Varun Shipping (VSL) reported revenue decline of 13.5%YoY (QoQ decline of 1.16%) to Rs 1.63 billion during the Q3FY07, which was in line with our estimates of Rs 1.62 billion. The revenue decline was due to weak freight rates in crude and liquefied petroleum gas (LPG) segment and sale of product tanker and one dry bulk vessel in Q2FY07.
The operating margin declined from 58.6% in Q3FY06 to 54.5% in Q3FY07. The margin decline was mainly due to dry docking expenses for two vessels in Q3FY07 and weak freight rates. Operating profit declined by 19.6% to Rs 891 million. Interest and depreciation cost increased by 21.8% to Rs 252 million and by 2.3% to Rs 381 million respectively. Overall, net profit declined by 54.1% to Rs 242 million translating into EPS of Rs 1.7 as against expectations of Rs 2.9.
At current price of Rs 62, the stock is trading at 9.5xFY2007E and 5.6xFY2008E earnings and EV/EBIDTA it is trading at 7.2xFY07E. The stock is available at attractive dividend yield of 4.8%. We have revised adjusted profit from Rs 1,217 million to Rs 975 million in FY07 and from Rs 2,412 to Rs 1,651 million inFY08 considering lower fleet addition than earlier estimates. We maintain our valuations at 6xFY08 with revised target price of Rs 66 from Rs 96.
The operating margin declined from 58.6% in Q3FY06 to 54.5% in Q3FY07. The margin decline was mainly due to dry docking expenses for two vessels in Q3FY07 and weak freight rates. Operating profit declined by 19.6% to Rs 891 million. Interest and depreciation cost increased by 21.8% to Rs 252 million and by 2.3% to Rs 381 million respectively. Overall, net profit declined by 54.1% to Rs 242 million translating into EPS of Rs 1.7 as against expectations of Rs 2.9.
At current price of Rs 62, the stock is trading at 9.5xFY2007E and 5.6xFY2008E earnings and EV/EBIDTA it is trading at 7.2xFY07E. The stock is available at attractive dividend yield of 4.8%. We have revised adjusted profit from Rs 1,217 million to Rs 975 million in FY07 and from Rs 2,412 to Rs 1,651 million inFY08 considering lower fleet addition than earlier estimates. We maintain our valuations at 6xFY08 with revised target price of Rs 66 from Rs 96.