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Published on 26/10/2020 1:44:41 PM | Source: HDFC Securities Ltd

Buy Shipping Corporation of India Ltd For Target Rs.67 - HDFC Securities

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Buy Shipping Corporation of India Ltd  For Target Rs.67  - HDFC Securities

 

Our Take:

Shipping Corporation of India is a Navratna company with the Government of India (GoI) holding 63.75% of the equity. SCI has established relationships with major private sector and PSUs companies and has a strong competitive position in the domestic market with the largest fleet size in the Indian shipping industry. Its client list includes the likes of Shell, RIL, BP, Petronas, IOCL, ONGC, SAIL, BHEL, HPCL. BPCL etc

We expect that Covid-19 led lockdown and slowdown in the economy will lead to degrowth in revenue in the near term. The industry has a higher dependence on the manufacturing sector and government support which is expected to post slow growth due to expected slowdown in the economy. Due to a shortage in storage capacity of Oil in Q1FY21, tanker realization has improved drastically but which is not sustainable as OMCs has started with the liquidation of inventories. Government divestment will be a key event to focus in the near term.

 

Valuations and View:

We expect that the company will get benefits from the long experience of business, leadership position, diversified revenue stream. Covid19 led lockdown that has adversely impacted economy which in turn affected the company, lower utilization, expected shortage of labour, and non-recurrence of Q4FY20 and Q1FY21 performance of tanker division which could lead to 4% CAGR in top-line and 8% EPS CAGR over FY20-22E. Shipping stocks are valued based on their book values/NAV. In the case of Shipping Corporation of India, we do not have access to its NAV and hence have to depend on its EPS and BV. We feel the base case fair value of the stock is Rs.59 (6x FY22E EPS, 0.28xFY22E BV), Bull case fair value of the stock is Rs.67 (8.0x FY22E EPS, 0.38xFY22E BV) over the next two quarters. Investors can buy the stock at Rs.50 (6xFY22E EPS and 0.28xFY22E BV) and add more on dips to Rs.46 (5.5xFY22E EPS, 0.26xFY22E BV).

 

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