Accumulate Mercator Lines, tgt Rs 152: ULJK

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ULJK Securities has recommended an accumulate rating on Mercator Lines with a target price of Rs 152 in its June 18, 2008 research report.  "In the shipping segment, increased demand for shipping vessels will keep the rates buoyant in the dry bulk segment. MLL renewed its 4-year contract with Tata Power, a contract worth USD 320 million. This revision validates our view of firm dry bulk rates in the near future, which will have a positive impact on the profitability of the company. The fundamentals of the shipping business are strong, with China driving the demand for iron ore and India for coal imports."

"The company's debt: equity ratio is at a four-year low and the company has scope to further leverage. The stock is trading at a PE of 7.6X its FY'09 earnings of Rs 15.2 and PE of 4.9X its FY'10 earnings of Rs 23.4. We initiate coverage on MLL with a price target of Rs 152. At this price, the stock will discount FY'09 and FY'10 earnings of Rs 15.2 and Rs 23.3 by 10 times and 6.5 times respectively. Increased revenue streams in FY'10 make the stock more attractive at a PE of 4.9X its FY'10 EPS of Rs 23.4. On replacement price per share works out to Rs 166. The company is trading at a discount of over 50% of its NAV. We believe that going forward, the discount will narrow down to a fair discount of about 10% after which the stock should trade at Rs 149. We recommend an accumulate rating on the stock with a price target of Rs 152," says ULJK's research report.

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