on Aug 3, 2010. Market Price (02/08/10) 49 Market Cap. (`. Cr.) 1,133 52 Week High/Low 72/42 Face Value 10 Target Price 61 Codes BSE Code 526235 ISIN No INE934B01028 Bloomberg Code MRLN IN Reuters Code MRCT.BO Book Value (FY10) 114 20,000 15,000 10,000 5,000 0 Jul 09 Share price data Oct 09 Sensex Jan 10 Apr 10 Jyotsna Sawdekar Sr. Research Analyst Shipping jsawdekar@jaypeeindia.com Prasun Kumar Research Analyst Shipping prasunkumar@jaypeeindia.com Direct No : +91 22 4354 2017 Mob No : +91 8976 226115 Jul 10 Mercator 80 60 40 20 0 On consolidated basis, sales have shown growth of 34% y o y and 24% q o q to `5.99bn. EBITDA was 5% down y o y and 32% up q o q to `2.02bn. EBITDA margin inched up to 34% from 31% in the previous quarter. Dep. was 14% down y o y and 1% up q o q to `0.76bn and Interest cost was down 13% y o y and 7% q o q to `488mn. Depreciation and interest cost stood at 12.6% and 8% of sales. Net Profit was up 39% y o y and 539% q o q to `0.6bn, which was in line with our expectations. We foresee good quarters to come and better asset utilization. We maintain a buy rating with a revised target price of `61 per share. Q1FY11 Result in line with our Expectation: Net Profits for the quarter was in line with our estimates of `0.6bn. Company had been aggressive in acquiring assets even during the global financial downturn, last quarter has seen acquisitions of one Aframax tanker and is in process of construction of Mobile offshore production unit (MOPU) and Floating storage and offloading unit (FSO). Improvement in coal segment seen with sales up by 438% y o y and 85% q o q, and margins moving to 5.18%. Coal segment holds strong growth prospects with further streamlining of operations. Industry Outlook: Crude tankers and Dry bulk segments are expected to grow with the slow recovery of the global markets. The dry bulk segment has seen downfall due to Chinese cut down on imports DBI has finally stabilized and is expected to show moderate upside movement. Tanker markets are dependent to a large extent on US and the major crude importing economies, the European crisis has not affected the tanker rates directly, and is expected to improve with the upturn of the US economy. The scrapping of the single hull fleet, shipyard order book slippages and the demands from fast growing Asian economies promise good returns for the running quarter. Valuation: At CMP `49, the stock is currently available at a P/E of 8.3x and 5.2x its FY11E and FY12E earnings of `5.9 and `9.4. While on EV/EBITDA basis, it is trading at 4.2x and 2.9x during the same period. We value Mercator by assigning a 6.5x P/E multiple to its FY12E earnings. Based on this, we maintain our BUY recommendation with a revised target price of `61. Y/E 31st March FY08 FY09 FY10 FY11E FY12E Revenue (` mn) 14549 21541 18087 21086 24259 Revenue growth (%) 30% 48% 16% 17% 15% EBITDA 5874 8906 6449 8053 9281 EBITDA margin (%) 40% 41% 36% 38% 38% Net Profit (`) 3277 3765 532 1395 2211 Net Profit margin (%) 22.5% 17.5% 2.9% 6.6% 9.1% EPS 13.9 16.0 2.3 5.9 9.4 EPS (w/o MI) 15.6 19.8 2.9 8.2 11.7
Financial Table FY09 FY10 FY11E FY12E P/E 3.0 21.3 8.1 5.1 Dividend Yield 1.0 0.4 0.2 0.2 P/ BV 0.4 0.4 0.4 0.4 EV / EBITDA 3.4 5.1 4.2 2.9 EV / Sales 1.4 1.8 1.6 1.1 Vessel delivery for the quarter The Company has taken delivery of one Aframax tanker (90,607 DWT). Mobile offshore production unit (MOPU) and Floating storage and offloading unit (FSO) is in construction phase. Company has been proactive and has renewed its fleet with all double hull tankers much in advance as required by regulations for phase out of Single hull tankers. Improvement in coal segment margins Key Triggers Coal segment margins show significant improvement with sales up by 438% y o y and 85% q o q and operating margins at 5.18%. Coal segment holds strong growth prospects with further streamlining of operations. Bounce back in dredging segment TCY Other Highlights for the quarter Mercator Lines has shown promising results with 1QFY11 EPS of `2.6, better than our expectations of annual EPS `6.8. MLL has shown improvement in all segments, MLL s strategy of long term contracts in 70:30 ratio has provided an effective hedge against the downside of shipping rates experienced during the quarter. Dredging segment has bounced back to TCY of 18,289 per day from 7,170 per day rates last Qtr. Shipping fleet stands with 1 Rig, 16 Bulk carriers, 8 Tankers, 4 Dredgers. Revenue Days Q1FY11 Q1FY10 YoY (%) Q4FY10 QoQ (%) Tanker segment 631 976 35.3 821 23.1 Dry Bulk segment 1342 1209 11.0 1344 0.1 Dredger segment 254 321 Average TCY s earned (US $ per day) Q1FY11 Q1FY10 YoY (%) Q4FY10 QoQ (%) Tanker segment 20,636 19,733 4.6 13,975 47.7 Dry Bulk segment 30,217 24,950 21.1 30,553 1.1 Dredger segment 18,289 23,825 23.2 7,170 155.1
Sensitivity Analysis on EPS Sensitivity to 10% change in Re pricing Re pricing at 10% discount Pricing at Par Re pricing at 10% premium On FY11E EPS 3.9 5.9 7.9 On FY12E EPS 5.0 9.4 14.2 Quarterly Performance ` mn Q1FY11 Q1FY10 YoY (%) Q4FY10 QoQ (%) Net Sales 5993 4473 34.0 4820 24.3 Other Income 41 112 136.7 186 77.9 Total Income 6034 4361 38.4 5006 20.5 TOTAL EXPENDITURE 4011 2234.1 79.5 3473.5 15.5 PBIDT 2023 2127 4.9 1532 32.0 Interest 488 563.0 13.4 524.5 7.0 PBDT 1535 1564 1.8 1008 52.3 Depreciation 760 882.5 13.9 751.1 1.2 PBT 775 681 13.8 257 202.1 Exceptional item Profit before tax 775 681 13.8 257 202.1 Tax (5) (83) 94.3 (30) 84.3 Reported Profit After Tax 770 598 28.7 227 239.8 Extra ordinary Items Minority Interest (153) (154) 0.1 (130) 17.8 Adjusted PAT After Extra ordinary before 617 445 38.7 97 539.2 Minority Interest EPS ( Fully Diluted Equity) 2.6 1.9 38.7 0.4 539.1 Margin (%) OPM 54.6 52.6 4.0 42.8 27.8 NPM 12.9 13.4 3.9 4.7 173.3
Annual Performance Particulars ` million FY08 FY09 FY10 FY11E FY12E Net Sales 14549 21541 18087 21086 24259 Total Expenditure 8675 12636 11638 13033 14978 EBIDTA 5874 8906 6449 8053 9281 EBIDTA margin (%) 40% 41% 36% 38% 38% Depreciation 1675 2687 3409 3852 4081 Interest 1446 1663 2058 2226 2309 PBT 4094 4752 1093 2016 2892 PBT margin (%) 28% 22% 6% 10% 12% Tax 90 82 50 93 133 Adj. PAT 3276.6 3764.5 532.4 1395.3 2211.4 PAT (margin) 23% 17% 3% 7% 9% EPS (`) 13.9 16.0 2.3 5.9 9.4 EPS (w/o MI) 15.6 19.8 2.9 8.2 11.7
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