SCI FPO analysis: 2nd December 2010

Key points
Business aspects
• SCI commands 35% of the Indian flagged tonnage, which again is about 10-11% of India’s ports
based import export. Foreign carriers dominate, but this may change soon.
• Exports and imports are growing by 21.4 per cent and 23.2 per cent this year, which are largely
executed through shipping. This indicates a robust demand. Coal & crude imports are expected
to accelerate.
• Key indicators of pricing are Baltic Dry Index and the Baltic Tanker Indices. These peaked in early
2008, fell to lows in 2009, are stabilizing in 2010, and are expected to recover in 2011 along with
rebound in global economies and trade.
• SCI profits also have shown a recovery trend in 2010.
• SCI is seeing the need to invest in new assets to – replace an ageing fleet and – meet growing
demand. This FPO will be followed by large order placements, both deploying FPO funds, cash
from operations and raising debt.
Unique strengths of SCI:
• A diversified fleet (bulk carriers, crude/oil products tankers, container vessels, etc.) that caters
to all types of cargo for domestic and international markets
• Relationships with PSUs like Coal India and SAIL – bhaichara - that can grow a lot
• Cash on hand is Rs 49 per share (post FPO). This is a good statistic. It means you are paying only
Rs 84 per share for the running business of SCI.

Comparison of SCI and Sensex – We expect recent underperformance will correct soon
SCI FPO analysis: 2nd December 2010

Pricing and key ratios

• At today’s CMP, SCI is close to it’s 52 week low. Peak this year was Rs 192, on Oct 2. A fall of 30%
in one month, perhaps on news of FPO pricing. Also dilution of equity in this issue by 10% only
explains part of this fall.
• SCI FPO pricing at Rs. 133 (for Retail with upper end of Rs 140 less 5%) is P/E of 8.5 times, which
is favourable compared to current Industry P/E of 16.71 (all are ttm figures)
• FPO offer is at P/B of 0.9 – which is attractive.
• CMP today (2nd Dec) is 146.8, so FPO (at 133) is at a discount of 10.3%
• Dividend yield at 3.4% of CMP is attractive.
• Current D/E ratio of 0.43 is comfortable and will fall further post FPO. Then gain due to the
expected investments in assets.

PE of SCI is currently below the average of the last 6 years

Report by jainmatrix investments Ltd. http://jainmatrix.wordpress.com/

SCI FPO analysis: 2nd December 2010

Earnings are showing recovery in the last 6 months, a lagged effect of 2008-09 slowdown

Conclusion and FPO investment expectations

• The issue is attractive, and the CMP has dipped over the last month on FPO pricing
considerations.
• My feel is the stock should retrace to 165 range post FPO (25% up from 133), then appreciate
thereafter based on business performance and overall Sensex directions. (Which both look
positive)
• Overall it is a liquid, steady PSU stock with a good brand name. Good long term holding stock.
Subscription details and allotment possibilities
• Subscription position as of 02 December 2010: QIB – closed at 4.2 times over subscribed; HNI at
0.28 times and Retail at 0.56 times – closing on Dec 3rd. Looks like post CIL IPO, HNI has shifted
to Retail .. :-)
• My feel is given some Retail interest in MOIL (this being an overlap period – why cant these guys
schedule their offerings better) the Retail should be in 2 - 3 times subscription range tomorrow.
• This should give allotment of max Rs 80,000 worth shares on subscription of 2L.
• To get firm allotment, invest in 1400 shares at cut off (140) for total investment Rs 196000.

Report by jainmatrix investments Ltd. http://jainmatrix.wordpress.com/