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Shipping Sector Shares
Welcome to Indian Share Market
Your Desire to Earn
(Posted date - 01 Jan 2010)
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Overview of Shipping sector
1) While freight rates, an indicator of health of the shipping industry, have moved up from their September lows 2009, a faster global economic recovery seems to be the best bet in tackling over capacity and a slump in demand.
2) The Baltic Dry Index (BDI), which measures international shipping freight rates of dry bulk cargo, has moved up about 70 per cent over its September 2009 lows. While this trend is positive, the index is still 69 per cent down from its highs of May 2008, when it was trading at 10,000 levels.
3) Similarly, the Baltic Dirty Tanker Index, which measures shipping freight rates for transport of crude oil, is up 56 per cent since its August 2009 lows to 730 but is 69 per cent down from its July 2008 highs. While the worst might be over, the sector still has along way to go before companies can think about returning to the super normal profits scenario that prevailed before the downturn struck.
Slow Recovery is expected
1) Going ahead, analysts believe that the Baltic shipping indices (which measure freight rates) are likely to be volatile and range bound reflecting the uncertainty regarding the pace of global economic recovery.
2) The International Monetary Fund (IMF), while predicting that world GDP growth will touch 3 per cent in 2010 after contracting by 1 per cent in 2009, says that “the recovery is tentative in many places and global growth is prone to new shocks.”
3) The indices are displaying this sentiment. For example, the BDI (Baltic Dry Index) has moved 9 per cent both ways in November 2009 and has been volatile in December 2009 as well. Stock prices of shipping companies, too, are suffering due to the unclear outlook for the sector and have ended the week in the negative territory.
4) While a gradual global economic recovery is predicted and may boost demand for shipping companies, on the supply side, the cancellations and the order book position have created a question mark on the profitability of shipbuilders.
The fortunes of the shipping companies would depend on the pace of manufacturing activity in China and growth in the developed world.
Oil demand factor
While freight rates for the tanker business, which accounts for about 36 per cent of sea trade, are expected to rise during the winter months from the September 2009 quarter levels, the key determinant going ahead will depend on future oil demand. Industry body, the International Energy Agency estimates that crude oil
demand growth in CY2010 would be 1.6 per cent after shrinking by an estimated 1.73 per cent in CY2009.
This should help the crude tanker companies which have been struggling to break even at the operating level. Product tankers which carry the refined fuels, have been under pressure as lower gross refining margins meant dip in product supply which put pressure on rates.
China Factor
On the dry bulk side, the situation is much better as at current rates, shipping companies are making profits at the net level. Going ahead, the Chinese manufacturing activity will hold key to freight rates.
The Asian giant accounts for 50 per cent of iron ore trade, which along with coal accounts for half of the dry bulk business. Analysts say that the recent increase in BDI has been due to the higher demand for iron ore and coking coal (used in steel making) from China, which to some extent is due to stocking up of inventories.
In short term to medium term the sector doesn’t look impressive but in long term, definitely, they will be excellent profit generators.
The Following are shipping companies which are expected to provide good returns in long term.
Please Note -
1) Currently markets are trading at higher valuations taking into consideration forward earnings so some profit booking in next 3 to 4 months could not be ruled out so in such scenario it is advisable to buy stocks in steps instead of buying in bulk in single day/trade. It is recommended to buy few stocks at current level and if the stock price falls further you can add few more. It is not possible to buy the stocks at exact prices.
2) Due to posting of good financial results, by companies, there are high probabilities that the stock price may go up before mentioned duration periods in following stocks picks but it is recommended to book profits as and when required instead of waiting for mentioned duration period.
Chowgule Steamships
Current Price - Rs 44
Market Capital - 159 crore
PE ratio - 2.96
EPS - 14.85
Expected Returns - 55 to 65%
Holding Duration - 2 to 3 years
Garware Offshore Services
Current Price - Rs 169
Market Capital - 404 crore
PE ratio - 9.84
EPS - 17.25
Expected Returns - 50 to 65%
Holding Duration - 2 to 3 years
Great Eastern Shipping Company
Current Price - Rs 280
Market Capital - 4270 crore
PE ratio - 6.07
EPS - 46.23
Expected Returns - 60 to 70%
Holding Duration - 2 to 3 years
Mercator Lines (MLL)
Current Price - Rs 57
Market Capital - 1364 crore
PE ratio - 7.82
EPS - 7.39
Expected Returns - 50 to 60%
Holding Duration - 2 to 3 years
Seamec Ltd
Current Price - Rs 217
Market Capital - 737 crore
PE ratio - 3.07
EPS - 70.88
Expected Returns - 60 to 70%
Holding Duration - 2 to 3 years
Great Offshore
Current Price - Rs 471
Market Capital - 1752 crore
PE ratio - 9.59
EPS - 49.18
Expected Returns - 50 to 70%
Holding Duration - 2 to 3 years
