State-run Shipping Corporation of India (SCI) said it will exercise caution in taking up new projects in the future, including a planned diversification into shipyards, and expansion of its fleet. The company?s shares have fallen around 6% on the Bombay Stock Exchange since October 1 following reports of a government note on its financial position and vessel acquisition plans.
Addressing the media on Tuesday, S Hazara, SCI?s chairman said, ?The board has asked us to be cautious and go for only those projects which would bring gains not just in the long term but also in the short term.? Meanwhile, K Mohandas, secretary, ministry of shipping, said the fundamentals of SCI are strong, and that the government has not asked the company to stop vessel acquisition. ?There is no need for the government to step in to assist SCI. They will go ahead with their plan, taking into account their financial and market conditions,? he added. He was responding to media reports that said the ministry of shipping has asked SCI scrap its fleet expansion plans, stop diversifying into ship building and operating ports after the company posted losses in two consecutive quarters.
SCI reported losses of R5.9 crore for the first quarter of FY2011-12 on revenue of R929.4 crore. In a media presentation, Hazara said that SCI will have a fleet of ?93 vessels by the year 2012. ?We will add at least 10 vessels in this financial year,? he said. In March 2011, SCI?s debt to equity ratio stands at 0.66 compared to other companies which have a highly leveraged balance sheet, with about 1.3-1.5 debt to equity ratio, he added. ?We will not exceed a debt to equity ratio of 1.1 even with the implementation of all our capex programme in the 11th Plan.? The company had a debt of R4,716 crore on its books as on March 31, 2011, compared to R2,695 crore a year earlier. Hazare also said shipping companies have the flexibility of mortgaging ships. ?They are the most liquid assets,? he added.
Analysts said a long term view on acquisitions was necessary. ?Although the shipping industry is going through a double squeeze of top-line dropping and costs going up, acquisitions of ships should be viewed in a long term perspective,? said Hemant Bhattbhatt, senior director with Deloitte India. Shipping companies can sell their acquired ships after three to four years when the prices of these ships improve, he added.
SCI has a present order book of 28 vessels of which it says that the market price of nine vessels have declined. ?Prices of other vessels remain in line with the present market,? Hazara said. These 28 vessels have been ordered from 2007 through 2011.Sunil Thapar, director, bulk carrier and tanker division, SCI, told FE that more than 70% of the company?s revenue comes from transporting oil and the business has been under pressure owing to the global slowdown.