Will meet operating expenses via freight hikes: SCI

The post of chairman and managing director of SCI had been vacant for more than a year before Arun Gupta took charge on January 28, 2014. He served as the director of offshore services at the Mumbai-headquartered shipping line before his elevation.

Below is the verbatim transcript of AK Gupta's interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Ekta: I wanted to touch upon the Baltic Dry Index, do you think that it has bottomed out overall and what is your outlook for freight rates going forward in the light of the global situation at this point?

A: About the Baltic Dry Index, today it is hovering around more than 1,200. I concur with you that as per the industry pundits, the bottoming out of the freight market in the dry bulk is perhaps over somewhere in mid-2013. Things are looking up, year 2014 will be better than 2013 and in year 2013 Baltic Dry Index was hovering around 1,000 and I feel in the year 2014, the average Baltic Dry Index will be more than 1,200 or even it will touch 1,300, nothing spectacular. But in years to come 2016-2017 again there will be a lot of mismatch between supply and demand. So in long-term things are not going to improve. Definitely 2014-2015 will be little better than what we have suffered.

Ekta: You have resorted to the price hike which you took recently in your European freights by around USD 200 which was effective March 1, what is the reason behind this and can we expect additional hikes going forward by the company?

A: The reason behind is very simple. It is something like freight restoration to meet our operational requirements. Container operation is a retail business and we have to be sustainable. This increase basically has been to meet our operating expenses.

Latha: What is the state of your receivables?

A: Our freight receivables are around Rs 800 crore. Not only shipping industry, other industries also are passing through a difficult phase. We have sundry debtors, we have sundry creditors, more or less it balances out but we are focusing on the recovery of this Rs 800 crore outstandings and most of it is from government organizations.

Latha: What about your expansion plans, are you thinking at all of expanding your fleet and from which year onwards?

A: We have no intention of acquiring anymore fleet. What is ordered, we have to honour rather what is ordered and if we get opportunity to resign, we will avail that opportunity and try to get out of the contracts. But on our own we will not do it if the yard is on default, we will definitely like to get out of those contracts because those contracts all said and done when we placed orders, they were at a little higher price. So we would like to get out of those orders.

Ekta: Coming to your balance sheet then, your gross debt of the company currently stands at nearly Rs 9,200 crore with a cash balance of Rs 850 crore, is there any plan to repay certain amount of debt?

A: Yes, I am aware. Our loans are to the tune of Rs 8,500 crore and cash generation from operations is not enough, not as per our expectations. So we are looking for cash from other resources and this is one of the sources - if ship building orders which are in the pipeline and the yard defaults, we would like to avail that opportunity of resigning the contracts and getting cash and this is the way we hope to minimize our debt burden.

Latha: During the latest quarter for which you reported numbers, you saw a loss of about Rs 65 crore, do you turn into the black in Q4?

A: I agree. We had a loss of about Rs 65 crore yes. Things have been difficult for everyone but as I told you, the market in 2014 will be better than 2013 and 2015 also will be better. So I am very hopeful that not in 2013-2014 but 2014-2015 Shipping Corporation of India will turn around into positive.