Shipping Corporation of India Ltd.

Transcription

1 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 August 16, 2011 COMPANY RESULTS REPORT REVIEW Nifty: 5,036; Sensex: 16,731 CMP Target Price Analyst Chetan Kapoor Rs87 Rs79 Potential Upside/Downside (9)% Key Stock Data Sector Bloomberg / Reuters Relative to Sensex Shipping SCI IN / SCI.BO Shares o/s (mn) Market cap. 40,501 Market cap. (US$ mn) m daily average vol. 48,506 Price Performance 52-week high/low Rs203/86-1m -3m -12m Absolute (%) (17) (18) (46) Rel to Sensex (%) (8) (10) (39) Shareholding Pattern (%) Promoters 63.8 FIIs/NRIs/OCBs/GDR 3.1 MFs/Banks/FIs 20.4 Non Promoter Corporate 3.2 Public & Others 9.5 Shipping Corporation of India Ltd. Liner segment makes a dire situation worse Summary Shipping Corporation of India (SCI) again recorded a loss for Q1FY12 with the fall in shipping charter rates and losses incurred in the Liner segment. Revenue grew by a modest 2.5% YoY to Rs9,294 mn mainly due to fall in charter rates in both tanker and dry-bulk segment despite the fleet growth. EBIDTA fell from 24.6% in Q1FY11 to 8% in Q1FY12. The margin contraction can be attributed to losses incurred in the Liner segment, which suffered from lower slot utilizations and lower rates in the month of June The Liner segment recorded an EBIT loss of Rs614 mn during the quarter. The Bulk shipping EBIT, which includes tankers and dry-bulk fell by 76% YoY to Rs301 mn. We believe that SCI will continue to face pressure across business segments - tankers, dry-bulk and containers due to fleet additions over next two years. Though leverage currently is not a concern (current net-debt to equity at 0.65x), but with addition of fleet which were ordered at relatively higher rates during the peak of , the break-even for these vessels will become increasingly difficult at current charter rates. The stock currently trades at 0.65x NAV of Rs132. SCI trades at 10.2x FY12E and 8.2x FY13E EV/EBIDTA, which is the median multiple at which tanker peer set is currently trading at. On P/B basis the stock currently trades at 0.6x FY11. With the increasing nebulous scenario in global trade, we expect shipping asset prices to reduce, thus impacting current NAV. We downgrade to REDUCE with a target price of Rs79 based on 0.6x NAV. Key Highlights Revenue increased by a modest 2.5% YoY to Rs9.3 bn. The revenues across segments either indicated a fall or remained stagnant. The liner segment revenue stood at Rs 2.7 bn showing a 1% YoY increase, while bulk segment revenue grew 3.5% which also includes earnings from sale of ships. EBIDTA margins for the quarter fell significantly from 24.6% to 8%. Liner segment made EBIT losses during the quarter as the in-chartered vessels in container segment were running at lower than charter cost. SCI currently has five owned vessels and five in-chartered vessels in the liner category. The inchartered vessels have been chartered in the range of US$6,000-12,000/day. Loss for the quarter stood at Rs386 mn, as compared to Rs1,811 mn profit in Q1FY11. Interest cost increased by 96% YoY to Rs242 mn which further impacted earnings. Debt levels which stood at Rs47 bn by end-fy11 are expected to increase further to Rs60 bn by FY12E. SCI's final dividend of Rs2.5 on every equity share of Rs10 each in addition to the interim dividend of Rs3 per share announced in February translates to a dividend yield of ~7%. However, we believe that with a worsening fiscal situation, the absolute dividend payout carries the risk of significant fall in FY12E. SCI added two dry-bulk Supramax carriers and sold a GP product tanker during the quarter. REDUCE The company recorded Rs365 mn of other income during the quarter due to errors on transfer of legacy accounting to integrated ERP Table: Financial snapshot Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) FY10 34,631 4, , FY11 35,434 7, , FY12E 37,331 6, , FY13E 40,354 8, , Source: Capitaline SCI Sensex

2 Table: Financials (Consolidated) Year-end: March Q1FY11 Q1FY12 YoY (%) FY10 FY11 YoY (%) FY12E YoY (%) FY13E YoY (%) Revenue 9,065 9, ,631 35, , , Total Expenditure 6,836 8, ,877 28,336 (5.2) 30, , EBITDA 2, (66.4) 4,754 7, ,504 (8.4) EBITDA Margins (%) Other Income 1,012 1, ,734 4, ,673 (43.9) 2, Depreciation 1,013 1, ,801 4, , , Interest , , PBT 2, (90.9) 4,162 6, ,352 (64.2) 3, Taxes , (10.7) PAT 1,915 (59) (103.1) 3,750 5, ,450 (74.4) 2, Adjusted PAT (adjusted for ship sale) 1,811 (386) (121.3) 2,289 4, ,450 (67.0) 2, EPS (Rs) 4.3 (0.8) (119.4) Table: Financials segmental (Consolidated) Q1FY11 Q1FY12 YoY (%) FY10 FY11 YoY (%) Segment Revenue Liner 2,708 2, ,336 11, Bulk 6,442 6, ,709 24,838 (7.0) Others (10.1) 1,774 1, Total 9,650 9, ,820 38, Unallocable Revenue , Total 9,651 9, ,845 38, EBIT Liner 262 (614) (98.7) (2,251) Bulk 1, (75.9) 4,859 3,980 (18.1) Others (33.0) 486 1, Total 1,805 (117) (106.5) 3,095 5, Unallocated Expenditure 3 (7) (324.2) (9) 509 (5,950.6) PBIT 1,802 (110) (106.1) 3,104 5, Interest Interest Income ,182 1,914 (12.3) PBT 2, (90.9) 4,760 6, Capital Employed Liner 7,469 4,502 (39.7) 7,427 4,782 (35.6) Bulk 36,173 70, ,132 67, Others (226) (502) (632) (468) (25.9) Total Allocable 43,417 74, ,928 71, Unallcable 27,797 27,487 (1.1) 28,863 29, Total 71, , , ,

3 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Q1FY12 Result Review Shipping Corporation of India Ltd. Outlook and Valuation SCI plans to add another 30 vessels in the next two years with a total capex of US$1.4 bn. Of this a major portion of vessel addition is likely to happen in the Offshore (AHTSVs+PSVs) and Dry-bulk categories (Handymax). As these vessels were ordered at relatively higher rates, breakeven charter rates will be difficult to achieve. We downgrade the stock to REDUCE with increasing global macro-economic concerns. In case of crude tanker exposure of the company, we expect the rates to remain depressed well until 2013 with net-fleet addition scenario in excess of 7% per annum. Container space is likely to face challenges as the oligopoly in the markets gets challenged due to fleet addition. Discipline in rates is hence unlikely to be seen. We expect CY11-12 to be the most difficult years in the shipping space with charter rates likely to re-touch their all time lows. The only bright area in the medium term will be the product tanker space where we expect the first signs of recovery to take place in CY12 with net-fleet addition relatively meager at 3% per annum. Offshore earnings are likely to receive support once SCI receives the delivery of 8 vessels on order. The total fleet currently stands at 77 vessels out of which 10 are offshore vessels. We expect the SCI earnings to face significant stress during FY12 which would continue into FY13. With the increasing nebulous scenario in the global trade we expect shipping asset prices to contract, thus impacting current NAV. We downgrade to REDUCE with a target price of Rs79 based on 0.6x NAV. Figure: Price to NAV Source: IDBI Capital Research Price 1x NAV 0.5x NAV 0.75x NAV 3

4 Table: Peer group comparison Company Tanker CMP (US$) Mkt Cap (US$ mn) CY10 / FY11 P/E (x) P/B (x) EV/EBITDA (x) CY11E / FY12E CY12E / FY13E CY10 / FY11 CY11E / FY12E CY12E / FY13E CY10 / FY11 CY11E / FY12E CY12E / FY13E Frontline Ltd/Bermuda General Maritime Corp Knightsbridge Tankers Ltd Aegean Marine Petroleum Network Inc Omega Navigation Enterprises Inc Teekay Corp , Tsakos Energy Navigation Ltd Median Dry Bulk Star Bulk Carriers Corp DryShips Inc , Diana Shipping Inc Excel Maritime Carriers Ltd Genco Shipping & Trading Ltd Eagle Bulk Shipping Inc Median Indian Peer set Rs Rs mn GE Shipping , Mercator Lines , Source: Bloomberg, IDBI Capital Research Table: Peer group comparison Crude Oil Current IN Service DWT ('000) On Order Under Construction New Building % Under Construction Launched Order book as DWT % ULCC 26 8, VLCC , Suezmax , Aframax , Panamax , Handymax 155 6, Oil Product Long Range (LR1) , Long Range (LR2) , Medium Range (MR) 179 6, Bulk Carriers Superamax 1,284 70, Capesize 1, , Panamax 1, , Handymax , Handysize 2,622 71, Containers Containerships 4, , Source: Bloomberg, IDBI Capital Research 4

5 Financial Summary Profit & Loss Account Cash Flow Statement Net sales 34,631 35,434 37,331 40,354 Growth (%) (16.9) Operating expenses (29,877) (28,336) (30,827) (32,315) EBITDA 4,754 7,098 6,504 8,039 Growth (%) (56.2) 49.3 (8.4) 23.6 Depreciation (3,801) (4,651) (5,482) (5,814) EBIT 953 2,447 1,022 2,225 Interest paid (525) (721) (1,343) (1,593) Other income 3,734 4,764 2,673 2,673 Pre-tax profit 4,760 6,489 2,352 3,306 Tax (1,000) (775) (902) (921) Effective tax rate (%) Net profit 3,750 5,715 1,450 2,384 Adjusted net profit 3,162 5,715 1,450 2,384 Growth (%) (67.2) 80.7 (74.6) 64.4 Shares o/s (mn nos) Pre-tax profit 4,760 6,489 2,352 3,306 Depreciation ,482 5,814 Tax paid (1,000) (775) (902) (921) Chg in working capital (117) (1,272) Other operating activities - (1,560) - - Cash flow from operations (a) 4,168 3,739 7,647 8,354 Capital expenditure (4,862) (28,837) (8,253) (8,283) Chg in investments (552) (1,260) 1,811 - Other investing activities (1,386) (2,110) - - Cash flow from investing (b) (6,800) (32,207) (6,442) (8,283) Equity raised/(repaid) 1,286 8, ,424 Debt raised/(repaid) 2,252 20,183 13,098 6,940 Dividend (incl. tax) (2,469) (3,220) (1,193) (1,660) Chg in minorities Other financing activities - (2,004) 2,862 (725) Cash flow from financing (c) 1,069 23,270 15,301 5,978 Net chg in cash (a+b+c) (1,564) (5,197) 16,506 6,049 Balance Sheet Financial Ratios Net fixed assets 63,615 91,595 94,365 96,835 Investments 1,666 2,927 1,116 1,116 Other non-curr assets Current assets 37,915 35,399 49,681 56,007 Inventories 832 1, Sundry Debtors 3,381 3,807 3,786 3,989 Cash and Bank 26,765 21,567 38,073 44,122 Loans and advances 3,199 1,642 3,100 3,100 Total assets 103, , , ,957 Shareholders' funds 63,370 71,681 72,215 73,638 Share capital 4,235 4,658 4,658 5,082 Reserves & surplus 59,135 67,023 67,557 68,557 Total Debt 26,969 47,152 60,250 67,189 Secured loans 26,969 47,152 60,250 67,189 Other liabilities 26,969 47,152 60,250 67,189 Curr Liab & prov 16,265 13,425 15,917 16,350 Current liabilities 12,859 11,089 12,697 13,130 Provisions 3,406 2,336 3,220 3,220 Total liabilities 39,827 58,241 72,947 80,319 Total equity & liabilities 103, , , ,958 Book Value (Rs) Adj. EPS (Rs) Adj. EPS growth (%) (67.2) 64.3 (74.6) 64.4 EBITDA margin (%) Pre-tax margin (%) RoE (%) RoCE (%) Turnover & Leverage ratios (x) Asset turnover (x) Leverage factor (x) Net margin (%) Net Debt / Equity (x) Working Capital & Liquidity ratio Inventory days Receivable days Payable days Valuation P/E (x) Price / Book value (x) PCE (x) EV / Net sales (x) EV / EBITDA (x) Dividend Yield (%)

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