Ever since the IPCL stake sale, disinvestment process seem to have lost momentum. However, the disinvestment ministry is expected to meet soon to conclude for finalising the sale of select PSU majors. Shipping Corporation of India (SCI) is one of the them.

(Rs m)	1QFY02	1QFY03	Change
Net sales	7,922	5,232	-34.0%
Other Income	33	73	123.1%
Expenditure	5,306	4,602	-13.3%
Operating Profit (EBDIT)	2,617	630	-75.9%
Operating Profit Margin (%)	33.0%	12.0%
Interest (net)	133	124	-6.5%
Depreciation	649	605	-6.8%
Profit before Tax	1,867	(26)	-
Tax	750	33	-95.6%
Profit after Tax/(Loss)	1,117	(59)	-
Net profit margin (%)	14.1%	-1.1%
No. of Shares (m)	282.3	282.3
Diluted Earnings per share*	15.8	(0.8)
(*annualised)

There are serious debates on the pricing of SCI's disinvestment, which ranges from as high as Rs 150 to Rs 65 per share. But based on our estimates, we have worked out a fair value in the range of Rs 65-Rs 75 keeping in mind the fleet profile of the company, the LNG venture and productivity parameters (Read SCI: What is the fair value?) We will not be surprised if the bid price is lower than the estimated price range.

One of the key negatives of SCI is its aged fleet. Most of its tanker fleet are single hull tankers. Considering the fact that the regulators have already amended a regulation for gradual scrapping of single hull tankers, the acquirer has to revamp the fleet entirely. While the company has placed orders in order to improve the fleet profile, it still lags behind other players. Being a PSU company, productivity ratios are also way below competitive levels, on a global scale.

The recent quarterly performance of the company also highlights the lack of dynamism within the company. SCI posted a 34% drop in shipping revenues in 1QFY03 on account of weakness in global trade movement. The reduction in crude output by the OPEC combined with lower offtake of the same by major economies like US have pressurised tanker freight rates. While private sector players like GE Shipping were able to lower the impact of freight rates by blocking fleet on a charter basis, SCI seem to have reacted slowly. Since shipping industry generally runs on high fixed costs, the sharp fall in revenues have impacted operating margins adversely. As a result, it has pushed the company into the red in 1QFY03.

The stock currently trades at Rs 77 on a P/E multiple of 9x FY02 earnings. The only positive that is favoring the stock price on the bourses is the proposed disinvestment of the company. But after having expressed interest in SCI, a number of MNCs have already pulled out the race. There are only two serious contenders apart from the Videocon Group (which seem to bid for every PSU company) viz. GE Shipping and Essar Shipping. Both the private sector majors are reportedly in talks with a number of players in the international market for partnering in disinvestment. But nothing concrete has emerged on this front as of now. As far as the performance of the company in the coming quarters is concerned, it will be on similar lines to 1QFY03 with continued pressure on margins and revenues. While select commodity sectors are showing signs of demand recovery, the flow of fresh orders will keep freight rates in check.