Shipping Corporation: Q3FY12 result - Difficult times continue; Maintain REDUCE – IDBI
Thursday, 23 February 2012 | 11:00
Shipping Corporation of India (SCI) sustained its losses (adjusted for ship sale and other income) as expected, with the losses incurred in both the Bulk (Tanker + dry-bulk) shipping and Liner segment. Revenues grew 29% YoY to Rs11.5 bn due to fleet addition in the tanker space and rise in other operating income Rupee depreciation. The EBIDTA margin fell 790bps YoY to 10.3% in Q3FY12. The margin contraction can be attributed to the losses incurred in the Liner segment which suffered from lower charter rates and higher bunker charges. The Liner segment recorded an EBIT loss of Rs241 mn as compared Rs96 mn profit in Q3FY11. The loss stood at Rs1,558 mn adjusted for the ship sale profit of Rs1,751 mn and exchange gain of Rs1,680 mn included in other operating income.
We believe that SCI will continue to face pressure across the business segments, tankers, dry-bulk and containers due to fleet additions over next 1-1/2 year. With increase in leverage (D/E at 0.85x) and addition of fleet which were ordered at relatively higher rates during the peak of 2007-08, the breakeven for these vessels will become increasingly difficult at the current charter rates. We expect the bulk segment to sustain losses in the medium term with worsening charter rate scenario. The NAV of the fleet, including amount advanced against orderbook, stands at Rs113/share. We maintain REDUCE with a target price of Rs57 based on 0.5x NAV.
- Revenue increased 29% YoY to Rs11.5 bn mainly supported by ~800% increase in the other operating income on the back exchange gains. The income from operations increased by 6.6% YoY to Rs9.6 mn mainly due to increase in operating days in Bulk segment with addition of tanker and dry-bulk carriers during the year.
- EBIDTA margins fell to 10.3% due to the higher opex costs, Bunker costs, cargo handling expenses and charter hike expenses increased by 93%, 49% and 64% YoY respectively.
- Container segment recorded EBIT losses of Rs241 mn. Bulk EBIT was in the positive territory at Rs1,377 mn, mainly on the back of other operating income.
- Loss stood at Rs1.5 bn mainly on the back of lower realizations in the tanker space as 3 of company's VLCCs run on spot where the average charter rates during the quarter were
Outlook and Valuation
SCI plans to add another 29 vessels in the next three years with a total capex of US$1.2 bn. Of this a major portion of vessel addition is likely to happen in the Offshore (AHTSVs+PSVs) and Dry-bulk category (Handymax). As these vessels were ordered at relatively higher rates we expect the breakeven charter rates will be difficult to achieve. CY12 is expected to be the most difficult year in the shipping space with the charter rates likely to retouch their all time lows. Tanker segment is expected to show first signs of recovery in CY13 with net-fleet addition at a modest 3-4%. SCI earnings hence will face significant stress into FY13. With the increasing nebulous scenario in the global trade we expect the shipping asset prices to further correct, thus impacting the current NAV. We maintain REDUCE with a target price of Rs57 based on 0.5x NAV.
Source: Equity Bulls
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