Shipping Corporation of India Ltd.

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 +91-22-4322 1232 chetan.kapoor@idbicapital.com Rs87 Rs79 Potential Upside/Downside (9)% Key Stock Data Sector Bloomberg / Reuters Relative to Sensex Shipping SCI IN / SCI.BO Shares o/s (mn) 465.8 Market cap. 40,501 Market cap. (US$ mn) 895 3-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 2011. 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 2007-08, 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. 120 100 80 60 40 Table: Financial snapshot Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) FY10 34,631 4,754 13.7 3,162 7.5 11.6 8.6 5.0 1.1 FY11 35,434 7,098 20.0 5,715 12.3 7.1 9.3 8.5 2.3 FY12E 37,331 6,504 17.4 1,450 3.1 27.9 10.2 2.0 0.8 FY13E 40,354 8,039 19.9 2,384 5.1 17.0 8.2 3.3 1.6 Source: Capitaline SCI Sensex

Table: Financials (Consolidated) Year-end: March Q1FY11 Q1FY12 YoY (%) FY10 FY11 YoY (%) FY12E YoY (%) FY13E YoY (%) Revenue 9,065 9,294 2.5 34,631 35,434 2.3 37,331 5.4 40,354 8.1 Total Expenditure 6,836 8,546 25.0 29,877 28,336 (5.2) 30,827 8.8 32,315 4.8 EBITDA 2,229 748 (66.4) 4,754 7,098 49.3 6,504 (8.4) 8039 23.6 EBITDA Margins (%) 24.6 8.0 13.7 20.0 17.4 19.9 Other Income 1,012 1,110 9.7 3,734 4,763 27.5 2,673 (43.9) 2,673 0.0 Depreciation 1,013 1,425 40.6 3,801 4,651 22.4 5,482 17.9 5,814 6.0 Interest 123 242 96.3 525 644 22.5 1,343 108.6 1,593 18.7 PBT 2,105 191 (90.9) 4,162 6,566 57.8 2,352 (64.2) 3,306 40.5 Taxes 190 250 31.6 1,000 893 (10.7) 902 1.1 921 2.1 PAT 1,915 (59) (103.1) 3,750 5,673 51.3 1,450 (74.4) 2,384 64.4 Adjusted PAT (adjusted for ship sale) 1,811 (386) (121.3) 2,289 4,391 91.8 1,450 (67.0) 2,384 64.4 EPS (Rs) 4.3 (0.8) (119.4) 5.4 9.4 74.4 3.1 5.1 Table: Financials segmental (Consolidated) Q1FY11 Q1FY12 YoY (%) FY10 FY11 YoY (%) Segment Revenue Liner 2,708 2,735 1.0 8,336 11,413 36.9 Bulk 6,442 6,665 3.5 26,709 24,838 (7.0) Others 501 450 (10.1) 1,774 1,961 10.5 Total 9,650 9,850 2.1 36,820 38,212 3.8 Unallocable Revenue 1 11 1,077.8 25 72 183.5 Total 9,651 9,860 2.2 36,845 38,284 3.9 EBIT Liner 262 (614) (98.7) (2,251) 625 127.7 Bulk 1,252 301 (75.9) 4,859 3,980 (18.1) Others 291 195 (33.0) 486 1,200 146.8 Total 1,805 (117) (106.5) 3,095 5,805 87.6 Unallocated Expenditure 3 (7) (324.2) (9) 509 (5,950.6) PBIT 1,802 (110) (106.1) 3,104 5,296 70.6 Interest 123 242 96.3 525 644 22.5 Interest Income 426 543 27.5 2,182 1,914 (12.3) PBT 2,105 191 (90.9) 4,760 6,566 38.0 Capital Employed Liner 7,469 4,502 (39.7) 7,427 4,782 (35.6) Bulk 36,173 70,555 95.0 36,132 67,290 86.2 Others (226) (502) 122.5 (632) (468) (25.9) Total Allocable 43,417 74,555 71.7 42,928 71,603 66.8 Unallcable 27,797 27,487 (1.1) 28,863 29,326 1.6 Total 71,213 102,042 43.3 71,792 100,929 40.6 2

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 250 200 150 100 50 0 Source: IDBI Capital Research Price 1x NAV 0.5x NAV 0.75x NAV 3

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 7.9 617 3.8 0.8 0.9 0.9 6.7 11.2 9.7 General Maritime Corp. 0.6 73 0.2 0.3 0.4 14.1 18.4 13.4 Knightsbridge Tankers Ltd. 19.6 480 9.7 11.9 12.1 1.3 1.3 1.4 9.2 8.5 8.6 Aegean Marine Petroleum Network Inc. 5.0 239 12.6 12.4 5.3 0.5 10.8 9.9 6.9 Omega Navigation Enterprises Inc. 0.3-5.1 7.7 Teekay Corp. 23.8 1,708 849.3 1.0 0.9 0.9 8.4 8.9 7.4 Tsakos Energy Navigation Ltd. 7.1 327 14.2 31.8 0.3 0.3 0.3 10.0 12.5 9.4 Median 11.1 11.9 12.1 0.7 0.9 0.9 9.6 10.5 9.0 Dry Bulk Star Bulk Carriers Corp. 1.6 125 0.2 0.2 0.3 3.8 6.8 5.6 DryShips Inc. 3.1 1,221 4.9 4.3 3.8 0.3 0.3 0.3 6.4 5.3 4.2 Diana Shipping Inc. 8.2 678 5.1 6.2 10.1 0.6 0.6 0.6 3.9 4.3 5.6 Excel Maritime Carriers Ltd. 1.9 165 0.6 0.1 0.1 0.1 2.8 8.6 14.2 Genco Shipping & Trading Ltd. 5.2 187 1.2 11.2 0.2 0.2 0.2 4.8 7.0 9.2 Eagle Bulk Shipping Inc. 1.9 117 4.3 0.2 0.2 0.2 8.4 10.5 9.4 Median 4.3 6.2 6.9 0.2 0.2 0.2 4.3 6.9 7.4 Indian Peer set Rs Rs mn GE Shipping 272 38,803 8.2 6.4 6.2 0.6 0.6 0.6 8.8 7.3 7.3 Mercator Lines 27.0 6,624 14.1 7.3 3.6 0.3 0.2 0.2 5.0 5.0 4.6 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 8,577 38 9 23.7 3 187 VLCC 547 165,214 60 20 33.3 14 17.68 Suezmax 431 66,512 84 20 23.8 16 28.4 Aframax 767 81,472 45 18 40.0 13 10.34 Panamax 184 12,449 10 5 50.0 1 8.15 Handymax 155 6,728 4 1 25.0 1 2.62 Oil Product Long Range (LR1) 481 28,185 41 15 36.6 6 12.68 Long Range (LR2) 108 11,813 12 5 41.7 4 19.65 Medium Range (MR) 179 6,469 8 6 75.0 2 7.95 Bulk Carriers Superamax 1,284 70,728 377 139 36.9 52 46 Capesize 1,131 193,799 245 105 42.9 30 33.26 Panamax 1,853 141,025 561 221 39.4 52 47.98 Handymax 711 31,956 68 9 13.2 2 11.71 Handysize 2,622 71,372 402 185 46.0 67 29.3 Containers Containerships 4,763 191,375 539 61 11.3 68 27.5 Source: Bloomberg, IDBI Capital Research 4

Financial Summary Profit & Loss Account Cash Flow Statement Net sales 34,631 35,434 37,331 40,354 Growth (%) (16.9) 2.3 5.4 8.1 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 (%) 21.0 11.9 38.4 27.9 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) 423 466 466 466 Pre-tax profit 4,760 6,489 2,352 3,306 Depreciation 525 857 5,482 5,814 Tax paid (1,000) (775) (902) (921) Chg in working capital (117) (1,272) 715 156 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 8,311 533 1,424 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 0 - - - Current assets 37,915 35,399 49,681 56,007 Inventories 832 1,465 920 995 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 103,197 129,921 145,161 153,957 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 103,197 129,922 145,161 153,958 Book Value (Rs) 150 154 155 158 Adj. EPS (Rs) 7.5 12.3 3.1 5.1 Adj. EPS growth (%) (67.2) 64.3 (74.6) 64.4 EBITDA margin (%) 13.7 20.0 17.4 19.9 Pre-tax margin (%) 13.7 18.3 6.3 8.2 RoE (%) 5.0 8.5 2.0 3.3 RoCE (%) 1.1 2.3 0.8 1.6 Turnover & Leverage ratios (x) Asset turnover (x) 0.3 0.3 0.3 0.3 Leverage factor (x) 1.6 1.7 1.9 2.1 Net margin (%) 9.1 16.1 3.9 5.9 Net Debt / Equity (x) 0.0 0.4 0.3 0.3 Working Capital & Liquidity ratio Inventory days 9 15 9 9 Receivable days 36 39 37 36 Payable days 115 113 112 112 Valuation P/E (x) 11.6 7.1 27.9 17.0 Price / Book value (x) 0.6 0.6 0.6 0.6 PCE (x) 5.3 3.9 5.8 4.9 EV / Net sales (x) 1.2 1.9 1.7 1.6 EV / EBITDA (x) 8.6 9.3 10.2 8.2 Dividend Yield (%) 5.8 6.8 1.8 2.9 5

Notes Vikrant Oak Head Institutional Equities (91-22) 4322 1385 vikrant.oak@idbicapital.com Sonam H. Udasi Head Research (91-22) 4322 1375 sonam.udasi@idbicapital.com Dealing (91-22) 4322 1150 dealing@idbicapital.com Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below. IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.) Registered Office: 2nd floor, Mittal Court C Wing, Nariman Point, Mumbai 400 021. Phones: (91-22) 4322 1212 Fax: (91-22) 2285 0785 Email: info@idbicapital.com Disclaimer This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. 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