Mercator’s stock shores up on coal unit share sale offer

Mercator’s stock shores up on coal unit share sale offer

Shipping is in the doldrums and it’s no surprise that firms are looking at new businesses to drive profits. Great Eastern Shipping Co. Ltd is moving to the offshoring business, while Mercator Lines Ltd wants to focus on coal exploration and mining.

On Wednesday, Mercator said that it plans to raise $150 million (around 675 crore today) by way of a new share sale in its coal unit called Oorja Holdings Pte Ltd. While that may have been in the air for a while, investors cheered the initial public offer announcement by boosting the stock 5.6%.

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Not without a reason. Oorja’s listing will not only unlock value for Mercator, but the money would also be handy as it plans to invest some 250 crore in this business over the next couple of years. Note that the company has a debt of 3,273 crore as on 31 March and wants to repay one-third of it by the end of this fiscal, Dow Jones Newswires reports.

For that, the coal business would have to fire. In the last fiscal, segmental revenue from Mercator’s shipping business grew a paltry 6%, while the offshore category shrunk by a quarter. Earnings before interest and tax (Ebit) for these divisions fell by 29% and the outlook isn’t much improved for the shipping business.

An oversupply of ships means that freight rates are likely to remain at half mast for the rest of this year and even a part of the next fiscal, brokerages predict. That leaves the coal unit.

While Oorja bought a couple of mines in Indonesia and Mozambique in 2007, the business really picked up only in the last fiscal. Coal is Mercator’s single largest business, accounting for nearly half its revenue and a tad less than one-third of Ebit. Mercator plans to invest only in this business. With investments mostly focused on this category, it will soon eclipse the other two businesses, a no-brainer conclusion, since this is a fuel that is in short supply in India.

Hence, despite the increasing dependence on a non-core business, brokerages predict that the stock will rise further.

Graphics by Yogesh Kumar/Mint

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