Accumulate Shipping Corporation of India; target of Rs 110: Kotak Securities
Kotak Securities’ research report on Shipping Corporation of India
SCI has reported weak set of numbers for Q2FY18 despite improvement in macroeconomic environment and up-trend in shipping cycle. This is primarily due to poor strategy adopted by the company in placing its ships, improper capex plan and poor bargaining with customers. Sales was reported at Rs 8.08 bn (+6.5% YoY and -6.5% QoQ) with weakness in the key tanker segment despite upcoming winter in the west. This dragged the overall EBIDTA margin to 15.49% (-200 bps QoQ and -380 bps YoY) which is the lowest in the last 8 quarters. Consequently company reported loss of Rs 763 mn against our expectation of profit of Rs 461 mn..
Improving shipping markets should help the company report better numbers in H2FY18, despite lack of aggression and inadequate strategy from the company in a competitive environment. Strategic sale by government is expected to remove government bound constraints and improve management of SCI which should add value to the company. Recommend ACCUMULATE with a decreased TP of Rs 110 (from Rs 125).
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