Shipping biz to revive in FY13; No plans to diversify: SCI

The Shipping Corporation Of India (SCI) has announced its first-quarter earnings on Friday. SCI chairman-and-managing director S Hajara explains to CNBC-TV18 various facets of PSU’s performance including the increase in the net loss to Rs 54.8 crore from Rs 5.9 crore.

Below is an edited transcript of the interview on CNBC-TV18.

Q: Your top-line has been good. Why has the net loss widened?

A: You are comparing this quarter's net loss with the corresponding quarter of the previous year. But if you look at the just-concluded quarter, then the net loss has gone down substantially.

Our top-line has increased by almost a quarter and there are a couple of items which have hit the bottom-line. A key item is cost of the bunker which has gone up by Rs 126 crore. The second most important issue is the loss in foreign exchange.

We lost Rs 76 crore due to the reevaluation of foreign exchange loans due to the dollar-rupee parity. This is not a cash loss. It is only a re-evaluation which has to be done as per Accounting Standards 10 and 16.

As a matter of fact we have taken up the matter with the department of company affairs because we consider that shipping, having a natural hedge, should not be subjected to this provision. We have requested for a review for shipping as far as this accounting standard is concerned.

But till anything is done, we have to book this against our profit and loss and has compelled us to book a loss of Rs 76 crore. So, because of the above mentioned items, our overall loss is almost Rs 55 crore.

Q: Can you tell us when exactly you appealed against this re-evaluation given the depreciation of the rupee? And have you received any reply from the authorities?

A: We have not heard from the authorities after reporting just a month ago. These things, of course, take their own time. But we do hope that this will be addressed because every Indian shipping company is affected.

Once the International Financial Reporting Standards (IFRSs) are implemented and we are allowed to have our accounts, in terms of dollars, this problem will cease. But till then, this is a big problem for Indian shipping companies.

Q: What's the outlook for the dry bulk and tanker market at the moment?

A: I will not talk about SCI. Globally, the fundamentals are not strong as far as 2012 is concerned. The growth of supply in every segment of shipping is likely to outpace the growth in demand. The situation is going to improve from 2013 onwards when ship deliveries will come down substantially. We do hope that by the middle of 2013, the fortune of shipping companies will improve.

Q: How have diplomatic relations with other countries, especially Iran, impacted the fortune of the shipping companies?

A: We did not operate dedicated vessels for Iran, but we did pick up Iran parcels on a regular basis. But from July onwards due to the EU sanctions, we have lost cover from the IG Group and P&I club.

And at the behest of Indian National Ship-Owners Association and even with the support of ministry of shipping we have managed to get some cover from the Indian insurance companies, which unfortunately, proved to be most inadequate.

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So with all these problems, I don’t think it will be possible for SCI or any other Indian shipping companies to consider transport of Iran crude at the moment.

Q: How has the absence of insurance coverage and diplomatic relations impacted business and the balance sheet?

A: Our crude tankers are not idle because of the cessation of transport of crude from Iran. You cannot assess the magnitude or impact on the top-line or bottom-line in this context. Though market sentiment and growth is poor, we don’t like to lose any business.

Q: A few days ago, the PMO issued a press release stating round-the-clock customs clearance at ports. Will this impact business?

A: Yes, affect will be positive. But round-the-clock customs at major ports particularly for container vessels will definitely have a positive impact. The vessel- turnaround time will be faster and that will positively impact the top-line and bottom-line of all shipping companies whose vessels are at Indian ports.

Q: Any plans to diversify into ship-building?

A: Not immediately, but the in-principle approval is there. We are keen as it will aid backward integration. But at the current juncture, we are facing a resource crunch and internal resource generation is constrained due to low freight rates. We are continuing to make losses. I don’t think it will be possible for us to immediately consider any diversification beyond our core business.