Hold Shipping Corporation target of Rs 76: ICICI direct

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

ICICI direct’s research report on Shipping Corporation of IndiaSCI’s topline for Q2FY16 de-grew 1% YoY, (up 2.7% QoQ) toRs.1085 crore (I-direct estimate:Rs.1073 crore). On the back of subdued trade volumes, the liner segment continued to tread down with revenues atRs.137.2 crore. Bulk segment, supportive of tankers, grew supported revenues with growth of 12% YoY (up 5.5% QoQ) to Rs.850 crore. Adding to the growth was the technical & offshore segment, which grew 9.5% YoY to Rs.92 crore. Lower bunker costs favoured EBITDA growth, which almost doubled toRs.313 crore compared to Rs.178 crore in Q2FY15 and Rs.326 crore in Q1FY16. EBITDA margins continued to stay at elevated levels of 29%, though a bit moderate compared to Q1FY16. Higher other income due to sale of property coupled with lower depreciation on the back of a change in policy and moderate interest costs accelerated PAT growth. PAT for the quarter was at Rs.161 crore compared to Rs.163.5 crore in Q1FY16 and Rs.19 crore in Q2FY15Outlook and ValuationSCI is the largest shipping company of India and currently operates a fleet of 69 vessels with a total capacity of 5.9 million dwt. Over the last four years, the company has incurred a capex of ~Rs.7000 crore to acquire new vessels to replace its ageing fleet. The fleet expansion has hurt the company’s profitability as new vessels have joined the fleet when rates were at historically low levels due to overcapacity in the industry. We believe this capex was wrongly timed and is hurting the company’s current and future profitability. The ships were ordered in 2007, 2008 when freight rates and asset prices were at their peak. These ships have joined SCI’s fleet when freight rates are near their lows resulting in very  low margins leading to insufficient EBITDA generation to cover for the higher depreciation and interest expense owing to the huge capex. SCI’s debt equity has increased from 0.3x in FY08 to 0.9x in FY15. We expect it to remain at the current levels over FY15-17E. From a valuation perspective, SCI’s five year average price/book value multiple has been 0.7x. The stock had traded at an average PBV multiple of ~0.9x during April 2008-March 2011. During this period, the company was making profits at the net level and had a dividend payout of ~40%, which enabled it to trade at reasonable valuations in line with peers.However, with losses in FY12, FY13 and FY14 and absence of dividend payment, its average PBV valuation in the last two years has come down to ~0.3x. Though the company has been able to report profits in FY15, majority of the same came from higher other income and profit in sale of ships. Further, lower depreciation due to rescinding of vessels by shipyards and consequent increase in other income (penalty paid by shipyards and refund of payments) aided PAT. With the positive swing from bunker costs and rationalisation of other expenses, we expect margins to increase to ~28%. Thus, we expect PAT to grow at close to double over FY15-17E. Consequently, we value SCI at 0.45x FY17E book value with a target price ofRs.76 and have a HOLD recommendation on the stock.Exhibit 4: P/BV trend

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

Read More