Caught in rough weather, Shipping Corp sees better H2FY12

Shipping Corporation of India (SCI) continued to sail through rough weather, reporting a net loss of Rs 140.60 crore for quarter-ended September 2011. This was slightly better than its Q2FY10 numbers, where it reported a loss of Rs 250 crore odd.

The performance of state-owned company was inline with the current frail condition of the industry, which saw revenues dipping across the board.

In an interview to CNBC-TV18, S Hajra, chairman and managing director of SCI, spoke about the reasons behind the subdued demand and excess capacity in the industry.

Hajra said he is confident of better times for in the shipping industry towards the second half of 2012.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: If you could tell us what the oversupply situation is currently and how long before you expect to see a revival in the industry?

A: In 2004 to 2008, we enjoyed an unprecedented boom.The ship owners all over the world ordered vessels in large number. As there was a time lags in ordering and delivering, the shipyards were crowded.

These deliveries started from 2009-10. The year 2010 saw a record number of delivery for the shipping industry. And 2008 saw greatest depression since the Great Depression of 30s. This time demand stalled whereas supply continued to grow unabated.

In 2010, there was demand growth seen and in the containerised segment there were a lot of measures being adopted by the giant container operators. This revived the fortune of the shipping.

Since 2011, there has been tremendous dip and the tanker, dry bulk, container segments suffered.

There is a tremendous oversupply. As on date, the order book is still slightly below 30% of the existing capacity. But beyond middle of 2012, the supply will ease as from 2009 the ship ordering has come down substantially.

Unless the Eurozone, the US and China slowdown problems -- in their standard -- result in a depression, we hope from end of 2012 onwards, the demand supply equilibrium will get restored. And the ship owners can look to some northwards movement in all the freight etc.

Q: Would it be right to say that given the visibility of the moment, your revenues in FY13 are not likely to be much better than FY12?

A: The improvement can only be expected towards the latter half of FY12.

Q: What are the freight rates currently, both in the bulk and the linear segment? What kind of a run rate are you expecting to see with respect to freight rates?

A: This is a very general question. Freight rates will vary from commodity, origins to different destinations.

Q: I am trying to understand whether the freight rates have dipped quite a bit.

A: September 2011 quarter showed a 35% dip in Baltic Dry Index (BDI) compared to the quarter ended September 2010. On the tanker side, AFRA (Average Freight Rate Assessment) showed a dip of 15%. In 2009-10 also, it was not great.

The base itself was not as good as the peak was sometime in middle of 2008. If you see 60-70% in various segments have dipped in terms of freight and charter hire.

Q: How did rupee depreciation affect you? You reported a forex related adjustment in latest quarter. But as a rule, the rupee depreciation doesn't help you at all?

A: It doesn't help. Due to the Accounting Standard (AS)11 and AS16, the liability gets reassessed. In the profit and loss in one quarter itself we had to take a hit of Rs 126 crore.

Thought it is reflected in the profit and loss, it is the re-evaluation of the liability paid over next eight-10 years and not cash outgo.

Q: Even then there was considerable strain at the EBITDA level with your expenses not going down but revenues being muted. Do you expect that at an EBITDA level you will be able to do better in the second half?

A: I will not talk about Shipping Corporation. We are a listed company I can