What is the potential of Shipping Sector?

Especially in light of Companies to move to Double HULL carriers in coming years as per EU directive to phase out Single Hull carrirers, due to OIL spill env. pollution ?

I would like to start a brain storming, is their a potential for

1. Ship Building Companies
2. Ship Carrier companies
3. Offshore Rigs Companies

And as a whole Indian Shiping sector.

Inputs to Begin

Ship Building

ABG Shipyard and Bharti Shipyard have annouced big CAPEX plans and are also one of the cheapest Ship Building companies.

Shipping

1. Varun Shipping largest LPG carrier in India has annouced huge CAPEX and Expansion plans.

2. Mercator one of the biggies has announced big expansion plans

They all are trading near their 200 EMA or key support levels and form good picks.

Good read on shipping

http://www.equitymaster.com/research...tor-info/ship/

Ship Building bright future

http://www.thehindubusinessline.com/...1650881500.htm

There are some interesting facts which I will share here.

- I was reading report on buy call of GE Shipping by ICICI dated 26-Mar-2008.
- I had also read call on Mercator and varun made my ICICI in past 3 months.
- The reports were prepared by same guy in ICICI.

As per me GE Shipping was the best pick as these guys know how to do business. It was impressive to read that how this company created value for its shareholders.

One of the exceptional things.

These guys bought 11 vessels at low prevaling prices in 2003-04 during the shipping downturn and sold all of 11 vessels during peak season time of shipping industry between 2006-2008,

Profit from sale of vessels 06 = 346 Crores
Profit from sale of vessels 07 = 136 Crores
Profit from sale of vessels 06 = 243 Crores

As compared to this varun Shipping and Mercator were sleeping on this front. These guys have announced big CAPEX plans in this financial year when the prices of vessels have already peaked out.

My grudge against ICICI is that they should have released this report earlier than Varun Shipping and Mercator! :-)

I liked your comments man4urheart. Can you also give reasons why shipping sector trades at such low PE

Seriously, your question has made me to think on it.

As far as i can strech my brain, I think fear of cyclical nature of industry keeps it at low p/e is the only answer I can find of it.

Alchemist can throw some angle on it?

I think historically, retail investors had stayed away from shipping and aviation sector.

If someone could find the P.E ratios of shipping companies around the world, it might give an idea.

I remember reading somewhere that "aviation" isn't a favourite of Warren Buffett either

well Bharati Shipyard is the best among the shipping sector and it will outperform in one year.the scrips looks very cheap now.

Can anyone explain why shipping companies give such a high dividend despite having such a high level of debt? (highest by varun shipping with a very high debt). If I am the promoter, I would have repaid a portion of my debt rather than giving dividend!

Yes, it seems a bit strange in case of Varun Shipping.

However, even loss making companies have known to give dividends to keep investors happy.

In case of GE Shipping and Shipping Corporation, dividends are not a cause for worry.

At the end of FY 2007, GE Shipping had reserves of Rs 2900+ crore against total debt of Rs 2200 crore.

At the end of FY 2007, Shipping Corporation had reserves of Rs 4800+ crore against total debt of Rs 1250 crore.

Thus, these companies can afford to pay dividends even with a high debt.

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On the other hand, Varun Shipping's balance sheet is not that robust.

At the end of FY 2007, Varun Shipping had reserves of Rs 580+ crore against total debt of Rs 1800 crore.

For FY 2007,

Operating profit was Rs 373 crore.

Interest Paid was Rs 111 crore.

Net profit was Rs 141 crore (standalone).

Dividend distributed was Rs 60 crore.

The dividend distributed, does seem a bit high.

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Shipping Corporation had an operating profit of Rs 1570 crore against a debt of Rs 1250 crore. SCI seems to be in a much better position.

In fact, SCI has (reserves + share capital) of Rs 5100 crore.

It has debt of Rs 1250 crore.

Still the market capitalization of SCI is just Rs 6000 crore.

The stock seems pretty interesting.

Maybe the fleet of SCI is old and will need replacements soon. I will have to look for more information.

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It is also important to note that companies have to pay 30% dividend distribution tax (correct me if these figures are wrong). I think with such a high rate, there is no point in distributing dividend for companies with lot of debt. (you gain more by repaying the debt than please the investors, who also will be more happy to have a debt free company, and invest all the income in growth!)

It is not 30%, but 15%.

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Guys any updates in the shipping front.

How does GE Shipping look now? Is it a good long term bet?

Shipping looks bad. .

http://www.thehindubusinessline.com/...2550230600.htm

Yes , Baltic Dry Index is softening up in coming weeks, outlook is bad.

If you look at this thread, you will get technical view of same, it is showing negative divergence on MACD and RSI and broke it's trendline after 3 years of rally

Baltic Dry Index - Shipping Downturn in Sight!

I think one should wait for correction of BDI and bottoming of same!

GE Shipping would be the best bet if somebody wants to buy but we should wait , we will get better prices!

These guys sold a lot of ships at peak rates at start of year jan 2008 and I am sure would be sitting on cash to buy new ones, once the bottoming of prices happen in coming year!

They very well understand the Cycle of shipping industry! Smart management!

Can somebody look at balance sheet of GE Shipping and check there cash and reserve positions!

Varun and Mercator have announced big capex plans this year, so they are buying this year at peak rates! bad move!

From notes of balance Sheet

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Profit from ordinary activities before tax (excluding exchange gain) Q1 FY 2009 = 2,189.31
Profit from ordinary activities before tax (excluding exchange gain) Q1 FY 2008 = 3,021.48
Profit from ordinary activities before tax (including exchange gain) Q1 FY 2009 = 2,189.31
Profit from ordinary activities before tax (including exchange gain) Q1 FY 2008 = 12,732.46

If they had booked the Derivative losses, they would have made a loss of 1 billion this quarter 1.1 billion approx.

U.S.-Bound Boxes Pile Up in Asia as Lines Avoid Adding Ships.

Link

Any idea, how much does this affect the shipping sector in India?

According to the article, many new ships will be added to fleets worldwide in the next few years.

If that is true, it could be a big negative for the shipping sector.

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Our shipping stocks index is not in sync with the BDI (Baltic Dry Index):

Link