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Key investment Highlights

Well diversified fleet

SCI owns variety of modern and technologically-advanced vessels including bulk carriers, VLCCs, crude oil tankers, product tankers, container vessels, passenger-cum-cargo vessels, phosphoric acid and chemical carriers, LPG and ammonia carriers, and offshore supply vessels. This fleet diversification allows it to enter into chartering arrangements of varying duration with different types of customers.

Focus on energy-related transportation

The tanker division benefits from growth in India's oil refining industry, which requires increased crude oil imports and refined oil exports, whereas bulk carrier division will benefit from growth in India's domestic power and steel industries, both of which are expected to increase the country's coal imports. According to the Planning Commission, the annual growth rate in India's demand for coal and production of coal, during the Government's 11th five year plan is projected at 9.0% and 7.9%, respectively. The company intends to take advantage of these growth opportunities by employing its vessels for the transportation of coal and oil.

Strategic joint ventures

SCI has entered into six strategic joint ventures. It has partnered with three Japanese shipping companies to own and operate three LNG tankers and has taken over the operation and management of two LNG tankers. It has formed a joint venture with Forbes Gokak Limited and Sterling Investment Corporation Private Limited for the purpose of entering into the chemical tanker segment. Its joint venture with SAIL on a cost plus basis provides certainty of cash flows on a long-term basis. We believe that these joint ventures will provide economic and strategic benefits.

Strong balance-sheet

As of September 30, 2010, the company had Rs. 2,310.3 crore of cash and cash equivalents with a debt to equity ratio of 0.55 and a current ratio of 2.96. We believe that its strong balance sheet and cash on hand provides greater working capital and the flexibility to sustain our business during difficult economic times. In addition, it helps in servicing interest and principal payments of debt in a timely manner. We believe that our strong balance sheet and history of timely loan payments will help in favorable financing terms for the acquisition of vessels.

Valuation & Recommendation

At the upper end of price band of Rs.140 the stock is valued at a P/E of 8.9x and P/BV of 0.9x. The industry composite PE stands at 14x. Issue pricing is considered aggressive given the stock is currently quoting just above the issue price. However, with reasonable valuation, a sustainable business model and traction in revenues, we recommend SUBSCRIBE to the issue for long term gains.

Source : Equity Bulls

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