SCI - Shipping Corporation - Value Analysis

INDUSTRY
1. Shipping, a global industry, carries about 90% by volume of the global trade and is the heart of the global economy. Variables affecting the freight rates include
1. Demand and supply of vessels
2. Overall Global Trade
3. Geo politics such as the present day Japan, Libya , Euro issues , Oil market
2. Shipping industry is largely segmented into three categories –
(a) Dry bulk - rates depend on trade of commodities (iron, steel, coal, Al) (qty and type)
(b) Wet bulk - Crude oil / oil derivatives related
(c) Containers. The container market is primarily influenced by global trade
STRENGTHS
1. SCI  is the largest shipping company in India and has approximately 35% share of Indian flagged tonnage as of June 30, 2010, according to the website of Directorate General of Shipping, Government of India (DG Shipping). As of September 30, 2010, it owned a fleet of 74 vessels of 5.11 million dead weight tonnage (DWT).
2.  It is a cash rich company with a strong balance sheet position & has shown  consistent profitability and dividend paying record
Moat - Really big player in an economy such as ours .. In a way a monopoly in the Indian market with the exception of GE and Varun. . Entry  is significantly capital- and time intensive
OPPORTUNITIES
1. While there may be short-term pain ( increased depreciation and interest costs) , SCI's move to become significantly larger (26 vessels ordered 2011-2013) by taking advantage of depressed asset prices currently may well pay off when the fortunes of the cyclical shipping industry turn for the better.
2. Strategic tie ups with big consumers like SAIL and COAL India
3.The robust GDP to fuel the shipping sector's growth. With the share of Indian merchant fleet in the country's overseas trade being only around 9.5 per cent (down from 31.5 per cent in 1999-2000), there seems to be good scope for effective deployment of SCI's expanded fleet.  Indian exports and imports are showing good growth
THREATS
1. Given that more than 90 per cent of SCI's income is denominated in foreign currency, sustained appreciation in the rupee could impact its performance.
2.  The company's plans to get into other businesses such as ship-building
FINANCIALS
1. Market cap - 5000 crores @ CMP 106 , debt - 2700 crores , Fixed Deposits (Cash) - 2300 cr
Enterprise value - 5400 crores. With a return of 600 crores excess ROEV is about 11%.

	2006	2007	2008	2009	2010	2011 (9M)	REMARKS
Sales	3400	3500	3700	3700	2700	2600
Profit	1400	1000	1000	800	950	570
Opm	35	28	25	20	28	23
EPS	50	36	35	29	22	12
Debt	1300	1200	1400	2400	2700
Res	4000	4800	5300	5700	5900
Div (Rs)	8.5	8.5	8.8	6.5	5.0		Abt 5 % yield

CONCLUSION
1. Like any other industry, shipping is based on the economy and its growth. US and Asia are showing signs of growth.
2.  " The World is flat" and movement of commodities and oil is but something that will continue in this world. Shipping offers the cheapest mode of transport. There is no reason why growth will not continue.. Pace may vary. It may be cyclical. But when you get a company with good management, prudent cash management at a discount to its book value, do the maths and see if it is  value buy. If so, go ahead and buy.
3. Considering the above, the best place is to invest in the largest corporation of an upbeat economy such as India. Investment is further cushioned by the regular share in profits distributed by the company in form of dividends.
4. Holdings by MFs have reduced in excess of 60%. The best time to buy a cyclical industry is when it gets beaten down and await a harvest in its uptrend.