SCI: Expanding horizons - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

SCI: Expanding horizons

Oct 4, 2001

Shipping Corporation of India (SCI), the state owned shipping major, clocked an impressive performance in FY01 as well as in 1QFY02 thanks to the buoyant freight rates and new charters. But given the slow down in the global economy, similar performance maybe jeopardized.The company owns a diversified fleet of 98 ships (4.5 m DWT) with an average life of 14 years (World fleet avg. 19 years). It also manages several vessels on behalf of various state and governmental organisations. It accounts for over 50% of Indian shipping companies earnings and 52% of national tonnage.

The Government of India has extended the nodal agency status of the company upto March 2002 and SCI will continue to operate with Indian Oil Corporation for import of crude. SCI also deployed one of its vessels in the international markets last year to familiarise with international standards. An increasing proportion of fleet catering to international markets would boost earnings growth of SCI in the long run.

A PSU jewel…
(Rs) FY98 FY99 FY00 FY01
Book value (Rs) 57.7 62.5 66.8 77.5
Fully Diluted EPS (Rs) 8.72 7.13 5.7 13.6
Cash EPS (Rs) 17.57 16.30 15.5 23.2
Free cash flow/share (Rs) (41.45) 10.56 21.4 17.3
RONW (%) 15%11.4%8.6%17.5%

In an effort to increase tonnage, SCI has placed orders for 5 crude carriers and 3 tugs aggregating to about 0.5 m DWT. The delivery of the vessels is expected to be start from first quarter of 2003. The company initially had plans to add 44 vessels aggregating to an estimated 1.95 m DWT with a total outlay of US$ 1.3 bn. Given the current low fuel consumption levels in India, crude demand is expected to register a consistent growth in coming years. The company would benefit from any upturn in crude demand given its expertise and leadership position.

Apart from crude and product transportation, SCI had ventured into Liquefied Natural Gas (LNG) transportation last year. The joint venture company between SCI, Mitsui OSK Lines and Enron would own and operate the first liquefied natural gas (LNG) ship for transportation of LNG for the Dabhol Power Company (DPC). The ship is under construction and dry runs are expected to commence by October 2001. Given the rising need for clean fuel due to environmental issues, prospects for LNG transportation are promising. Another interesting aspect of LNG transportation contract is that they are typically for 20 years. This could provide a steady stream of cash flow for the company, which is otherwise vulnerable to international freight movements. The draft LNG policy also states that the foreign partner should transfer LNG vessel management expertise to the Indian partner after five years. However, due to political reasons, Enron, GE and Bechtel (investors in the DPC project) have decided to sell their stake in the company. This might have a negative impact on SCI.

Besides freight rates have already come off significantly on account of slow down in the global economy. The repercussions of the terrorist attack in the US are already being felt in terms of slower world trade. Crude demand has also slowed down. As per the IMF report, the world trade is expected to register a 1.5% growth as compared to 3.2% growth last year. This could subdue freight rates even further.

Given the government’s stance on dismantling the Administered Price Mechanism (APM) from March 2002, individual refineries may source crude independently. This might affect the growth prospects of the company. Also demand for dry bulk carriers has also slowed down due to sluggish industrial production.

Last week, the finance ministry announced that it proposes to disinvest atleast 13 public sector undertakings (PSUs) in the current financial year. SCI has been in the priority list of companies to be disinvested for atleast two years. A number of shipping companies, including multinationals, had evinced interest in the company in light of its fleet size and large free cash flow.

If disinvestment goes through, it could fasten its decision-making process and improve efficiency standards of SCI. A new partner will also bring in technical expertise that would benefit SCI in the long run. But, in the interest of the investors and the nation, the government should not hurry the disinvestment process and sell profit-making PSUs like SCI in haste.

The scrip is currently trading at Rs 23 at a P/E multiple of 1.5x 1QFY02 earnings. The price to book value works out to 0.3 times.

Equitymaster requests your view! Post a comment on "SCI: Expanding horizons". Click here!


More Views on News

SHIPPING CORP. Announces Quarterly Results (1QFY20); Net Loss Down 80.9% (Quarterly Result Update)

Aug 19, 2019 | Updated on Aug 19, 2019

For the quarter ended June 2019, SHIPPING CORP. has posted a net loss of Rs 394 mn. Sales on the other hand came in at Rs 9 bn (up 4.3% YoY). Read on for a complete analysis of SHIPPING CORP.'s quarterly results.

SHIPPING CORP. Announces Quarterly Results (4QFY19); Net Profit Down 81.9% (Quarterly Result Update)

May 30, 2019 | Updated on May 30, 2019

For the quarter ended March 2019, SHIPPING CORP. has posted a net profit of Rs 460 m (down 81.9% YoY). Sales on the other hand came in at Rs 10 bn (up 11.1% YoY). Read on for a complete analysis of SHIPPING CORP.'s quarterly results.

SHIPPING CORP. 2017-18 Annual Report Analysis (Annual Result Update)

Mar 19, 2019 | Updated on Mar 19, 2019

Here's an analysis of the annual report of SHIPPING CORP. for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of SHIPPING CORP.. Also includes updates on the valuation of SHIPPING CORP..

More Views on News

Most Popular

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

I Believe These Stocks Will Deliver the Most Outsized Returns in 2021 and Beyond (Profit Hunter)

Sep 23, 2020

Rules of the racetrack can help you bag the biggest gainers of the coming decade.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 30, 2020 (Close)


  • Track your investment in SHIPPING CORP. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks