SCI to diversify fleet, buy offshore vessels

SCI to diversify fleet, buy offshore vessels

Mumbai: Shipping Corp. of India Ltd (SCI) will buy more oil rigs and offshore support vessels to diversify its fleet and reduce dependence on the volatile shipping business.

The state-owned company has placed orders for 31 vessels with various shipyards, of which 10 are meant to support offshore activities, including exploration and production of oil, chairman and managing director S. Hajara said.

The firm has also carried out due diligence to buy high-end jack-up rigs, used to drill the seabed for oil, said Arun Kumar Gupta, director of technical and offshore services.

Neither executive said how much money will be spent on these purchases.

The move can provide SCI a reliable source of income, said Siddhartha Khemka, research analyst at domestic broking firm Centrum Broking Pvt. Ltd.

“Any shipping company would want to have stable revenue and protect itself from volatility if it is dependent purely on the shipping business," Khemka said.

London-based Baltic Dry Index (BDI), a key measure of the health of global trade and freight rates of the shipping industry, slumped to 1,480 points on Tuesday from 2,179 points on 6 December 2010.

Shipping markets will remain subdued in the near to medium term, credit rating firm Icra said in a 23 May report, citing increasing fleet capacity.

India’s largest private shipping company, Great Eastern Shipping Co. Ltd, recently said it will focus on the offshore segment because of the volatility in shipping business. It owns small offshore support vessels and oil rigs.

Some other private shipping companies, such as Mercator Lines Ltd and Varun Shipping Co. Ltd, have also diversified into the offshore segment.

Khemka, however, cautioned that merely buying offshore support vessels won’t suffice as most Indian companies deploy such vessels only with Indian oil producers.

“We are ready to deploy the new offshore vessels anywhere in the world," Gupta said. “We are more keen on getting employment for our vessels than idling."

He said the offshore fleet was currently a mere 5% of the company’s total fleet in terms of tonnage. The offshore segment contributed 97 crore to its revenue of 3,543.42 crore in the year ended March, he said, but did not divulge any growth target.

Analysts are sceptical about SCI’s offshore plan as the company’s earlier diversification efforts into shipbuilding, container terminal management and logistics have not been successful.

In 2008, the company tried to bid for container terminals, but the plan did not take off as its private partner backed out due to the economic slowdown.

“It was difficult to venture into a new area when the market is bad," said Hajara. “You tend to focus on top line and bottom line (revenue and profit, respectively) when the market is bad and not very bullish on diversification."

Hajara said the idea to forge a joint venture with state-run Steel Authority of India Ltd is being formalized, while a plan to tie up with Coal India Ltd is at a nascent stage.

SCI also plans to pick up a minority stake in an Indian shipyard. “We are doing due diligence for picking up a stake in an Indian shipyard," he said.

SCI is not able to execute many of its plans as it is state-run, a shipping consultant said, requesting anonymity. The government owns a 63.75% stake in the company.

Khemka agreed, saying the 10 new offshore support vessels will only help SCI replace an ageing fleet.

Gupta said the average age of the offshore fleet is 27 years.