India Equity Retail Research l Shipping

Shipping Corporation of India Ltd Rs 115

Capacity Expansion to Augment Growth! BUY

12-Month Price Target: Rs

Shipping Corporation of India (SCI), a Navratna PSU is country’s largest and most 143/Share
diversified shipping company owning and operating more than 35% of the Indian
Market Data April 8 , 2011
tonnage. SCI has presence across all shipping segments namely, tanker, dry bulk,
product, container, LNG, chemicals and offshore with substantial interests in Shares outs (Cr) 46.57

tanker and bulk segment both nationally and internationally. Equity Cap (Rs. Cr) 465.7
Market Cap (Rs. Cr) 5429

Investment Rationale 52 Wk H/L (Rs) 202.5/ 98.25

Avg Vol (1yr avg) 719,353
A market leader with well diversified business model: Face Value (Rs) 10
SCI maintains a fine balance between spot, charters, and contract of affreightment Bloomberg Code SCIIN
(COA’s). SCI owns only Indian flagged vessels providing it an edge in capturing
domestic contracts including those from the Government due to the Cabotage Market Info:
Laws. SCI currently owns a fleet of 77 commercial vessels with an aggregate SENSEX 19,456

capacity of 5.01 mn DWT (dead weight tonne). Additionally 21 commercial vessels NIFTY 5,842

are to be added prior to October 2012. This fleet diversification allows the company
to enter into chartering arrangements of varying duration with varied customers. Price Performance

Well-positioned to take advantage of India’s growth: 140

120
Container Cargo Traffic has on an average grown 2.9x times of growth in India’s
100
GDP however, overall containerization stands at just 52-54% of the production 80

volume leaving huge potential for expansion. 60

40
20
On a macro level, there is a direct relationship between a country’s GDP and its 0
May-10

Feb-11

Mar-11
Aug-10
Apr-10

Nov-10

Dec-10

Jan-11
Jun-10

Oct-10
Jul-10

Sep-10
containerization volumes. India’s GDP is expected to grow at 8.5% in current fiscal
and in double digits by FY12. SCI’s through its ability to grow its fleet size can take
SCI Sensex

advantage of attractive asset prices and anticipated growth in the shipping sector
as Indian economy and its ties to international markets grow. Share Holding pattern (%)
Particulars Dec-10 Sep-10 Chg
Opportunities in Coal & Oil Transportation:
Promoter 63.8 63.8 0.00
Bulk carrier-tanker division & Liner division contribute around 62% & 28% to SCI’s
FII 2.3 1.9 0.34
revenues. Bulk carrier division is on a growth trajectory backed by solid growth in
DII 20.4 20.7 -0.30
India’s domestic power and steel industries which fuels the country’s coal imports.
Others 13.6 13.6 -0.04
India’s demand for coal is estimated to grow at 9% whereas the production is
Total 100.0 100.0 -
expected to grow at 7.9%; this mismatch will create huge opportunities of coal
imports for SCI. The tanker division benefits from growth in India’s oil refining
industry, which requires increased crude oil imports and refined oil exports. SCI is Analyst :
well poised to take advantage of the growth opportunities arising for transportation Hiral Daiya
of coal and oil. hiral.daiya@krchoksey.com
℡ 91-22-6696 5570
Capacity expansion to augment growth: ¬ 91-22-6691 9569
SCI is planning a capex of Rs 7,800 crores across segments to acquire 32
commercial vessels (3.4 mn DWT) and 9 AHTS, for which it would place orders in www.krchoksey.com
the next one year with deliveries in FY14 to FY15 adding 5 mn DWT (Gross) and ~ ℡ 91-22-6696 5555
3.5 mn DWT (net) by FY15. Investments in additional vessels will allow SCI to bid ¬ 91-22-6691 9569

KRChoksey Research is also available on Bloomberg KRCS<GO>, Thomson First Call, Reuters, Factset and Capital IQ
Shipping Corporation of India Ltd.

on additional charters worldwide thereby increasing market share and further

diversifying sources of income.

Strong balance-sheet with minimum leverage:

SCI has Rs. 2,310 Crs cash and cash equivalents on its balance sheet with a
comfortable debt to equity ratio of 0.55 and a current ratio of 2.97. SCI has
retained a liquid asset book to balance sheet size (More than15%). We believe that
SCI’s strong balance sheet and cash on hand provides it greater working capital
flexibility and ability to negotiate favorable financing terms for acquisition of
vessels.

Our View:
Post FPO, SCI has seen some correction and is currently quoting at attractively at a
P/BV of 0.8x and 24% discount to its NAV of Rs. 151.2/Share. At the CMP of Rs.
115/Share, SCI is quoting at 7.3x its FY11E earnings, we value the company at 9x
FY11E earnings and recommend a BUY at the current levels with a 12-month price
target of Rs. 143/Share, a potential upside of 24% from current levels.

Key Financials:

Particulars (Rs in Crs) FY 2009 FY 2010 FY 2011E

Total Income 4550.7 3902.7 4283.5

EBIDTA 1558.1 908.8 1207.4

PAT 940.7 376.9 742.2

EBIDTA Margin 34.2% 13.5% 26.1%

PAT Margin 20.7% 10.9% 15.2%

EPS (Rs per share) 20.2 8.1 15.9

PE (x) 5.7 14.2 7.2

*Includes Profit on sale of Ships Rs 143.5 Crs, EPS adjusted to Post-FPO
Source: Company data, KRChoksey Research

2 KRChoksey - Retail Research

Shipping Corporation of India Ltd.

Company Profile:

SCI started operations in 1950 and has been one of India’s leading shipping companies with a long established reputation
and strong customer relationships with various public sector undertakings and the Government, among others. SCI
through its fleet of 74 vessels operates in all the segments of shipping through a mix of time charters, contracts of
affreightment (COA's), and spot voyages. SCI’s customers primarily comprise of Government agencies, large industrial
concerns, international oil companies and PSUs. SCI manages 62 vessels of 0.22 mn DWT on behalf of Government
agencies, PSUs and its joint ventures.

The company’s’ worldwide operations are supported by offices in the four metros of India, namely Mumbai, Delhi, Chennai
and Kolkata and London. As of October 31, 2010, SCI had 26 vessels on order to be delivered over the course of the next
three years. The additional vessels on order are expected to increase total DWT from 5.37 million to 6.83 million.

Business Model:

Broadly, SCIs business operations are divided into the three divisions: (1) bulk carriers and tankers (2) liner and passenger
services (3) technical and offshore services. Bulk carrier and tanker division together are the primary income source and a
profit centre for SCI accounting for 68.5% and 63.0% of the topline in the last fiscal.

SCI Business Model

SCI Busines
Segments

LNG &
Containers Tankers Dry Bulk Chemical Offshore
Carriers

Source: Company, KRChoksey Research

Valuations:

SCI Assets Value Rs in Crs

Tanker 4,368.0
Bulk Carrier 1,046.5
Container Ships 921.4
Product Tanker 541.5
Offshore Vessels 227.5
Chemical Carriers 136.5
LPG Carrier 91.0
Passenger Boats 45.5
Gross Asset Value 7,377.9
Add : Cash 2,310.0
Less : Debt 2,698.9
Net Asset value 6989.0
Outstanding Shares Post FPO (in Cr) 46.57
NAV/Share (Rs/Share) 151.1

Source: KRChoksey Research

3 KRChoksey - Retail Research

Shipping Corporation of India Ltd.

Current Fleet:

SCI owns a variety of modern and technologically advanced vessels; the company’s fleet consists of 77 vessels, all of which
hold a certificate of seaworthiness.

Type of Vessel No. of Vessels % of Total Fleet Total DWT % of Total DWT

Crude Oil Tankers 18 23.38% 2,081,003 38.72%

Product tankers 15 19.48% 877,726 16.33%

Container Vessels 5 6.49% 202,413 3.76%

VLCCs 4 5.19% 1,274,175 23.71%

Dry Bulk Carriers 18 23.38% 781,777 14.55%

Acid Carriers 3 3.90% 99,174 1.85%

Passenger Vessels 2 2.60% 5,303 0.10%

LPG Ammonia Carriers 2 2.60% 35,202 0.65%

Offshore Supply Vessels 10 12.99% 17,904 0.33%

Total 77 100.00% 5,374,677 100.00%

Source: Company data, KRChoksey Research

Fleet on Order:

The company’s fleet has grown from 19 to 77 vessels in its 50 years of operation. In line with the goal of having a
diversified and young fleet, it has plans to acquire additional vessels. As of October 31, 2010, it had 26 vessels of 1.46 mn
DWT on order scheduled for delivery between the year ended 2010 and 2013, the acquisition of four of such vessels will be
funded by the Net Proceeds of the Issue. The company has acquired vessels with the debt equity ratio of 80-70% debt
financing and 20-30% equity. All of the ordered vessels are green transport certified.

Sale of Existing Fleet:

Average economic life of a vessel is approximately 25 years, post which the vessels are disposed through tender sale
process. The company sold an aggregate of ten vessels in 2009 and 2010. In H1 FY11 SCI has received proceeds from the
sale of vessels amounting to Rs 143.5 crores. Further, Directors have approved disposal of a passenger vessel of 168 DWT,
a crude tanker of 67,137 DWT and a dry bulk carrier of 26,450 DWT. SCI anticipates the disposal of three vessels in Q4
FY11.

EBIDTA Margin Trend

4500 45%
4000 42% 40% 40%
3500 34% 35%
35%
3000 31% 30%
26%
Rs. Crores

2500 25%
2000 20%
1500 15%
1000 10%
500 5%
0 0%
FY06

FY07

FY08

FY09

FY10

FY11E

Net Sales EBITDA OPM

Source: Company data, KRChoksey Research

4 KRChoksey - Retail Research

Shipping Corporation of India Ltd.

Technicals

Last Price 115

21 day EMA 111

50 day EMA 113

C 200 day EMA 135

The stock is moving sideways. The support for the stock exists at around 108 levels. The MACD indicator for the
stock is moving upwards in positive zone. Investors can buy the stock at declines.

Disclaimer :
This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the
information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any
investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports
and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis.
All opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As a matter of practice,
KRC refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt Ltd.,
and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.

1102, Stock Exchange Tower, Dalal Street, Mumbai 400 001. Members: BSE & NSE
Head-Off Phone : 91-22-66535000 Fax : 66338060 www.krchoksey.com
Branch-Off Phone : 91-22-66965555 Fax : 66919576

5 KRChoksey - Retail Research