Dec 28, 2007 12:35 pm
Sailing high on smooth waters
By SP Tulsian
q Shipping Corporation of India (SCI) was established in 1961 by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation. Two more shipping companies, Jayanti Shipping Company and Mogul Lines Limited were merged with SCI in 1973 and 1986 respectively.
q From a humble beginning of 19 vessels, SCI has gradually metamorphosed into a shipping conglomerate with 84 ships of 4.936 million Dead Weight Tonnage (DWT) and has now interests in 10 different segments of the shipping trade. It also manages 53 vessels totaling 63000 DWT on behalf of various Government Departments and other organizations.
q SCI owns and operates about 35% of the Indian tonnage and operates in practically all areas of shipping business servicing both national and international trades.
q The company has always had an enviable track record of profits and it is based on this that the Government bestowed the status of Mini Ratna on SCI, leading to enhanced delegation of powers to the Board in the areas of Capital Investment, Joint Ventures, Opening of New Offices and thus gave it more flexibility to operate.
q SCI has charted a definitive course of action for the future. The thrust areas for growth and diversification focus on energy transportation including the sunrise segment of LNG transportation and container transportation.
q SCI has heralded India's entry into the specialised field of LNG transportation by acquiring a stake in the two Indian LNG transportation agreements, that too after a global bidding process. Two joint ventures were formed at Malta, namely, India LNG Transport Co. No.1 and India LNG Transport Co. No.2 for the construction, ownership and operation of two LNG tankers. The presence of the SCI in these LNG transportation contracts would go a long way in establishing itself as a major LNG transportation player in the world.
q The company has established Irano-Hind Shipping Company, a joint venture company, in Iran. It has also formed a JV with Forbes Gokak & Sterling Investments for owning and operating chemical carriers.
q The Cabinet recently cleared the company's acquisition of 6 handymax bulk carriers for Rs 1,070 crore of about 57,000 DWT. The vessels are expected to be delivered to the company between 2011 to early 2012.
q The company has sketched out plans to infuse about US$ 4 billion for acquiring 72 vessels in the next five years. It is already spending US $ 1 billion to buy 12 vessels, which will be delivered between 2008 and 2010. Resources for the acquisition will be raised through a blend of debt and equity. The company is looking at a debt-equity ratio of 80:20 or 75:25.
q SCI is planning to venture out into ship-building and it plans to set up a mega yard on the west coast of India. It is also on the lookout for setting up a JV for undertaking dredging works, which hitherto is dominated by Dutch and Belgian companies.
q Financially, it is one of the most profitable PSUs though, its performance for the first half ended 30th September 2007 slipped down a bit. On a total income of Rs.1904 crore, it posted a net profit of Rs.388.43 crore. Last fiscal, the profits were higher mainly on account of the profit it made on sale of ships.
q On an equity of Rs.282.30 crore, its EPS works out at Rs.13.76 for H1 FY08, giving a PE of around 10 on the current price of Rs.295.
q The company is sitting on a huge reserves of Rs.4,800 crore, making it a ripe bonus candidate. Moreover, with so many acquisitions and expansions planned, with such huge reserves to dip into, surely this is financial management at its best.
q Another major positive factor is the low floating stock. The Government of India owns 80.12% of the shares, the total public holding is 19.88% of which, 16.08% is held by the banks, MF and FIIs, leaving just 3.79% with the Indian public at large. Such low float has seen a good run up in many PSU stocks.
q The stock has not run up as much when compared with its peers, despite the sharp rise in the shipping sector. The share at Rs.295 is an excellent bet which could give decent returns over the next 10-12 months.
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