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Disclaimer: This document is prepared by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished to you solely for your information and you are notified that you
should not further copy, modify, use or distribute the information in any way unless you obtain written consent from FSWA. The information provided in the document is on the "best effort" basis and is subject to change
depending on several factors, including general market conditions. While reasonable care to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any other person or entity
associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can change without notice. The document is prepared only for your information and is not
sufficient for making an investment decision. You should rely on your own investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either
arising from the use of this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you should seek professional advice
prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The investments covered in this report are not guaranteed. Also past performance of an
investment or fund is not an indication of future performance. FSWA, its affiliates, or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of
investment decisions made by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the terms and conditions of the
use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with or without prior notice and FSWA shall not be liable to you for any suspension,
modification, or termination of the information and services provided herein. www.fullertonsecurities.co.in Page | 1
FPO Note – Shipping Corporation of India
November 30, 2010
Employees and Retail investors
to get a 5% discount on the
final FPO price
Investment Rationale SUBSCRIBE
Fleet Expansion: As one of India’s oldest, largest and reputable shipping companies,
Shipping Corporation of India (SCI) is well-positioned to take advantage of expected
future growth in the Indian economy. Since 1961, it has grown its fleet from 19 vessels
of 0.19mn DWT to 77 vessels of 5.37mn DWT. Apart from the existing vessels on
order, SCI currently has plans to order an additional 20 vessels in FY 2011 with total
DWT of 1.19mn. The company’s ability to grow its fleet size positions it well to take
advantage of attractive asset prices and anticipated growth in the shipping industry as
the Indian economy and its ties to international markets grows. Due to its fleet size, it
has the ability to service all major ports on the east and west coast of India.
Diversification: SCI owns a variety of modern and technologically-advanced vessels
including bulk carriers, VLCCs, crude oil tankers, product tankers, container vessels,
etc. This fleet diversification allows it to enter into chartering arrangements of varying
duration with different types of customers. The existing fleet as well as next generation
of fleet will have better functional capabilities and operate more efficiently than
equivalent older vessels thereby allowing the company to provide improved services to
its customers. SCI is also planning to diversify geographically, extending its route to
Southeast Asia, Southern Africa, and North America.
Strategic Joint Ventures (JVs): SCI has entered into a JV with three Japanese
shipping companies to own and operate three LNG tankers as well as operate and
manage two additional ones, making them the first Indian shipping company to operate
in the transportation of LNG. Its joint venture with the Steel Authority of India Limited
(SAIL) will pay on a cost plus basis and provides certainty of cash flows on a long-term
basis and provides a benefit in difficult economic conditions.
Strong Balance Sheet: SCI has a cash balance of Rs. 23,103.38mn on its balance sheet
with a debt to equity ratio of only 0.55, despite the capital intensive nature of its
business. Its strong balance sheet and cash on hand provides it with greater working
capital and the flexibility to sustain business during difficult economic times.
Furthermore, it has a current ratio of 2.96 which will enable it to service its interest and
debt payments in a timely fashion.
Outlook and Valuation: The stock is being offered a reasonable valuation at
14.8xFY10 and 15.3xFY10 earnings at the lower and higher end of the price band
respectively. At the upper band, the stock is trading at a discount to its book value per
share (Rs.160). Retail investors will additionally get a 5% discount to the issue price.
Issue Size Rs. 11.5-11.9bn
No. of Shares 85mn
Face Value Rs. 10
Price Band Rs. 135-140 per share
Lot Size 50 shares
Issue Opens 30-Nov-10
Issue Closes 3-Dec-10
Issue Details
Pre-issue Post-issue
Promoters 80.12 63.75
Others 15.5 14.09
Public 4.38 22.16
Shareholding (%)
Investor Type Quota
Employees 0.5%
QIB 49.7%
Non-Institutional 14.9%
Retail 34.8%
Issue Quota
Pre-issue Post-issue
No. of shares (in mn) 423.5 465.5
No. of Shares
Objects Amount
Acquisition of certain vessels 5870
Objects of the Issue (Rs. mn.)
Period
ended
Gross
Income
(Rs. Mn.)
EBITDA
(Rs. Mn.)
EBITDA
Margin (%)
Adj. Net
Profit
(Rs. Mn.)
Adj. Net
Profit
Margin (%)
Diluted
EPS (Rs)
RONW (%)
31-Mar-08 37,390 12,219 32.7 7,546 20.2 17.8 13.5
31-Mar-09 41,668 14,917 35.8 9,626 23.1 22.7 15.5
31-Mar-10 34,604 9,197 26.6 3,867 11.2 9.1 6.1
Financial Summary
Disclaimer: This document is prepared by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished to you solely for your information and you are notified that you
should not further copy, modify, use or distribute the information in any way unless you obtain written consent from FSWA. The information provided in the document is on the "best effort" basis and is subject to change
depending on several factors, including general market conditions. While reasonable care to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any other person or entity
associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can change without notice. The document is prepared only for your information and is not
sufficient for making an investment decision. You should rely on your own investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either
arising from the use of this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you should seek professional advice
prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The investments covered in this report are not guaranteed. Also past performance of an
investment or fund is not an indication of future performance. FSWA, its affiliates, or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of
investment decisions made by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the terms and conditions of the
use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with or without prior notice and FSWA shall not be liable to you for any suspension,
modification, or termination of the information and services provided herein. www.fullertonsecurities.co.in Page | 2
FPO Note – Shipping Corporation of India
November 30, 2010
Industry Overview
The shipping industry is fundamental to international trade, being the only practicable and cost effective means of
transporting large volumes of many essential commodities and finished goods. In 2008, total annual world seaborne trade
amounted to 8.7 billion tonnes of goods (loaded). Dry cargo, including bulk, break bulk and containerized cargo, accounted
for the largest share of goods loaded (66.3%) while oil and related products made up the balance. The United Nations
Conference on Trade and Development (UNCTAD) estimates that the operation of merchant ships contributes about US$380
billion (Rs. 17,069.60 billion) in freight rates within the global economy, equivalent to about 5% of total world trade.
Significant opportunities exist in the domestic markets for diversified shipping players like SCI. The economy is growing at a
healthy pace with Indian exports and imports having grown 21.4% and 23.2% over the previous year. Furthermore, the
domestic Cabotage Law gives preference to Indian flagged vessels over foreign players in coastal trade, opening several
opportunities for SCI. Demand for shipping has also advanced on account of the increased imports of crude oil and growing
demand for coal from the power sector. Approximately, 9.5% of India’s overseas trade is carried by the Indian merchant
fleet.
Business Overview
SCI was incorporated as the Eastern Shipping Corporation Limited on March 24, 1950 under the Companies Act, 1913 in
Mumbai. It is one of India’s largest shipping companies in terms of Indian flagged tonnage, with approximately a 35.0%
share of Indian flagged tonnage as of June 30, 2010. Its existing business operations are divided into the following three
divisions: (1) Bulk carrier and tanker, (2) Liner and passenger services, and (3) Technical and offshore services. As of
October 31, 2010, SCI owned a fleet of 77 vessels of 5.37 million dead weight tonnage (DWT). Its fleet includes dry bulk
carriers, very large crude carrier (VLCC) tankers, crude oil tankers, product tankers, container vessels, passenger-cum-
cargo vessels, phosphoric acid and chemical carriers, LPG and ammonia carriers, and offshore supply vessels.
SCI caters primarily to Government agencies, large industrial concerns, international oil companies and public sector
undertakings. It has entered into six strategic joint ventures which is likely to provide it with various advantages and
access to markets it would have otherwise not enjoyed. According to the International Monetary Fund, since general
economic conditions have improved, the world trade volume is expected to grow at 9.0% and 6.3% in 2010 and 2011,
respectively.
SCI has worldwide operations supported by offices in the four metros of India, namely Mumbai, Delhi, Chennai and
Kolkata as well as an office in London. In 1990, SCI signed its first Memorandum of Understanding (MoU) with the
Government specifying performance and operational targets. The Government bestowed the status of “Navratna” on the
company in August 2008 leading to enhanced delegation of powers to the Board, including, but not limited to, the areas
of capital investment, formation of joint venture, and opening of new offices.

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Investment Idea: Shipping Corporation of India

  • 1. Disclaimer: This document is prepared by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written consent from FSWA. The information provided in the document is on the "best effort" basis and is subject to change depending on several factors, including general market conditions. While reasonable care to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates, or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. www.fullertonsecurities.co.in Page | 1 FPO Note – Shipping Corporation of India November 30, 2010 Employees and Retail investors to get a 5% discount on the final FPO price Investment Rationale SUBSCRIBE Fleet Expansion: As one of India’s oldest, largest and reputable shipping companies, Shipping Corporation of India (SCI) is well-positioned to take advantage of expected future growth in the Indian economy. Since 1961, it has grown its fleet from 19 vessels of 0.19mn DWT to 77 vessels of 5.37mn DWT. Apart from the existing vessels on order, SCI currently has plans to order an additional 20 vessels in FY 2011 with total DWT of 1.19mn. The company’s ability to grow its fleet size positions it well to take advantage of attractive asset prices and anticipated growth in the shipping industry as the Indian economy and its ties to international markets grows. Due to its fleet size, it has the ability to service all major ports on the east and west coast of India. Diversification: SCI owns a variety of modern and technologically-advanced vessels including bulk carriers, VLCCs, crude oil tankers, product tankers, container vessels, etc. This fleet diversification allows it to enter into chartering arrangements of varying duration with different types of customers. The existing fleet as well as next generation of fleet will have better functional capabilities and operate more efficiently than equivalent older vessels thereby allowing the company to provide improved services to its customers. SCI is also planning to diversify geographically, extending its route to Southeast Asia, Southern Africa, and North America. Strategic Joint Ventures (JVs): SCI has entered into a JV with three Japanese shipping companies to own and operate three LNG tankers as well as operate and manage two additional ones, making them the first Indian shipping company to operate in the transportation of LNG. Its joint venture with the Steel Authority of India Limited (SAIL) will pay on a cost plus basis and provides certainty of cash flows on a long-term basis and provides a benefit in difficult economic conditions. Strong Balance Sheet: SCI has a cash balance of Rs. 23,103.38mn on its balance sheet with a debt to equity ratio of only 0.55, despite the capital intensive nature of its business. Its strong balance sheet and cash on hand provides it with greater working capital and the flexibility to sustain business during difficult economic times. Furthermore, it has a current ratio of 2.96 which will enable it to service its interest and debt payments in a timely fashion. Outlook and Valuation: The stock is being offered a reasonable valuation at 14.8xFY10 and 15.3xFY10 earnings at the lower and higher end of the price band respectively. At the upper band, the stock is trading at a discount to its book value per share (Rs.160). Retail investors will additionally get a 5% discount to the issue price. Issue Size Rs. 11.5-11.9bn No. of Shares 85mn Face Value Rs. 10 Price Band Rs. 135-140 per share Lot Size 50 shares Issue Opens 30-Nov-10 Issue Closes 3-Dec-10 Issue Details Pre-issue Post-issue Promoters 80.12 63.75 Others 15.5 14.09 Public 4.38 22.16 Shareholding (%) Investor Type Quota Employees 0.5% QIB 49.7% Non-Institutional 14.9% Retail 34.8% Issue Quota Pre-issue Post-issue No. of shares (in mn) 423.5 465.5 No. of Shares Objects Amount Acquisition of certain vessels 5870 Objects of the Issue (Rs. mn.) Period ended Gross Income (Rs. Mn.) EBITDA (Rs. Mn.) EBITDA Margin (%) Adj. Net Profit (Rs. Mn.) Adj. Net Profit Margin (%) Diluted EPS (Rs) RONW (%) 31-Mar-08 37,390 12,219 32.7 7,546 20.2 17.8 13.5 31-Mar-09 41,668 14,917 35.8 9,626 23.1 22.7 15.5 31-Mar-10 34,604 9,197 26.6 3,867 11.2 9.1 6.1 Financial Summary
  • 2. Disclaimer: This document is prepared by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written consent from FSWA. The information provided in the document is on the "best effort" basis and is subject to change depending on several factors, including general market conditions. While reasonable care to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates, or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. www.fullertonsecurities.co.in Page | 2 FPO Note – Shipping Corporation of India November 30, 2010 Industry Overview The shipping industry is fundamental to international trade, being the only practicable and cost effective means of transporting large volumes of many essential commodities and finished goods. In 2008, total annual world seaborne trade amounted to 8.7 billion tonnes of goods (loaded). Dry cargo, including bulk, break bulk and containerized cargo, accounted for the largest share of goods loaded (66.3%) while oil and related products made up the balance. The United Nations Conference on Trade and Development (UNCTAD) estimates that the operation of merchant ships contributes about US$380 billion (Rs. 17,069.60 billion) in freight rates within the global economy, equivalent to about 5% of total world trade. Significant opportunities exist in the domestic markets for diversified shipping players like SCI. The economy is growing at a healthy pace with Indian exports and imports having grown 21.4% and 23.2% over the previous year. Furthermore, the domestic Cabotage Law gives preference to Indian flagged vessels over foreign players in coastal trade, opening several opportunities for SCI. Demand for shipping has also advanced on account of the increased imports of crude oil and growing demand for coal from the power sector. Approximately, 9.5% of India’s overseas trade is carried by the Indian merchant fleet. Business Overview SCI was incorporated as the Eastern Shipping Corporation Limited on March 24, 1950 under the Companies Act, 1913 in Mumbai. It is one of India’s largest shipping companies in terms of Indian flagged tonnage, with approximately a 35.0% share of Indian flagged tonnage as of June 30, 2010. Its existing business operations are divided into the following three divisions: (1) Bulk carrier and tanker, (2) Liner and passenger services, and (3) Technical and offshore services. As of October 31, 2010, SCI owned a fleet of 77 vessels of 5.37 million dead weight tonnage (DWT). Its fleet includes dry bulk carriers, very large crude carrier (VLCC) tankers, crude oil tankers, product tankers, container vessels, passenger-cum- cargo vessels, phosphoric acid and chemical carriers, LPG and ammonia carriers, and offshore supply vessels. SCI caters primarily to Government agencies, large industrial concerns, international oil companies and public sector undertakings. It has entered into six strategic joint ventures which is likely to provide it with various advantages and access to markets it would have otherwise not enjoyed. According to the International Monetary Fund, since general economic conditions have improved, the world trade volume is expected to grow at 9.0% and 6.3% in 2010 and 2011, respectively. SCI has worldwide operations supported by offices in the four metros of India, namely Mumbai, Delhi, Chennai and Kolkata as well as an office in London. In 1990, SCI signed its first Memorandum of Understanding (MoU) with the Government specifying performance and operational targets. The Government bestowed the status of “Navratna” on the company in August 2008 leading to enhanced delegation of powers to the Board, including, but not limited to, the areas of capital investment, formation of joint venture, and opening of new offices.