SCI anchors expansion plan to reduce loss, debt burden

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

Shipping Corporation of India has been buffeted around by the economic storm and for the first time in 28 years, it has posted a loss of Rs 428 crore, it has not only dropped anchor on all expansion plans in an attempt to keep itself afloat, it is also cutting down on spending on shipping fuel.

S Hajara, CMD, SCI, says that high fuel prices pushed bunker costs to double to Rs 1,560 crore for fiscal 2012 as compared to the last year. We are looking at slow steaming of ships throughout, unless specified otherwise this will help us save a lot on bunker costs.

For better operational efficiencies, SCI is restructuring its loss-making liner division by returning non-performing chartered ships, and merging services on certain routes. No new ships will be ordered in FY13 though the existing USD 1.1-billion orders for 25 ships will be honoured.

This all is done to cut its Rs 5,500-crore debt burden to a more manageable size.

Also, given a meager cash balance of Rs 1,400 crore, Kotak Secutrities says, that "a healthy cash balance is of utmost importance for SCI to make timely asset purchases and face the cyclicality of the shipping business. A healthy cash balance could positively impact the other income component, with interest rates peaking."

But before its debt burden comes down, it will increase because SCI will raise further debt to pay off its existing ship order committments.

Meanwhile, it has shelved all diversification plans till financial health improves. While analysts feel SCI's attempts will support growth, there is an oversupply of ships globally and freight rates are falling so, shipping companies worldwide will find them selves in a tough spot for a while.