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Introduction
2
Crude Oil Demand
Crude oil demand has reported a CAGR growth of 0.2%
over the last five years
Coal Demand
Global coal demand has grown at a CAGR of 3.5%
over the last five years
Global steel production
Global steel production has grown at a CAGR of 2.7%
over the last five years
Nature of the Industry
• Shipping industry is cyclical in nature.
• Currently the industry is in the mature phase.
• Big players as well as small players in this industry.
• After 2008 the industry suffered due to recession but it is
slowly coming back to normal again.
• With a great demand of oil, coal, minerals, cement etc.
worldwide, shipping industry has become a backbone of
global trade.
• The shipping sector offers a cheap mode of
transportation, helping to open up larger markets.
Risks for shipping companies
• Over optimistic approach to build extra capacity in the hope of
increasing future demand.
• Increasing operating cost and declining profits have led to several
cancellations or delays in delivery of ships, resulting in credit
crunch.
Eg: The oil tankers are not able to earn enough to cover their
operating cost and are running on 60 to 70% of their capacities.
• Vessels are exposed to pirate attacks, which could potentially disrupt
operations as well as harm business in various ways.
• Rising fuel prices and other unexpected expenses may adversely affect
profitability.
Critical Success Factors
9
GROWTH PROJECTIONS
Substitutes:
• Rail- Goods trains offer convenient transport of dry and
bulk commodities including fuels like coal
• Road- Trucks provide cheap and point to point delivery
• Air- Expensive but quickest
Shipping Industry in India
• India – 20th rank in shipping.
• Consists of about 616 ships.
• Capacity of 6.62 million tons GRT.
• About 55 shipping companies in the sector.
>19 deal exclusively in coastal trade.
>29 are engaged in overseas trade.
>rest operate in both types of trade.
• Indian shipping industry increased from 180 mn tons in 1993-94
to 723 mn tons in 2007-08 with a growth of nearly 9.5%.
• It is expected to grow at a rate of 10.96% during 2007-08 to
2011-12.
14
Nature of the industry in India
Today the nature of the shipping industry is in maturity phase.
17
SCI Divisions
Segmental Revenues
Future Views in different segments
• Tanker rates have shown signs of recovery from Q3FY10 onwards.
Although the recovery will be gradual, the phasing out of single hull
tankers by 2010 would lend support to the freight rates.
• In the case of dry-bulk we expect the rates to remain depressed for a
longer period of time with order book as percentage of existing fleet
still hanging around 47%.
• The liner business was the most affected by the slowdown in global
demand as shipments from Asia to Europe and the US dropped for the
first time in history.
• In the container segment the situation has improved over the last one
year partly due to the fact that that the container markets are much
more consolidated than the bulk operations world wide.This along with
a moderate recovery in the container trade helped recover the rates.
Key Strengths of SCI
21
SWOT Analysis of SCI
Strengths:
1. Established brand name and reputation:
India’s leading shipping companies with 35% market
share in Indian flag tonnage, with a long established
reputation and strong customer relationships
2. Diversified fleet:
Variety of modern and technologically advanced
vessels, allows it to enter into chartering arrangements
of varying duration with different types of customers.
23
Opportunities:
• The demand for oil is expected to grow at a moderate pace as
other energy forms such as LNG and nuclear power are likely
to increase their market shares.
24
Threats:
• Changing Government Regulations and Duty structures can
affect imports and exports of dry cargoes to a great extent.
25
External Risks
• Growth depends upon continued growth in demand for
shipping services.
• An over-supply of vessels may lead to increased competition
and reductions in the demand for the vessels.
• Vessels are exposed to pirate attacks, which could potentially
disrupt operations as well as harm business in various ways.
• Rising fuel prices and other unexpected expenses may
adversely affect profitability.
Comparison between SCI and
competitors
Capex plans
• SCI has already committed capex spend to acquire 31 new
vessels over the next two years. It will help the company to
replace its ageing fleet. The orders have already been placed
and construction of new vessels is under way at various yards
in India and abroad.
• Essar Shipping is also incurring significant capex to build
capacities for its various operating segments. The company is
acquiring two jack-up rigs. It would be expanding its port
capacity at Vadinar and Hazira in addition to setting up new
ports at Salaya and Paradip.
• GE Shipping would be incurring the capex to mainly expand its
offshore fleet of vessels along with expansion of dry bulk and
tanker fleet
Sales 2009-2010
sales turn over(Cr)
4500
4000
3500
3000
2500
2000 sales turn over(Cr)
1500
1000
500
0
SCI Essar GE Varun Shreyas
SCI has 30.8% of market share in 2009-10
Financial Performance
Return On Capital Employed(%)
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
27.42 23.77 19.04 17.58 8.73
SCI
21.28 19.71 20.67 15.79 7.87
GE Shipping
Essar 4.58 6.42 7.49 1.96 3.07
Shipping
12.56 12.77 11.16 6.88 9.81
SKS
16.05 8.29 12.29 6.20 1.56
Varun
19.77 9.34 5.10 -0.63 -4.96
Shreyas
32
• Decrease of profitability as Operating profit margin decreased
from 47.7 in Mar-06 to 26% in Mar-10 . The factors being
change in freight rates , repair and maintenance expenses on
account of new fleet addition.
• In the case of Essar, the operating margin is also expected to
stabilise at higher level as the contribution from the port and
terminal business, which is a high margin business, increases.
• ROCE has increased by around 30 % indicating high
investments and profitability. Encouraging results due to rise
in the EBITDA and operating margin.
• Delay in delivery of jack-up rigs could impact the earnings of
the company. The share is expected to increase to 50% in
FY12.
33
• Varun shipping - downturn in shipping industry and the
revenues due to global recession adversely affecting the
profitability of the Company.
• The company earnings will suffer due to its inability to lock up
long term charter on the higher end offshore vessels.
• In the case of SKS logistics, profit decreased by 21.5% in FY10
due to the loss on sale of vessel MV royal Pisces.
• Shreyas shipping incurred a heavy loss due to rising fuel prices
and lower charter hire rates and freight rates, thereby
reducing profitability.
• In GE shipping, operating profit decreased low TCY (Time
Charter Yields)realizations and low fleet capacity.
34
P/E ratio
P/E Ratio Industry P/E
SCI 9.18
GE Shipping 12.84
SKS ******
Varun 23.52
Shreyas ******
35
Conclusion on P/E Ratio comparison
SCI has a very low P/E ratio because it’s in the mature industry
where further growth level is very low.
36
Strategies
SCI Growth Strategies
1.Aggressive expansion of fleet
• Currently, 22% of SCI’s fleet is more than 25 years old and
plans to order an additional 20 vessels in Fiscal Year 2011.
• This would enable SCI to command higher freight rates and
also reduce dry docking expenses.
2.Joint Ventures:
(a) Irano Hind Shipping Company (IHSC) :
• SCI has entered into a memorandum of agreement (“Irano-Hind
MoA”)
to develop and strengthen economic relations between India and
Iran in the field of shipping.
• The total aggregate income received, from Irano-Hind for Fiscal
Years 2008,09 and 10 was Rs. 19.3 mn, Rs. 20.9 mn, and Rs. 23.2
mn, or less than 0.10% of the Company’s total income in each such
year.
(b) LNG Transport :
• SCI formed 3 Joint Venture Companies -India LNG Transport Co’s.
for the construction, ownership and operation of two LNG
tankers.
• Both the ships are chartered on a long-term 25 year Time
Charter.
• This tanker will supply an additional 2.5 million metric tons of
LNG per year to the Dahej Terminal of M/s Petronet LNG Limited.
• As part of their service routes, they plan to extend their reach into Southeast
Asia, Southern Africa and North America.
• Also reviewing ways in which they can connect their services to ports in East
Africa as they believe that India is emerging as the biggest exporter of goods
and project cargo to this region.
• They intend to enter into joint ventures with reputable logistics providers for
end to end logistical operations for projects in the area of power, oil and gas
and infrastructure.
Essar Growth Strategies
1. Refinery expansion project:
• Capacity increased from 14 MMTPA to 18 MMTPA
• Increased GRMs as the refinery was able to process nearly
90 percent heavy and ultra-heavy crude.
• Provided additional business opportunities for third party
cargo handling for ESPLL.
• M&A:
Builder’s Icarus Paradox.
Value Creation
Shipping Corporation of
India
Essar Shipping
Varun Shipping
Fleet comparison
SCI GE ESSAR VARUN
Tankers:
Crude oil 17 10 4 3
Product 16 16 - -
chemicals 3 - - -
Gas 3 1 - 10
Bulk 18 6 17
carriers:
Liners: 8 - - -
Offshore: 11 4 6 7
Passenger: 2 - - -
Total 77 37 27 20
Division wise comparison
Bulk carriers Tankers Liners Areas covered
apart from
India
SCI Iron ore, coal, Crude oil, Cargos, South-east
coke, chemicals, LNG Passenger asia, Middle-
fertilizers, ships east , Europe,
steel. North America
GE Coal, steel Crude oil, LNG - China,
UK,Singapore,
Mauritius,Sharj
ah
ESSAR Dry bulk cargo Crude oil, - Asia,
petroleum Africa,Europe,
products America
VARUN coal hydrocarbons - Brazil, Mexico,
OPEC .
Competitive advantage of SCI
• As far as size of the shipping industry is concerned SCI has a
very high competitive advantage over it’s competitors. It’s
twice the size of GE and thrice that of ESSAR.
• SCI has a competitive advantage because it has more
services compared to that of it’s competitors i.e. the Liners
service.
• SCI’s bulk carriers is into more operations compared to that
of it’s competitors.
• Because of the mergers and acquisition it has been able to
reach customers throughout the World.
• Economies of scale.
Why is SCI better..?
• ‘Navratna’ status
• Has a vessel fleet of 77 vessels ordered additional 20 in 2012
• They have efficient ships which are fast and advanced.
• Significant Use Of Information Technology.
• Is committed to environmental protection and has adopted new designs of
critical ship's systems to eliminate risk of oil pollution.
• Explores possibilities of setting up Joint Venture Companies and forgoing
alliances.
• It has it’s own ship building industry and has signed a contract with
Hyundai Heavy Industries Co. of South Korea for the construction and
delivery of one 29,999 dwt product carrier.
• Set up the first Global Maritime Distress Safety System (GMDSS)
laboratory in the country.
References
• ICICI direct.com
• IDBI capital market space Ltd
• Firstcall research
• imaritime.com
• Moneycontrol.com
• Valuenotes.com
• Careratings.com
• Justtrade.in
Thank You