Iran. However,
over the longer term, crude oil tanker freight rates are expected to remain
subdued owing to the oversupply of tonnage with 11% of present fleet
expected to be delivered in 2012, which would handicap the market.
LPG carriers
LPG freight rates are expected to  continue the positive momentum,
particularly for VLGCs while MGCs freight rates are expected to remain
rangebound with a positive bias.
Offshore vessels
Utilisation levels for offshore vessels are expected to improve while
charter rates are expected to remain range-bound with a positive bias in
January 2012. High capex spend by major global oil exploration/drilling
companies is likely to lead to higher utilisation levels for offshore vessels.

Freight Forward: Shipping Sector Update - February 2012 ::ICICI Sec (pdf link)

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PDF LINK for report- click HERE


S h i p p i n g   M o n t h l y   R e p or t   –   F e b r u a r y   2 0 1 2
• The year 2012 began on a disastrous note for the Baltic Dry
Index (BDI), which crashed by 61% MoM to 680 in January,
2012. Capesize, Panamax and Supramax indices declined on
an MoM bias by 56%, 56%, and 44%, respectively. Lack of
Chinese activity in the commodity markets owing to the
Chinese New Year celebrations and high volume of new ship
deliveries led to lower fleet  utilisation and pushed freight
rates downwards
• The Dirty Tanker Index declined 13% MoM to 813 while the
Clean Tanker Index fell sharply by 28% to 651 level in
January 2012. Both indices opened gap down by more than
10% in January 2012 after the year end closing in the last
week of December 2011. Though both indices declined on an
MoM basis due to huge gap down openings, average vessel
rates across categories showed positive momentum post the
subdued opening in January 2012. The rates displayed some
weakening towards the end of the month
• LPG freight rates in January 2012, displayed a mixed trend.
VLGCs recorded smart gains of ~ 5% MoM while other
vessel categories remained flattish in the range of -1% to 2%
• Utilisation levels for drill ships declined from 82% to 78%,
while semi-subs and jack-ups utilisation remained stable at
85% and 81%, respectively, in January 2012
Outlook
Dry bulkers
In the near term, dry bulk freight rates are expected to rebound after the
Chinese industrial sector restarts post the New Year holidays, which
would lead to an increase in seaborne trade and increased demand for
vessels. Over the longer term, freight rates are expected to remain weak
due to high level of Chinese iron ore inventory and significantly high fleet
addition over the next two years.
Tankers
In the near term, tanker freight  rates could see a positive momentum
owing to escalating tension between European nations and Iran. However,
over the longer term, crude oil tanker freight rates are expected to remain
subdued owing to the oversupply of tonnage with 11% of present fleet
expected to be delivered in 2012, which would handicap the market.
LPG carriers
LPG freight rates are expected to  continue the positive momentum,
particularly for VLGCs, while MGCs freight rates are expected to remain
range bound with a positive bias.
Offshore vessels
Utilisation levels for offshore vessels are expected to improve while
charter rates are expected to remain range-bound with a positive bias in
January 2012. High capex spend by major global oil exploration/drilling
companies is likely to lead to higher utilisation levels for offshore vessels.

SHIPPING :: Q3FY12 RESULTS PREVIEW: Kotak Securities

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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 196 mn tonnes (December
2011) in the next 3 to 4 years) and that is putting the various Baltic
Indices and freight rates under pressure. However the month of October
and November 2011 saw the Baltic Index remaining flat. The cape Index
gained almost 10% QoQ. This was because of increased imports by
China of iron ore and coal in the months of November and December.Lot
of activity was reported in the spot cargo for larger ships in November
which led to freights increasing by 15 to 30% on different cape routes.
Little activity was seen in the Panamax, Supramax and the Handymax
segments, not enough to boost sentiment and freight levels in the quarter.
The orderbook to fleet ratio currently stands at 34% - down from 37
% in Q2FY12 and 52% in December 2010 which is positive for the sector.
q The oversupply of vessel is a serious concern even in the crude tanker
market. However activity in the current quarter increased tremendously
due to winter in the west which helped the tanker segment do well in
Q3FY12. Both the Baltic clean tanker index and Baltic dirty tanker index
surged by ~40% in the quarter which would help ships in the spot market.
It is important to note that Q3FY12 is usually good for the tanker
segment.
q Sluggish world economy, slowing consumer demand, debt crisis in Europe
and burgeoning order book is putting pressure on the container
market was weak. The market was weak in Q3FY12 and down 20% QoQ
and is estimated to remain flat in near term.
q Second hand shipping asset prices have slipped by 5 to 25 % across segments
(especially tanker segment) 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: Target Price - Rs 60)
n We expect SCI's Q3FY12 revenues to increase 3.5% YoY and increase 1.5%
QoQ to Rs 9,200 mn, led by strong tanker market. The impact of the strong
tanker market won't be significant for the company as the company has more
than 65% of the ships on long term charters.
n Operating profit is expected to fall considerably to Rs 610 mn which translates
into an operating margin of ~7 %, falling almost 1100 bps YoY from ~18% primarily
due to higher bunker cost and subdued freight market.
n Net profit is expected at Rs 350 mn against loss of Rs 1408 mn in Q2FY12 and
profit of Rs 1,230 mn in Q3FY11. 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 As asset prices have corrected QoQ, we also estimate the gross NAV of the company
to have corrected from Rs 120 in September quarter to around Rs 90 in the
current quarter.
Great Eastern Shipping Co (Accumulate: Target Price -Rs 315)
n Q3FY12 consolidated revenue is expected to increase ~24 % YoY and remain
flattish QoQ to Rs 6,900 mn, primarily due to strong tanker market. Even 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 2750 mn which translates into an operating
margin of ~40 %. Despite high bunker and insurance cost we expect the company
to report healthy operating profit as the company has almost 50% of its
tanker fleet in spot market. We also expect the offshore segment to do well in
the quarter.

Shipping/Offshore/Shipbuilding 􀂃 ICICI Securities 3QFY12 preview

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Shipping/Offshore/Shipbuilding
􀂃 Upmove in dry bulk freight rates
The Baltic Dry Index (BDI) average for Q3FY12 at 1927 was 26.1% higher
than in Q2FY12. Of the constituents of BDI, Baltic Capesize Index
maintained its positive momentum of Q2FY12 with a 39.6% rise in
quarterly average to 3304 from 2386 level in Q2FY12, while Baltic
Panamax index and Baltic Supramax index rose by 14% and 5%
respectively. Capesize vessels witnessed higher demand on account of
change in iron ore import pattern of China. Chinese iron ore imports
from India reduced due to monsoon and 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 and supramax vessels. Though quarterly
average for BDI has been higher but we expect the average freight rates
for Indian shipping companies to improve marginally from Q2FY12
levels. The dry bulk fleet of Indian shipping companies mainly consists
of Panamax and Supramax vessels which after initial rise in October
have seen softening in freight rates in November and December.
􀂃 Tanker rates improve
The Baltic Dirty Tanker Index (BDTI) average for Q3FY12 at 803 was
13.5% higher than in Q2FY12 while the Baltic Clean Index average for
Q2FY12 at 730 was 7.5% higher than Q2FY12.
􀂃 Q3FY12E performance (QoQ basis)
The revenue of Idirect shipping universe is expected to marginally
improve by 2.3% due to up-move in dry bulk and tanker freight rates.
We expect EBITDA margin to improve by 80 bps to 29.7%. Net profit is
expected to increase by 57% to | 104 crore from | 66 crore in Q2FY12,
which was the lowest profit recorded in the last ten quarters. In Q2FY12,
profitability of Indian shipping sector was severely dented due to
accounting of higher interest cost on notional increase in value of long
term foreign currency debt due to fluctuation in exchange rate.
Recently, Ministry of Corporate affairs had notified that such notional
expense provided in Q2FY12 can be written back going ahead. In our
estimates, we have not factored any write-back and assumed similar
treatment as in Q2FY12. However, Shipping Corporation of India and
Great Eastern Shipping, which had accounted for additional interest of
|126 crore and | 57 crore in Q2FY12 could see higher profitability if they
decide to write-back the additional expense accounted in Q2FY12.