Shipping Corporation of India Ltd (SCI) continues to bear the brunt of the poor operating environment--an oversupply of ships and weak freight rates.

True, the fact that the company reported a net profit of 4 crore looks good when compared to the net losses SCI posted in the previous three quarters. But, the shipping company has posted a net loss after adjusting for profit on sale of ships and exchange gain in the December quarter. “The loss stood at 155.8 crore adjusted for the ship sale profit of 175.1 crore and exchange gain of 168 crore included in other operating income," points a post results update from IDBI Capital Markets. What were the reasons for the loss? The report further adds, “loss stood at .5 bn mainly on the back of lower realizations in the tanker space as 3 of company’s VLCCs run on spot where the average charter rates during the quarter were US$5,000/day and not even able to recover operating costs."

The liner segment disappointed yet again for the quarter with loss at the earnings before interest and tax (ebit) level widening to 24 crore from 1.6 crore in the September quarter. The business was affected on account of higher bunker charges and lower charter rates.

Also see | Still sinking (PDF)

Meanwhile, since the beginning of the current quarter, the SCI stock has outperformed the BSE 200 index of the Bombay Stock Exchange. But note that this outperformance comes after the stock had underperformed the BSE 200 index for the nine-month ended December. Despite the recent outperformance, the SCI stock is still down by 29% to 77 since the beginning of FY12.

While the current times are challenging for shipping companies, the near term is expected to be equally bad if not worse. Charter rates are expected to under pressure going forward as well on account of oversupply of ships. Another issue with SCI is that the company had ordered vessels at the peak of the freight rate cycle. Currently, with freight rates being where they are, the break-even point for these vessels becomes challenging. As things stand now, it’ll be a while before SCI’s ship starts sailing smoothly.

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