Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
SCI – Hidden value? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 16, 2000

    SCI – Hidden value?

    Shipping Corporation of India’s (SCI) share price has moved up sharply on the bourses. This could be attributed towards the proposed disinvestment of the company. The hardening freight rates and improving fundamentals of the global shipping industry seem to have also contributed to this surge.

    The company has a strong fleet mix compared to its Indian peers. The company has 30 crude carriers, most of them being chartered to the domestic oil companies that include Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC). Besides, SCI in a joint venture with Mitsui O.S.K. Lines and Enron has ventured into the transportation of 2 MMTPA (metric million tonnes per annum) liquefied natural gas to Dabhol Power Company, on a 20-year time charter basis. This is expected to stabilise cash flows for the company because LNG transportation is a lucrative segment and contracts are usually for 20 years. This would insulate the company from fluctuations in freight rates.

    Fleet profile
    Type Number of ships DWT
    Crude tankers 30 2,816,516
    Product tankers 15 515,529
    Chemical carriers 3 93,030
    Gas carriers 2 35,202
    Bulk carriers 23 960,230
    Liner ships 27 500,405
    Offshore vessels 10 17,912
    Passenger-cum-cargo vessels 2 5,434
    Total 112 4,944,258

    But there are some apprehensions. As of 31st March 2000, payments under various heads from the oil industry (especially Oil and Natural Gas Corporation) to SCI amounted to Rs 4,615 m. These payments are being delayed due to disputes between oil companies on who should be paying how much.

    The company posted a turnover and net profit of Rs 25 bn and Rs 2 bn respectively for FY00. If the company were to receive these dues, SCI would be able to expand its fleet as per the 9th fleet expansion plan as well command better valuations. As per the tonnage acquisition programme during 9th plan period, the company was supposed to expand its fleet capacity by 1.95 m dwt (dead weight tonnage). However, SCI has revised its acquisition target to just 21 vessels aggregating 1.68 m dwt at a cost of US$ 710 m. Even historically, the tonnage targeted by the planning commission has never been achieved (for the last six years).

    Why is this happening? Lack of fiscal incentives and slow reform processes continue to slaughter Indian shipping companies. Despite being one of the highest foreign exchange earners for the country, shipping industry does not have adequate tax incentives.

    Another big disadvantage being a state owned shipping company is that SCI has to operate passenger liner vessels, which are not profitable and at times loss making.

    However, short-term prospects of the shipping industry are promising. The world trade is expected to grow at 4% in the current year, which has buoyed sentiment and freight rates across various segments. Very Large Crude Carriers (VLCC) and Aframax rates have gone up sharply in the last six months. SCI reported more than 100% rise in net profits for the second quarter ended 30th September 2000, which puts forth the current state of the shipping industry.

    So, what does all these mean to the company? SCI is amongst of the state owned companies in the disinvestment list. This is the right time for the government to privatize, if at all it is planning to, given the fact that shipping market is on the uptrend. The bourses seem to be acknowledging it. In the past month and a half, the share has gained more than 46% (from 3rd Oct 2000 to 15th Nov 2000). Among various public sector undertaking listed on the bourses, SCI is one of the top gainers.

    The stock is currently trading at Rs 23 at a P/E multiple of 4x the FY00 earnings as against the book value of Rs 71.



    Equitymaster requests your view! Post a comment on "SCI – Hidden value?". Click here!


    More Views on News

    G E Shipping: Feeling Pressure From the Offshore Segment (Quarterly Results Update - Detailed)

    Aug 18, 2017

    GE Shipping reported a subdued performance on the back weak offshore segment.

    G E Shipping: A Bad Quarter (Quarterly Results Update - Detailed)

    May 9, 2017

    GE shipping registered a loss in 4QFY17 due to weak global shipping market and lower crude prices which negatively impacted the offshore segment.

    Cochin Shipyard Limited (IPO)

    Aug 1, 2017

    Should you subscribe to the IPO of Cochin Shipyard Ltd?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 (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



    Compare Company With Charts