Shipping Corporation of India 163.00

The Shipping Corporation of India (SCI) was established by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation on 2nd October 1961. Starting out as a marginal liner shipping company with just 19 vessels, SCI has today metamorphosed into a giant shipping conglomerate with about 40% of the Indian tonnage and operates in practically all areas of the shipping business. Operating a young and diversified fleet of 89 vessels this ‘Mini Ratna’ PSU has presence in almost every major sea route in the world and is rated amongst the world’s top 15 leagues. Today its vast fleet of apporx 5.0 million DWT consists of 29 crude oil tankers, 23 bulk carriers, 12 product tankers, 3 chemical, 2 LPG/ammonia carriers, 2 LNG carriers and other liner/passenger vessels. SCI is now focusing more on the energy sector and plans to become a major player in LNG transportation.

Although the Baltic Freight Index has come down from its high 6200 in Dec 2004 it is still hovering around 4700 level and is expected to rise from here on due to increasing international trade. Tanker freight rates are also expected to spurt due to the rising demand for crude oil and other petroleum products. With freight rates expected to remain robust over the next 3~5 years, SCI has chalked out a massive expansion plan of acquiring 18 new vessels at an investment of Rs.6,500 cr. which will be funded by internal accrual and debt. The new acquisitions include 2 very large crude carriers (VLCC), 6 handy size bulk carriers, 6 product tankers, 2 container ships and 2 Aframax tankers. Of these one VLCC will be delivered in August 05. It also plans to extend its international mainline container services by teaming up with a foreign company for container terminal operations and also bid for the fourth container terminal at Jawaharlal Nehru Port Trust.

Fundamentally and financially it is a very strong cash rich company that earns more interest earning is more than its interest outgo. It paid a special dividend of Rs.17 for FY04 and declared Rs.4 interim for FY05. With the implementation of the tonnage tax, it will save around Rs.85 cr., which will boost its EPS by Rs.3. For the nine months ending 31st Dec 2004, its total revenue increased by 25% to Rs.2688 cr. and NP jumped 120% to Rs.810 cr. Its OPM & NPM stood at 35% and 33% respectively compared to 30% & 18% last year. The Company may declare another 40% as final dividend taking total dividend to payout 80% for FY05. For the full year it is expected to clock a total revenue of Rs.3500 cr. and NP of 1025 cr. posting an EPS of Rs.36 and CEPS of Rs.46. The floating stock is very low as 80% is held by the government and 13% is held by FIIs and institutions and 4.5% with the general public. In future the government is expected to bring down its stake to 75% through an IPO, which will improve liquidity to some extent. Investors are adviced to buy at current levels with a price target of Rs.240 in the coming 8-12 months.