The outlook for the shipping business continues to be weak, with freight rates in the dry bulk and tanker segment expected to be muted, as more supply of vessels hits the market.
Nevertheless, the financial results of Shipping Corp. of India Ltd (SCI) for the quarter ended 31 December show a decent improvement on a year-on-year (y-o-y) basis at the net level. However, profitability in the September quarter was comparatively better.
In the December quarter, operating profit margin improved to 18% from 10% in the same period last year, but operating margin for the September quarter stood at 23%. Higher bunker costs are the main reason.
These stood at about 24% of revenue this time compared with 19% in the preceding quarter. The company said bunker prices have gone up along with crude oil prices, which have led to an increase in bunker costs.
Costs were down by 4%, which led to an 84% increase in operating profit. Revenue increased by 5% y-o-y to Rs890 crore.
SCI derived its revenue mainly from the liner and bulk segments, which includes tankers and dry bulk carriers. The liner segment posted strong revenue growth of about 38% and contributed 30% of revenue. Revenue from the bulk segment, which accounted for 64% of revenue, fell by 6.7% due to depressed freight rates. The remaining revenue comes from others segments, including offshore vessels, services and passenger vehicles.
But while the liner segment revenue was strong, profitability was weak. Liner segment earnings before interest and tax (Ebit) stood at Rs9.6 crore against a loss of Rs46 crore in the December 2009 quarter. That looks good. But Ebit margins fell to 3% from 13% in the September quarter and 9.3% for the nine months ended December.
According B.K. Mandal, director (finance), SCI has been expanding the liner segment and has started new services, which resulted in leasing more containers. “There were one-time costs such as lifting charges and also freight rates were subdued, which impacted the liner segment performance,” he said.
Accordingly, the liner segment should perform better in the current quarter due to the absence of those one-time costs seen in the December quarter. Higher interest expenses and increased depreciation costs, as SCI added more vessels, have led to a 41% growth in net profit to Rs123 crore.
Since the beginning of the fiscal, SCI’s stock has underperformed the BSE-200 index of the Bombay Stock Exchange. At least in the near term, there is little reason for that trend to change.
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