Hold Shipping Corporation; target of Rs 63: ICICI Direct

Shipping Corporation of India’s (SCI) Q1FY17 results were below our estimates across all parameters. Revenues sequentially declined 13% (down 23% YoY) to Rs 841 crore (I-direct estimate: Rs 971 crore). Revenues from the liner segment approximately halved to Rs 90 crore in Q1FY17 compared to Rs 164 crore in Q1FY16. Revenues for tankers, bulk, offshore segments de-grew 17%, 26%, 36%, respectively Higher cargo handling expenses coupled with increased repairs and maintenance charges adversely impacted EBITDA, which de-grew 40% YoY (down 28% QoQ) to Rs 214 crore (I-direct estimate Rs 272 crore). Subsequently, EBITDA margins were negatively impacted by 754 bps YoY (down 531 bps QoQ) to 25.4% (vs. our estimate of 28%) Following the subdued operational performance, reported PAT (excluding exceptional loss/profit) came in significantly lower than our expectation. PAT was at Rs 56 crore (I-direct estimate: Rs 112 crore) compared to Rs 159 crore in Q4FY16 and Rs 204 crore in Q1FY16.

Revenue growth for SCI would remain a challenge amid a bleak outlook for liner, dry bulk vessels and offshore segments. Lower freight rates and utilisation levels are expected to keep tabs on revenue growth and also impact EBITDA margins. We expect EPS to decline from Rs 8.1 in FY16 to Rs 6.9 in FY18E. However, recent initiatives of the central government promoting inland shipping and coastal movement of goods (if realised) position SCI as one of the biggest beneficiaries. To benefit from the same, SCI is planning to set up a subsidiary to cater entirely to the inland waterways of the country. Given the lower drafts available, the capex requirement in terms of barges/small ships is minimal. We believe that a ramp up in this subsidiary remains key for an upgrade. However, given the current subdued scenario, we continue to retain our HOLD recommendation o the stock with a target price of Rs 63.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.