Subscribe to Shipping Corporation of India FPO - Attractively Priced, Attractively Positioned - Way2Wealth

Shipping Corporation of India (SCI) is one of India's largest shipping companies in terms of Indian flagged tonnage, with approx 35% share of Indian flagged tonnage as of June 2010 with a 'Navratna' status as of August 2008. It owns a fleet of 77 vessels of 5.37mn DWT across the dry bulk, tanker, offshore and container segments.

It has already ordered for 26 vessels, which are expected to be delivered between 2010-2013. It plans to order additional 20 vessels in FY11. Main customers are Government agencies, large industrial concerns, international oil companies and PSU's.

Objects of the Issue: The objects of the Issue are mainly for part funding of vessel acquisition plan, the Total cost of which is INR 2663.9 cr. 9 vessels are to be funded through the issue proceeds.Net issue would meet ~24% of the cost and the balance (76%) is to be funded through Debt. It has already received sanction of INR 2000 cr from SBI.

SWOT Analysis: Attractively Positioned for Long Term Gains

Strengths
- A strong brand name with a diversified fleet allowing it to employ its vessels under short, medium and long term charters
- Experienced Management Team
- Strong Balance Sheet with Cash & Cash Equivalents of INR 2310cr and Annualised Cash eps per share (diluted) of INR 21
- In a position to raise debt given its Current D/E Ratio of 0.55x:1
- Operational profit is higher on account of a lower tax rate
- It has strategic joint ventures with 6 companies including SAIL, which would lead to future cash flow generation
- Impressive Dividend payout History

Weakness

- The Shipping Industry, both, the dry bulk and tanker segment to see subdued freight rates til the end of 2011 on account of a higher growth in vessel supply as against its demand

Opportunity

- This issue allows it to acquire vessels at a relatively depressed rate as the prices have just bottomed out from <$100mn
- Building Capacity during the bottom of the shipping cycle, which would accrue financial gains on a cyclical reversal
- As Indian shipping tonnage in Indian overseas trade is just 9.5%, additional investments in vessels allows expansion in market share
- Vessel addition would lead to the lowering of the average age of fleet, reducing operating costs
- Tanker division to benefit from India's oil refining industry, which requires increased crude oil imports
- Dry Bulk division to benefit from India's power and steel industry, which requires coal imports,& esp from the Ultra Mega Power Projects lined up.
- Expand reach into SouthEast Asia, Southern Africa and North America through the expansion of its container and bulk services
- A new policy on the development of coastal shipping in India can be expected

Threat

- One major threat would be a prolonged depression of freight rates and the consequential delay in a improved shipping environment

Valuation & Advise – The SWOT Analysis charted out by us already gives a sense of a fundamentally well placed company, which would be in a position to encash the opportunity on the domestic coastal shipping arena and expand its reach on the international front. At the upper end of the price band, the issue is available at 6.6x, its Annualized FY11E earnings of Rs 21.3, which is attractive as its below the Global and India peer valuation of 10x and 7x resp. Issue price is below its Book Value of Rs 160 per share and gives Long Term Investors a good entry point. SUBSCRIBE.

Source : Equity Bulls

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