Shipping Corporation of India is expected to report negative returns on its capital employed for the next two years, according to a research report by ICICI Direct.According to Bharat Chhoda, shipping analyst with ICICI, India’s public sector maritime major is expected to report negative ROCE of 3.4%. ROCE is a ratio that indicates the efficiency and profitability of a company’s capital investments. In other words, ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce share holders’ earnings.
As on Sept. 30, Shipping Corporation of India had a debt of Rs. 6,086 crores while its quarterly interest outgo was Rs. 25.90 crores. However, due to an accounting norm, this interest cost was reduced from Rs. 110 crores.
This would mean SCI’s annualized borrowing cost is over 7% while its returns are negative 3.4%, indicating inefficient deployment of investment in ships at an inappropriate time.
Among the shipping companies, Mercator Ltd has positive ROCE of 5% while GE Shipping has it at 4.4% compared to negative returns of SCI.
To add to SCI’s woes, its financials are expected to be burdened by weak freight rates and higher depreciation due to significant fleet addition (19 vessels, four bulk carriers, two VLCCs, four container carriers and nine offshore vessels) over the next 24-30 months, said Bharat Chhoda.
Currently, SCI’s total fleet stands at 80 vessels, comprising 18 crude carriers, 15 product carriers, 15 dry bulk carriers, eight liners (seven containers and one passenger) and 17 offshore vessels, one chemical tanker and two gas carriers.
The industry continues to face the challenge of a downturn in global trade and oversupply of tonnage resulting in depressed operating margin, SCI officials told equity analysts after the July-September earnings.
According to SCI officials, ships have resorted to slow steaming on selected routes to reduce cost as the bulk and tanker divisions face the most difficult time.
SCI reported a net profit of Rs. 297 crores in July-September due to an exceptional gain of Rs. 479 crores on change in accounting norms after reporting a net loss of Rs. 55 crores in April-June.
No comments:
Post a Comment