IDBI Capital has downgraded Shipping Corporation of India with a price target of Rs 79.Shipping Corporation of India (SCI) again recorded a loss for Q1 of FY12 with the fall in shipping charter rates and losses incurred in the Liner segment, MoneyGuruIndia reports. Revenue grew by a modest 2.5% YoY to Rs 9,294 mn mainly due to fall in charter rates in both tanker and dry-bulk segment despite the fleet growth. Ebitda fell from 24.6% in Q1FY11 to 8% in Q1FY12.
The margin contraction can be attributed to losses incurred in the Liner segment, which suffered from lower slot utilisations and lower rates in the month of June 2011. The Liner segment recorded an EBIT loss of Rs614 mn during the quarter. The Bulk shipping EBIT, which includes tankers and dry-bulk fell by 76% YoY to Rs301 mn.
“We believe SCI will continue to face pressure across business segments - tankers, dry-bulk and containers due to fleet additions over next two years. Though leverage currently is not a concern (current net-debt to equity at 0.65x), but with addition of fleet which were ordered at relatively higher rates during the peak of 2007-08, the break-even for these vessels will become increasingly difficult at current charter rates. The stock currently trades at 0.65x NAV of Rs132. SCI trades at 10.2x FY12E and 8.2x FY13E EV/EBIDTA, which is the median multiple at which tanker peer set is currently trading at. On P/B basis the stock currently trades at 0.6x FY11. With the increasing nebulous scenario in global trade, we expect shipping asset prices to reduce, thus impacting current NAV. We downgrade to reduce with a target price of Rs 79 based on 0.6x NAV,” the brokerage said.
The margin contraction can be attributed to losses incurred in the Liner segment, which suffered from lower slot utilisations and lower rates in the month of June 2011. The Liner segment recorded an EBIT loss of Rs614 mn during the quarter. The Bulk shipping EBIT, which includes tankers and dry-bulk fell by 76% YoY to Rs301 mn.
“We believe SCI will continue to face pressure across business segments - tankers, dry-bulk and containers due to fleet additions over next two years. Though leverage currently is not a concern (current net-debt to equity at 0.65x), but with addition of fleet which were ordered at relatively higher rates during the peak of 2007-08, the break-even for these vessels will become increasingly difficult at current charter rates. The stock currently trades at 0.65x NAV of Rs132. SCI trades at 10.2x FY12E and 8.2x FY13E EV/EBIDTA, which is the median multiple at which tanker peer set is currently trading at. On P/B basis the stock currently trades at 0.6x FY11. With the increasing nebulous scenario in global trade, we expect shipping asset prices to reduce, thus impacting current NAV. We downgrade to reduce with a target price of Rs 79 based on 0.6x NAV,” the brokerage said.