Shipping stocks: Steady, but no smooth sailing yet

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Shipping stocks: Steady, but no smooth sailing yet

Shipping firms have posted a stupendous rise in June quarter earnings on a lower base effect and better freight rates,

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ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Shipping Corp BSE | NSE 29/05/12 Are Mutual Funds betting on Shipping Corp? Other Stocks in this news Great Eastern Shipping Company | Varun Shipping Company |

Shipping firms have posted a stupendous rise in June quarter earnings on a lower base effect and better freight rates, an indication that the run ahead could be smoother.

Earnings were badly hit last year on rock-bottom freight rates as demand plunged due to a global economic meltdown. Now, with a spurt in demand in fast-growing Asian countries, a marginal improvement is likely, analysts said.

Great Eastern Shipping and state-run Shipping Corp of India posted forecast-beating net profit in April-June while Essar Shipping's net soared many times

Smooth ride

Nine of the 11 brokerages covering GE Shipping and four of the five analysts tracking Mercator Lines have rated them as 'buy' or 'strong buy', according to Thomson Reuters I/B/E/S.

"GE Shipping is very well placed among shipping companies - it has a good strategy for buying and selling of ships and also IPO plans for its subsidiary is a key trigger," said Jyotsna Sawdekar, senior shipping analyst, Jaypee Capital Services.

GE Shipping, which has a fleet of 35 vessels, plans to sell 22.05 million shares in offshore services unit Greatship (India) Ltd to raise funds in an initial public offering.

Analysts expect Mercator Lines' new coal mining and trading businesses to contribute significantly to topline and its presence across various segments - dredging and shipping - will also help.

"Mercator is well placed to ride the volatility of shipping business. They have a diversified business model and long term charter contracts," Bharat Chhoda, analyst with ICICI Direct, which has a 'buy' rating on the stock, said.

Besides, the stock is also trading at a discount to global peers, making it a more attractive buy, he added.

Valuation woes

Despite posting good results for the June quarter, SCI has not found favour with analysts who view its high stock valuation and an ageing fleet as negatives, prompting 'sell' or 'hold' ratings.

"SCI will also see addition of high cost fleet during FY11, which will require higher breakeven rates. Hence, we believe that the stock currently provides only modest upside from these levels," a local brokerage said in a note to clients.

SCI plans to order 37 vessels in two years.

Analysts are also concerned about Varun Shipping due to its heavy debt and poor performance in the recent past.

"They have a fairly lower utilisation for their assets. That is another major issue," ICICI's Chhoda, who has a 'sell' rating on the stock, said.