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Mercator Lines aims to become a $5 billion company

Mercator Lines aims to become a $5 billion company
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First Published: Thu, Nov 05 2009. 12 54 AM IST

Updated: Thu, Nov 05 2009. 12 54 AM IST
Mumbai: It all started with an idea floated by a co-passenger in a flight.
Harish K. Mittal, owner of India’s second largest private shipping line, does not remember the passenger’s name, but his suggestion on starting a shipping firm way back in the early 1980s stuck in his mind.
Mittal, then running a chemical factory in Muzaffarnagar in Uttar Pradesh, mentioned this idea to Atul Agarwal, who is married to his wife’s sister. Agarwal was at the time auditing some companies that included a few shipping firms.
In 1988, Agarwal mentioned that Mumbai-based Mercator Lines Ltd was on the block. Mittal, then also into the business of buying ship scrap, did not hesitate. He bought the firm for Rs1.2 crore from the Ramchandani family.
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From Rs65 lakh in 1988, the firm’s revenue increased to Rs2,200 crore in the year ended 31 March. Mercator Lines today runs a fleet of 28 vessels, up from three barges in the year Mittal bought the firm.
The shipping line, riding high on the wave of India’s economic liberalization since the 1990s, listed on the Bombay Stock Exchange in 1993 and has never missed paying a a yearly dividend to shareholders, Mittal says.
The 59-year-old entrepreneur now wants to make his firm a $5 billion (around Rs23,550 crore) company, an “ambitious dream,” but not impossible for a shipping line that reported a revenue of just Rs60 crore just five years ago.
From a traditional tanker company, Mercator today has a presence in bulk shipping, tanker shipping, dredging, offshore oil exploration and coal mines.
“We have already acquired four coal mines in Indonesia and one in Mozambique. We are now looking for acquiring one more in Indonesia. This will enable us to offer a complete logistics package including coal, ship and local logistics,” says Mittal, who holds a 1973 postgraduate degree in technology from the Indian Institute of Technology, Roorkee, then known as the University of Roorkee.
A majority of new Indian power projects are eyeing imported coal, mainly from Indonesia, to run their plants.
Mittal attributes his success to his management team.
An analyst agrees. “Mercator Lines management was always aggressive to grab every opportunity that came before them, be it dredging, coal mines, offshore or dry bulk ships,” says Kapil Yadav, an analyst with domestic brokerage Dolat Capital Market Pvt. Ltd. Yadav tracks the firm’s scrip.
“The business model of Mercator Lines is to diversify to several segments to derisk, while locking in its vessels for long-term contracts to mitigate the volatility of freight rates,” he says.
Mercator Lines has acquired four dredgers and plans to add six more to its portfolio. Indian ports continuously require dredging to keep their shipping channels deep. State-run Dredging Corp. of India Ltd is unable to meet the entire requirements of the country’s ports. Some international dredging companies have set up shop in India to tap the market potential.
“We are very serious about dredging,” says Mittal. “Apart from dredging, we are also upbeat about the offshore sector.”
Mercator Lines, as part of a strategy to derisk the cyclical nature of its core shipping business, entered the offshore drilling business with the delivery of a Rs1,000 crore jack-up rig. The rig was immediately deployed on a three-year contract with state-owned Oil and Natural Gas Corp. Ltd through Great Eastern Shipping Co. Ltd.
“We are constantly looking for other areas of offshore business, exclusive offshore support vessels. This could be anything, high specification rigs or other areas,” Mittal says. “Mercator was contracted two oil blocks under the seventh round of the new exploration licensing policy,” Mittal said.
In December 2007, Mercator Lines listed its Singapore-based subsidiary on the Singapore Stock Exchange and raised over Rs500 crore.
Last year, shipping firms were hit by the global economic downturn that led to a steep decline in world trade and caused freight rates to fall. “Though there are some signs of revival, I think the next two years are going to be tough for the shipping sector,” Mittal says. “Our diversification model is going to save us during this crisis.”
“Though Mercator has done everything to de-risk by diversifying, as a shipping company it will be exposed to volatility since it is a cyclical industry,” Dolat’s Yadav says.
Mittal, however, remains optimistic. He says all the business segments of his firm are growing and he would continue to invest in these. “Nothing stops us from aiming at being a $5 billion company.”
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First Published: Thu, Nov 05 2009. 12 54 AM IST