Shipping Sector Report: Selective Plays in Shipping and Offshore

Sector Report
September 29, 2010

Rating Matrix
FY12E
CMP
TP
Essar Shipping
112
112
Reduce
0%
GE Shipping
307
356
Buy
16%
55
63
Buy
15%
162
162
Reduce
0%
42
36
Sell
-14%
Aban Offshore
860
947
Buy
10%
Garware Offshore
121
139
Buy
15%
Great Offshore
385
444
Buy
15%
ABG Shipyard
244
241
Reduce
-1%
Bharati Shipyard
223
258
Buy
16%
Mercator Lines
SCI
Varun
Key Financials ( | crore)

FY12E
Rev. PAT
EPS
MCap.
Debt
Essar Shipping
4,227 328
5.3
6,959
7508 14186
GE Shipping
3,687 692
45.4
4,675
5370
EV
8302
Mercator Lines
2,577 200
8.3
1,297
3017
3359
SCI
4,005 250
5.9
6,861
2694
7083
630
2741
3335
Varun
Aban Offshore
Garware Offshore
750
-56
3,680 868 199.7

231
3,742 14164 17670
42
17.7
288
503
780
Great Offshore
1,508 286
76.8
1,433
2343
3676
ABG Shipyard
2,613 242
47.4
1,242
2131
3312
Bharati Shipyard
1,143 179
64.9
615
2323
2722
Valuation Summary
FY12E
Essar Shipping
GE Shipping
Mercator Lines
PE EV/EBITDA P/BV ROCE RONW

25.5
10.8
0.8
5.4
3.7
6.8
5.8
0.7
8.7
10.4
6.6
2.7
0.5
8.3
7.7
20.3
11.5
1.0
2.3
2.0
8.6
0.9
3.8
Aban Offshore
4.4
5.9
1.2
13.2
26.2
Garware Offshore
6.8
7.7
0.9
7.7
12.8
Great Offshore
5.0
4.1
0.9
12.8
18.0
SCI
Varun
Shipping Industry Report
Rating Upside
ABG Shipyard
5.1
5.6
0.8
15.1
15.9
Bharati Shipyard
3.4
9.8
0.5
8.1
15.1
Analysts name
Bharat Chhoda
bharat.chhoda@icicisecurities.com
Jehangir Master
jehangir.master@icicisecurities.com
ICICIdirect.com | Equity Research
Selective play
Global Scenario
Global steel production has grown at 2.7% CAGR in the last five years
while demand for coal has grown at 3.5% CAGR over the same period.
Strong demand for iron ore was mainly driven by China, which has a
45.1% share in global steel production. Going forward, demand for dry
bulk commodities such as iron ore and coal is likely to remain strong
resulting in demand for dry bulk carriers. Crude oil demand has grown
at a CAGR of 0.2% over last five years. Crude oil demand is mainly
driven by developed economies with the US and Europe having 26.4%
and 23.5% share, respectively. As a recovery in Europe and US remain
sluggish, demand for crude and product carriers will be modest.
However, supply of vessels in both the dry bulk and tanker segment is
expected to outpace demand growth by a large margin and remains a
serious concern for the industry. The present global order book is
approximately 62.8%, 43.1% and 51.4% of the existing dry bulk, crude
tanker and product carrier fleet, respectively. Thus, supply of vessels is
more than capable of absorbing additional demand.
Dry bulk freight rates are expected to remain range bound. Import of
iron ore by China is likely to fluctuate on account of
destocking/restocking of inventory resulting in volatility in freight rates.
Tanker and product carrier freight rates are likely to remain subdued on
account of sluggish demand for crude oil and refined products
combined with large supply of new vessels. Although scrapping of
single hull crude and product carriers will reduce tonnage, the impact
will be insignificant.
Offshore companies are better placed as crude oil prices have sustained
above $60/barrel in the last 15 months. This is expected to lead to
increased spend on exploration/drilling activities leading to higher
utilisation levels along with appreciation in vessel day rates.
Shipbuilding has been worst hit with weakness in freight rates.
Shipyards globally have reported shrinkage in their order book size. The
main reason is drying up of new orders while execution of the existing
order continues. Performance of shipyards is expected to peak in CY11
on the back of order book execution. After this, it is expected to slide
and remain muted for the next few years as capacity utilisation drops.
Domestic Scenario
The outlook and performance of the domestic shipping industry is
closely tied to the global shipping industry. Hence, under performance
of the global shipping industry is bound to have an adverse impact on
domestic companies as well. However, despite this, select domestic
shipping companies are better placed on account of their inherent
strengths such as presence in different segments, long-term contracts
and attractive valuations.
Shipping Sector Report
Stock Recommendations
We recommend investments in select stocks to maximise returns:
Shipping segment
GE Shipping
GE Shipping is the second largest shipping company in India and
operates a fleet of 62 vessels, which is being expanded to 74 vessels by
FY12. The company has a comfortable debt equity ratio and ~ | 1700
crore of cash on its balance sheet, which would be useful for acquiring
assets in the second hand market at distressed valuations. The initial
public offer of its subsidiary Greatship Ltd is expected in Q3FY11. This will
be an added trigger. We recommend BUY with a price target of | 356.
Mercator Lines
Mercator Lines has a diversified fleet and operates tankers, bulk carriers,
jack-up rigs and dredgers. The company owns and operates coal mines in
Indonesia in addition to coal trading. Diverse revenue streams provide a
significant hedge to the company from a downturn in any particular
segment. Almost 70% of its dry bulk fleet is deployed on long-term
contracts, which reduce volatility in earnings. From Q3FY10, Mercator
Lines would be operating a floating production cum storage unit (FPSO),
which is another new segment for the company. We expect the company
to scale up its FPSO fleet after gaining initial operating experience.
Mercator Lines is likely to increase its dredging fleet once dredging
activity picks up pace in India. Despite the above advantages, Mercator
Lines is trading at a significant discount and is likely to get re-rated. We
recommend BUY with a price target of | 63.
Page 2
Offshore segment
Aban Offshore
Aban Offshore is the sixteenth largest offshore drilling company in the
world with operating margins in excess of 60%. The company operates a
fleet of 19 vessels consisting of 15 jack-up rigs, three drill ships and one
floating production unit. Currently, 14 of its assets are deployed on longterm contracts. The company has secured contracts for three other
assets, which will be deployed from Q3FY11. This has improved the
earnings visibility and the EPS is expected to report a significant
improvement in FY12. Further, crude oil prices have sustained above
$60/barrel in the last 15 months. This is likely to lead to increased spend
towards exploration/drilling, which would be positive for Aban Offshore.
The single biggest concern was its high debt (in excess of | 14000 crore)
and its repayment. However, with improved earnings visibility the
concern has eased significantly. We recommend BUY with a price target
of | 947.
Great Offshore
Great Offshore is one of the largest offshore companies in India and
operates a fleet of 46 vessels consisting of 16 AHTS vessels, 12 offshore
support vessels, 12 harbour tugs, three jack-up rigs and three
construction barges. A varied mix of a fleet coupled with long-term
contracts ensure steady revenue visibility for the company. The company
has also ramped up its presence in the marine engineering and
construction segment and has successfully executed contracts for ONGC.
Post open offer, Bharati Shipyard has secured a 51% stake and
management control in Great Offshore. With the management team in
place the company is likely to increase its capex spend for fleet
expansion. The company is trading at a significant discount to its
historical valuation level, which makes the stock an attractive investment
bet. Further, Bharati Shipyard, the current promoter, has acquired a 51%
stake in the company at an average price of | 476 per share, which
provides an added comfort. We recommend BUY on the stock with a
price target of | 444.
Page 3
Table of Content
Industry Outlook
Demand Dynamics
Supply Dynamics
Freight outlook
Risk & Concerns
15
Indian Shipping Industry Key parameters
16
Ranking Scale
22
Coverage Universe Valuation
24
Global Valuation
25
Management View
26
Companies under coverage

Shipping
Essar Shipping
GE Shipping
Mercator Lines
SCI
Varun Shipping
Offshore
Aban Offshore
Garware Offshore
Great Offshore
Shipbuilding
ABG Shipyard
Bharati Shipyard
Forthcoming Issues
Essar Shipping Demerger of business
Greatship - IPO
SCI - FPO
Page No
30
34
39
43
47
50
55
59
63
67
71
75
76
Annexure:
Global Fleet Status
Snapshot of companies not under coverage
Asian Oilfield Services
Chowgule Steamship
Dolphin Offshore
Dredging Corporation
Haryana Ship Breakers
Jindal Drilling
Pipavav Shipyard
Seamec
Shreyas Shipping
Western India Shipyard
78
79
80
81
82
83
84
85
86
87
Charts and Trend
89
Glossary
Rating Rationale
94
95
77
Page 4
Industry outlook
Demand outlook positive for dry bulk vessels but tanker demand
sluggish
Demand for dry bulk commodities such as iron ore has been strong over
the last year mainly on account of strong demand revival from China
(45.1% of global steel produced in China). Demand for dry bulk
commodities is likely to remain strong mainly driven by China and India
over the next couple of years resulting in demand for dry bulk carriers.
Crude oil demand is mainly driven by developed economies with the US
having 26.4% share and Europe having 23.5% share of global demand.
As the recovery in the Europe and US remain sluggish, demand revival in
the tanker and product carrier segment will be very gradual.
Supply overhang to make recovery long and painful

Supply overhang is serious and the single biggest concern for the
industry over the next two years. At present, the global order book is
tanker and product carrier fleet, respectively. The excess supply of
vessels is likely to absorb additional demand.
Freight rates likely to remain muted across segments

Dry bulk freight rates are expected to remain range bound. The rise in
demand is likely to be negated by the large number of vessel additions to
the dry bulk fleet. The import of iron ore by China is likely to fluctuate
leading to volatility in freight rates.
Tanker and product carrier freight rates are likely to remain suppressed.
The reason for the bleak outlook is sluggish demand for crude oil and
refined products combined with large new build supply of vessels.
Although scrapping of single hull vessels is expected to reduce the
tonnage, the impact will be insignificant.
Page 5
Demand Dynamics
Dry Bulk Segment
Exhibit 1: Global steel production
mln tonnes
Global steel production has grown at a CAGR of 2.7%

over the last five years
1600
1400
1200
1000
800
600
400
200
0
851
904
970
2001
2002
2003
1072
1144
2004
2005
1247
2006
1346
1329
2007
2008
1227
2009
Steel Production
Source: Bloomberg, ICICIdirect.com Research
Exhibit 2: Chinas share in world steel production July 2010
China commands 45.1% share in global steel production

The dominance of China has a significant impact on dry
bulk freight rates
As supply of vessels is inelastic, production and
inventory levels in China would impact the movements
in BDI over the next few years
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
45.1%
China's domination
24.4%
12.1%
7.6%
China
European
Union
CIS
5.0%
3.3%
2.6%
India
North
America
Brazil
ROW
Exhibit 3: Chinas monthly steel production

60
Steel production in China has been steadily rising over
the last 1.5 years after dipping in H2CY08
This led to a rise in import of iron ore leading to a surge

in demand for dry bulk vessels
mln tonnes
Steel production was boosted by the stimulus package

doled out by the Chinese government, which led to a
sharp rise in infrastructure spend
55
50
45
40
35
30
Jan-07
Aug-07
Mar-08
Oct-08
May-09
Dec-09
Jul-10
Page 6
Exhibit 4: Chinas monthly iron ore inventory

85
80
The inventory level can drop if it slows down its steel

production
75
mln tonnes
China has maintained a fairly stable inventory level over

the last one year with inventory level of ~ 70 million
tonnes
70
65
60
55
50
Aug-06
Apr-07
Dec-07
Aug-08
Apr-09
Dec-09
Aug-10
Exhibit 5: China iron ore import trend analysis

70
Import of iron ore by China in the past one year has been
strong. This has resulted in strength in dry bulk freight
rates
50
mln tonnes
The rally in BDI last year can be attributed entirely to

imports of iron ore by China
60
40
30
20
10
0
Oct-08
Jan-09
Apr-09
Australia
Jul-09
Brazil
Oct-09
Jan-10
India
Apr-10
Jul-10
South Africa
Total
Exhibit 6: Coal demand growth
Global coal demand has grown at a CAGR of 3.5%

mln tonnes
3500
3000
2500
2349
2403
2001
2002
2595
2904
3039
3184
3286
3278
2764
2004
2005
2006
2007
2008
2009
2000
1500
1000
500
0
2003
Coal Demand
Page 7
Exhibit 7: Crude oil demand
Crude oil demand has reported a CAGR growth of 0.2%

6100
6000
mln tonnes
5900
5832
5800
5700
5600
5922
5883
5977
5968
5891
5689
5582
5617
5500
5400
5300
2001
2002
2003
2004
2005
2006
2007
2008
2009
Crude Demand
Exhibit 8: US and Europe share in global crude oil demand July 2010
US and Europe are the major consumers of crude oil and

refined products. Due to the sluggish growth in the US
and Europe the demand has also remained very tepid
35.0%
30.0%
26.4%
25.0%
33.1%
US and Europe are

key demand drivers
23.5%
20.0%
15.0%
10.4%
10.0%
5.0%
3.8%
2.7%
India
Brazil
0.0%
North America Europe and
Eurasia
China
ROW
Supply Dynamics
Industry supply snapshot
Exhibit 9: Global fleet order book
New build vessels, which are expected to join the global
shipping fleet over the next couple of years, are likely to
keep freight rates muted
Dry Bulk
Crude Oil
Product Carriers
LPG
Containers
Vessels
6915
2117
1508
516
4623
Present Fleet Order book as %

DWT ('000)
of DWT
449688
62.8
326587
43.1
51706
51.4
13298
25.9
178489
39.1
The global dry bulk order book is 62.8% of the existing dry bulk fleet.
Exceptionally high freight rates in 2007 and 2008 encouraged most
shipping companies to expand their capacities. The global crude and
product carrier order book is 43.1% and 51.4% of the crude and product
tanker fleet, respectively. It is estimated that single hull tankers constitute
~9% of the global crude and product carrier fleet. Scrapping of single hull
tankers by end of CY10 would be of limited help as the supply overhang
is quite substantial.
Page 8
Freight outlook - Long road to recovery

Dry bulk carriers
Exhibit 10: Dry bulk freight rates
The last two years have been very volatile for the dry bulk
market as the Baltic Dry Index touched an all-time high of
17300
11793 in May 2008 and, thereafter, corrected by ~ 95%
14500
Since then, BDI has remained range bound between 2000

and 4500 levels
Index
in the next six months to 663 in December 2008
11700
8900
6100
Going forward, BDI is expected to remain subdued on
3300
account of supply overhang
500
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
BDI
BCI
BPI
Feb-10
Aug-10
Dry bulk freight rates are expected to remain muted and range bound
over the next couple of years. The rise in demand is likely to be negated
by a large number of vessel additions to dry bulk fleet. Import of iron ore
by China is likely to remain strong. However, fluctuations in iron ore
inventory levels are likely to result in volatility in freight rates.
Crude and product carriers

Exhibit 11: Tanker freight rates
150,500
next couple of years
125,500
US$/day
Crude tanker rates are likely to remain suppressed over the
100,500
75,500
50,500
25,500
500
Aug-04
Aug-05
Aug-06
VLCC
Aug-07
Suezmax
Aug-08
Aug-09
Aug-10
Aframax
After holding out for a major part of CY08, tanker rates started to decline
and bottomed out in mid CY09 with VLCC freight rates dropping to ~
$4500 per day. Tanker freight rates reported a sign of improvement in the
second half of CY09 and VLCC rates recovered to ~ $35000 per day.
However, the recovery was short lived and rates corrected once again
and are currently at their lowest level. The rates are expected to move up
gradually over the next few months as heating oil demand picks up from
the US and Europe. However, in the long-term, tanker and product carrier
freight rates are likely to remain suppressed over the next couple of
years. The reason for the bleak outlook is the sluggish demand for crude
Page 9
oil and refined products combined with the large supply of new vessel
additions. Although scrapping of single hull vessels is expected to reduce
the tonnage, the impact will be insignificant.
LPG carriers
LPG freight rates have remained weak over the last one year. The LPG
carrier order book is 25.9% of the present global LPG fleet. LPG freight
rates are expected to remain subdued on account of new vessel
additions.
Exhibit 12: LPG freight rates
22,000
21,000
$/day
LPG freight rates are likely to be subdued on account of new

vessel supply
20,000
19,000
18,000
17,000
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Liner business
Any drop in container volumes to the US and Europe could
lead to a steep correction in freight rates on account of
supply overhang
The liner business has recovered as container shipments have picked up

in the US and Europe. The new build container order book is 39.1% of the
present container fleet, which is again a matter of concern. Any
slowdown in the US and Europe is likely to adversely impact the freight
rates. The impact on freight rates is likely to be much more severe as
compared to the dry bulk or tanker segment.
Dredging business
The dredging business has been very subdued on account of a halt in sea
reclamation projects in the Gulf region, which has reduced demand for
dredgers. This has led to a drop in utilisation levels along with correction
in day rates for dredgers. Day rates and utilisation levels are likely to post
a gradual recovery.
Page 10
Offshore business
Exhibit 13: Crude oil prices
160
140
With the recovery in crude oil prices, offshore

drilling/exploration is expected to pick up pace
$/barrel
120
100
80
60
40
20
0
Aug-06
Apr-07
Dec-07
Aug-08
Apr-09
Dec-09
Aug-10
The International Energy Agency (IEA) has estimated that global crude oil
demand will rise from 84.9 million barrels in 2010 to 86.2 million barrels in
2011. This would lead to increased spend on offshore drilling/exploration
activities leading to demand for offshore vessels.
Exhibit 14: Offshore rig utilisation levels
100
BP rig explosion
in April 2010
The BP rig explosion and the resultant oil spill led to a

sharp fall in utilisation levels of drill ships, which are used
With strength in crude oil prices, offshore utilisation

levels and day rates are expected to gain strength
90
% utilisation
for deep water drilling
80
70
60
Nov-09
Feb-10
Drillship
May-10
Semisub
Aug-10
Jack up
The BP rig explosion led to a clamp down on deep offshore drilling

activities in Gulf of Mexico. The moratorium imposed by the Obama
administration, which suspended oil & gas drilling in waters deeper than
500 feet continues and has had an adverse effect on utilisation levels for
deep water rigs globally. However, in the last couple of months, offshore
drilling activities have gained traction on account of new offshore projects
in South America, West Africa and Asia Pacific regions. We also expect
deep offshore drilling activities to once again resume in the Gulf of
Mexico region post November although with tighter security measures
and regulations.
We are very optimistic on the outlook for offshore companies as crude oil
prices have sustained above $60/barrel for the last 15 months. This, in
turn, is expected to lead to increased spend on exploration/drilling
activities and higher utilisation levels for offshore drilling rigs and offshore
support vessels.
Page 11
Port & Terminal Services Business

Stable cargo traffic at major ports
Exhibit 15: Monthly cargo traffic handled at major ports
Monthly cargo traffic at major ports in India has been fairly
stable with ~46 MT of cargo handled on an average per
month
Million tonnes
60
50
45.4
43.5
45.4
42.5
49.1
46.7 48.2
52.0
51.3
45.7
46.6 47.8 44.8
40
30
June '10
May '10
Apr' 10
Mar '10
Feb'10
Jan'10
Dec '09
Nov '09
Oct '09
Sept '09
Aug '09
July '09
June '09
20
Higher utilisation due to capacity constraints

Exhibit 16: Utilisation levels at major ports over the years
Capacity
Traffic
Utilisation %
FY02
345
288
83%
FY03
365
314
86%
FY04
390
345
88%
FY05
398
384
97%
Average capacity utilisation including major and minor
FY06
456
424
93%
ports has been 85%
FY07
516
464
90%
FY08
544
519
95%
Six out of the 12 major ports in India are operating at

more than 100% capacity utilisation while the remaining
six are also operating at close to their peak capacity with
average utilisation levels at 96%
FY09
555
530
96%
Exhibit 17: Turnaround time at major ports in days

Port
FY07
FY08
Major ports in India have been operating at peak levels for
New Mangalore
3.14
2.98
the last eight years
JNPT
1.67
1.98
Ennore
1.89
2.01
As the ports are operating at close to peak capacity, it
Cochin
2.19
2.03
leads to port congestion. This results in a high turnaround
Tuticorin
3.67
3.39
time at major ports in India
Visakhapatnam
3.65
4.73
Chennai
3.4
4.17
Kolkata
3.89
4.33
Mormugao
4.46
4.91
10
Kandla
5.46
5.42
11
Paradip
3.54
7.11
12
Mumbai
4.63
5.38
The outlook for port operators would continue to remain positive for the
next couple of years as capacity utilisation levels increase for new port
projects and existing ports continue to maintain high utilisation levels due
to the increased imports of coal.
Page 12
Shipbuilding business
The shipbuilding business has been the worst hit by weakness in freight
rates. Shipyards, globally, have reported shrinkage in their order book
size. The main reason for this is that new build orders have dried up while
execution continues with respect to existing orders.
Shipbuilding companies would continue to report satisfactory results over
the next couple of years as order execution picks up pace and deliveries
continue. We expect the performance of shipyards to peak in CY11. After
this it is expected to remain muted for a few years as utilisation levels
drop leading to subdued earnings for most shipyards.
Exhibit 18: BPR Asia Pacific Shipbuilding Index
1200
The Shipbuilding index has recovered from its low with
marginal new build orders flowing to global shipyards
1000
Index
800
600
400
200
0
Nov-06
Aug-07
May-08
Feb-09
Nov-09
Aug-10
Exhibit 19: New building orders

There has been a steady stream of new build orders
over the last few months
Dry Bulk Tankers
Containers
LPG/LNG
Others
Total
Jan-10
42
12
68
Feb-10
35
18
18
75
Mar-10
71
29
13
121
Apr-10
32
16
49
May-10
63
20
88
Jun-10
75
32
14
122
Jul-10
70
51
15
15
159
Exhibit 20: Vessel value (US$ million)

New build asset prices of tankers as well as dry bulk
carriers have recovered from their lows
The second-hand market has also become active with
the recovery in freight rates
Asset Class
Tankers
VLCC/ULCC
SUEZMAX
AFRAMAX
PANAMX
MR TANKERS
Bulk
Current (USD Mn) 1 M Change (%)

DWT
NB 5Yr.
NB 5Yr.
300,000 112.0 89.0
1.8 3.5
150,000 72.9 61.8
4.1 4.7
105,000 58.6 47.0
1.0 0.0
70,000 48.0 39.0
6.7 2.6
47,000 37.5 28.0
-1.3 0.0
DWT
CAPESIZE
170,000
69.5 57.0
PANAMAX
74,000 43.5 38.0
SUPRAMAX
52,000 34.0 29.7
3 M Change(%) 1Yr. Change(%)

NB 5Yr.
NB 5Yr.
14.3 11.3
1.8 15.6
5.7
4.7
2.0
1.6
14.9 11.9
16.0 16.6
9.1 14.7
6.2
4.0
10.3
7.7
-1.3 -0.7
-0.7
3.6
-4.8
-6.6
6.9
12.9
1.2
-2.9
0.0
0.7
-1.6
-2.6
-2.6
2.4
11.5
6.3
11.8
8.0
Page 13
Ship breaking business

The ship breaking business has been on an upswing for the last two years
and demolitions are likely to continue for a few more years. Phasing out
of single hull tankers by the end of CY10 would provide steady business
for ship breakers throughout CY10. Even beyond that we expect the
business to be fairly stable on account of large supply of vessels across
asset categories resulting in low freight rates. This, in turn, would lead to
scrapping of old vessels.
Exhibit 21: Leading countries involved in demolition work
Demolition work has continued unabated in India,
China and Pakistan
India
China
Jan-10
56
11
Feb-10
35
7
Mar-10
45
29
Apr-10
57
13
May-10
57
13
Jun-10
15
24
Jul-10
36
20
Aug-10
32
14
Total
333
131
Bangladesh
12
10
37
14
8
3
5
2
91
Pakistan
4
5
17
16
16
5
10
8
81
All Others
2
10
39
44
44
20
33
19
211
Total Units
85
67
167
144
138
67
104
75
847
Exhibit 22: Demolition statistics by vessel type

Demolition activities registered a sharp increase
particularly for dry bulk (up from nine to 29) and
tanker segment (up from three to 21) with 82 vessels
being scrapped in July 2010 as against 66 in the
previous month
Dry Bulk
Tankers
Containers
Others
Total
Jan-10
13
38
25
85
Feb-10
24
10
14
19
67
Mar-10
37
57
47
26
167
Apr-10
49
52
11
36
148
May-10
46
45
11
36
138
Jun-10
15
39
66
Jul-10
29
21
11
21
82
Exhibit 23: Demolition by DWT & scrap prices

Stable scrap prices have encouraged demolition of
vessels
DWT
LDT
Scrap rate $/LDT
Jan-10
3940656
908529
355
Feb-10
2622021
643697
345
Mar-10
4623534
1017093
372
Apr-10
2621450
653917
442
May-10
2032487
436169
408
Jun-10
2160889
468851
370
Jul-10
2111023
452063
395
Page 14
Risks and Concerns

Sluggish global recovery and resulting in subdued demand
The global recovery is expected to gather pace in FY11
with India and China leading it. However, if the global
recovery falters then it could lead to a drop in shipping
volumes, thereby adversely affecting the prospects of
shipping companies
The global economy, especially of developed countries, has managed to

emerge out of the recession on account of some extraordinary measures
initiated by the US and Europe to infuse liquidity by resorting to
expansionary monetary, liberal fiscal policy and lastly quantitative easing.
The International Monetary Fund (IMF) has revised upwards its GDP
growth forecasts for CY10 and CY11. However, despite the above
measures, GDP growth in developed economies remains tentative and a
drop in growth rates could adversely affect the shipping sector. The
Chinese government has also initiated steps to slow down the growth
pace especially in the overheated housing market. China has been the
main driver of dry bulk shipping volumes. The early recovery in BDI can
largely be attributed to China. A slowdown in the Chinese economy could
lead to weakness especially in dry bulk freight rates.
Supply overhang
The pipeline of new vessels entering the market is very
large and such large additions will pose the biggest
challenge and hurdle towards a recovery in freight rates
Supply overhang is serious and the single biggest concern for the
industry over the next two years. At present, the global order book is
tanker and product carrier fleet, respectively. A large supply glut of
vessels is likely to accentuate the concerns for the shipping industry.
Weakness in freight rates

The strength of freight rates would largely depend on the
demand for commodities especially from China, which is
the main driver of iron ore demand and US/Europe, which
are the main drivers for crude and refined products
demand
If there is a softening of freight rates it would not only
directly affect the revenues of shipping companies but
would also act as a sentiment dampener for shipping
stocks
Dry bulk freight rates are expected to remain muted and range bound for
the next couple of years. The rise in demand is likely to be negated by a
large number of vessel additions to the dry bulk fleet. Tanker and product
carrier freight rates are likely to remain suppressed over the next couple
of years. The reason for the bleak outlook is sluggish demand for crude
oil and refined products combined with large new build supply of vessels.
However, if freight rates remain weak for a prolonged period of time it can
accentuate the pain for shipping stocks.
Drop in vessel scrapping and reduction in slippages

Any decline in scrapping of vessels would delay the exit
of older vessels. This would lead to excess supply of
vessels in the market leading to a softening of freight
rates
Despite the vast order book prevailing with major

shipyards, there was a considerable slippage in
deliveries, which managed to keep the supply of vessels
under check. If the slippages continue in CY11 as well it
would lend support to freight rates. Conversely, a
reduction in slippages could exert pressure on freight
rates
Scrapping of vessels continued unabated throughout 2009 as depressed

freight rates and high scrap metal prices forced many ship-owners to
scrap their vessels before the end of their useful life. However, if
scrapping activity slows down it could pressurise freight rates.
As many shipping companies faced a liquidity squeeze, shipbuilding work
slowed down and there were significant slippages in new deliveries in
CY09. With improvement in liquidity, the amount of slippages is expected
to reduce, going forward. This could lead to pressure on freight rates as
additional vessels join the existing fleet.
Page 15
Indian shipping industry Key parameters

Indian fleet size
Exhibit 24: Domestic fleet - Number of vessels %
India has 6% share in terms of number of vessels
Indian
6%
Global
94%
Exhibit 25: Domestic fleet Tonnage %

In terms of fleet tonnage, India has just 1% share
Indian
1%
Global
99%
Page 16
Exhibit 26: Vessel capacities

Vessel capacities post expansion of the fleet in FY12 has
been shown in the table given alongside
SCI will continue to have the largest fleet of 84 vessels
Garware Offshore
among domestic companies. This will consist of 25 crude
Aban Offshore
tankers, 20 dry bulk carriers and 15 product carriers

GE Shipping will be narrowing the gap with SCI with a
fleet of 75 vessels. This will constitute of 19 product
13
19
Varun
20
84
SCI
carriers, 15 crude tankers and 13 dry bulk carriers. Its
Mercator Lines
offshore fleet would consist of 15 offshore support
GE Shipping
vessels, 10 AHTS vessels and two jack-up rigs
48
Great Offshore
30
75
Essar Shipping
Among offshore companies, Great Offshore would have
39
0
the largest fleet of 48 vessels consisting of 16 AHTS
10
20
30
vessels, 13 offshore support vessels, 12 harbour tugs,
40
50
60
70
80
90
Vessels (FY12E)
four jack-up rigs and three construction barges

Source: Company, ICICIdirect.com Research
Exhibit 27: Capex plans (| Crore)

SCI, Essar and GE Shipping have the most aggressive
Bharati Shipyard
258
220
ABG Shipyard
241
250
capex plans
SCI has already committed capex spend to acquire 31
new vessels over the next two years. It will help the
company to replace its ageing fleet. The orders have
already been placed and construction of new vessels is
under way at various yards in India and abroad
Essar Shipping is also incurring significant capex to build
476
420
Great Offshore
Garware Offshore
Aban Offshore
0
0
Varun
0
0
capacities for its various operating segments. The

company is acquiring two jack-up rigs. It would be
expanding its port capacity at Vadinar and Hazira in
addition to setting up new ports at Salaya and Paradip
GE Shipping would be incurring the capex to mainly
expand its offshore fleet of vessels along with expansion
of dry bulk and tanker fleet
258
1628
SCI
4,195
0
0
Mercator Lines
GE Shipping
1482
1,675
Essar Shipping
1,675
500
3,368
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

FY11E
FY12E
Page 17
Exhibit 28: Shipbuilding order book size (| Crore)

ABG Shipyard has a sizeable order book (pending
execution) which is 4.5 times its FY10 revenue while
Bharati Shipyards order book (pending execution) is 1.9
2560
Order book pending

execution (FY10)
8160
times its FY10 revenue
5076
Gross order book (FY10)
12470
Execution of order book would provide stable revenues

over the next two years and one year to ABG Shipyard
and Bharati Shipyard, respectively. However, beyond that

the earnings are likely to be subdued for a few years
3000
6000
9000
ABG Shipyard
12000
Bharati Shipyard
Exhibit 29: Revenue and PAT (| Crore)

Essar Shippings revenues are likely to be highest among
179
Bharati Shipyard
1,143
all domestic shipping companies by FY12, closely

followed by SCI
However, in terms of profitability Aban Offshore and GE
Shipping are expected to be the two most profitable
companies among domestic shipping companies
ABG Shipyard
242
Great Offshore
286
42
Garware Offshore
2,613
1,508
231
868
Aban Offshore
3,680
-56
Varun
750
337
SCI
4,195
200
Mercator Lines
692
GE Shipping
3,687
273
Essar Shipping
(500)
2,577
500
4,227
1,000
1,500
2,000
Rev. (FY12E)
2,500
3,000
3,500
4,000
4,500
PAT (FY12E)
Page 18
Exhibit 30: Market cap/debt/enterprise value (| Crore)

Aban Offshore is the most leveraged company with debt
of | 14,210 crore. The debt was accumulated post the
Bharati Shipyard
2736
2323
629
acquisition of Sinvest. Currently, the company has no

other capex plans. Over the next two years, the debt level
is likely to moderate to | 10810 crore by FY12
Essar Shipping and GE Shipping would also have
ABG Shipyard
2131
1,242
3312
2343
1,512
Great Offshore
significantly high debt levels on account of their capex

plans
3755
809
503
317
Garware Offshore
Aban Offshore
14210
3,779
Varun
660
3365
2741
7125
2694
SCI
Mercator Lines
1,132
6,903
3193
3017
8195
5370
4,569
GE Shipping
13917
7508
7,390
Essar Shipping
17607
4,000
8,000
MCap.(FY10)
12,000
Debt (FY10)
16,000
20,000
EV (FY10)
Page 19
Exhibit 31: Return ratios (%)

Chart Title
Offshore shipping companies would have better return

ratios, going ahead, on account of better earnings
visibility. Among them, Aban Offshore would have the
best return ratios
Bharati Shipyard
15.1
8.1
15.9
15.1
ABG Shipyard
Great Offshore
12.8
Garware Offshore
12.8
7.7
Aban Offshore
Varun
18.0
26.3
12.9
0.0
3.8
2.0
2.3
SCI
7.7
8.3
Mercator Lines
GE Shipping
8.7
3.7
Essar Shipping
0.0
10.4
6.0
5.0
10.0
15.0
ROCE (FY12E)
20.0
25.0
30.0
RONW (FY12E)
Page 20
Exhibit 32: Valuation ratios

On a valuation basis, among shipping companies,
Mercator Lines is trading at most attractive valuations.
0.5
Bharati Shipyard
Among offshore companies, Aban Offshore offers the

most attractive valuation while among shipbuilding
companies Bharati Shipyard is the most attractive
0.8
ABG Shipyard
5.6
5.1
1.0
Great Offshore
4.2
5.3
1.0
Garware Offshore
7.9
7.5
1.1
Aban Offshore
Varun
9.8
3.5
4.4
6.0
1.0
8.7
0.0
1.0
SCI
0.4
Mercator Lines
11.5
2.5
5.8
0.7
GE Shipping
5.7
6.6
0.8
Essar Shipping
0.0
20.5
9.9
5.0
10.0
PE (FY12E)
27.0
15.0
EV/EBITDA (FY12E)
20.0
25.0
30.0
P/BV (FY12E)
Page 21
Rating scale
We have constructed a rating scale based on a few key parameters to
arrive at rankings for each of the companies under our coverage.
Exhibit 33: Key parameters used for rating
We have used three valuation ratios (P/BV + EV/EBITDA
+ PE) and three other ratios (debt/equity + RONW +
interest coverage) for our rating purpose. In addition, we
have also used promoter holding as one additional
parameter for arriving at the rating scale
Company
P/BV EV/EBITDA
PE
Essar Shipping
0.8
9.9 27.0
G.E Shipping
0.7
5.7
6.6
Mercator Lines
0.4
2.5
6.1
SCI
1.0
12.8 27.6
Varun Shipping
1.0
8.7 -11.7
Aban Offshore
1.1
6.0
4.4
Garware Offshore
1.0
7.9
7.5
Great Offshore
1.0
4.2
5.3
ABG Shipyard
0.8
5.6
5.1
Bharati Shipyard
0.5
9.8
3.5
Source:ICICIdirect.com Research
Debt/Equity
1.0
0.7
1.0
0.9
3.3
3.3
2.0
1.2
1.3
1.7
RONW
3.7
10.4
7.2
0.8
-8.2
26.3
12.8
18.0
15.9
15.1
Interest
Coverage
1.4
3.0
2.5
0.9
0.7
2.1
2.1
3.7
3.2
1.3
Promoter
Holding %
83.7
30.0
38.0
80.1
42.2
53.1
30.6
49.7
57.1
41.8
Exhibit 34: Rank based on above parameters

Based on the above parameters, we have arrived at the
ranks for each of the coverage companies
P/BV EV/EBITDA
Company
Rank
Rank
Essar Shipping
6
9
G.E Shipping
3
4
Mercator Lines
1
1
SCI
9
10
Varun Shipping
8
7
Aban Offshore
10
5
Garware Offshore
5
6
Great Offshore
7
2
ABG Shipyard
5
3
Bharati Shipyard
2
8
PE
Rank D/E Rank
8
4
6
1
5
3
9
2
10
10
2
9
7
8
4
5
3
6
1
7
Interest
RONW Coverage Promoter
Rank
Rank Holding %
8
7
1
6
3
10
7
4
8
9
9
2
10
10
6
1
5
4
5
6
9
2
1
5
3
2
3
4
8
7
Exhibit 35: Weightage assigned to each parameter

We have assigned a weightage to each of the categories
to arrive at the final ranking
We have assigned maximum weightage of 25% to P/BV
as shipping is an asset heavy business with wide
fluctuations in bottomline. Hence, P/BV would be a better
indicator to arrive at our final valuations
As shipping companies have significant debt on their
books we have assigned second highest weight of 20% to
the debt-equity ratio
Interest
Promoter
P/BV EV/EBITDA
PE
D/E
RONW Coverage Holding %
Company
Weightage Weightage Weightage Weightage Weightage Weightage Weightage
Essar Shipping
25%
15%
10%
20%
15%
10%
5%
G.E Shipping
25%
15%
10%
20%
15%
10%
5%
Mercator Lines
25%
15%
10%
20%
15%
10%
5%
SCI
25%
15%
10%
20%
15%
10%
5%
Varun Shipping
25%
15%
10%
20%
15%
10%
5%
Aban Offshore
25%
15%
10%
20%
15%
10%
5%
Garware Offshore
25%
15%
10%
20%
15%
10%
5%
Great Offshore
25%
15%
10%
20%
15%
10%
5%
ABG Shipyard
25%
15%
10%
20%
15%
10%
5%
Bharati Shipyard
25%
15%
10%
20%
15%
10%
5%
Page 22
Exhibit 36: Final rank of companies based on above parameters

Based on the above parameters, Mercator Lines and GE
Shipping have emerged as the top picks with No. 1 and
No. 2 spot, respectively
Mercator Lines and GE Shipping have a presence in the
tanker, dry bulk and offshore segment. Mercator Lines in
addition also operates four dredgers, would be
commissioning a floating production unit in Q4FY11 and
is also carries out coal mining, handling and trading.
Due to the diversified revenue streams, both companies
are better placed to tide over the volatility in any single
business segment
Weighted Average
Final
Ranking Ranking
Essar Shipping
6.4
8
G.E Shipping
3.9
2
Mercator Lines
3.4
1
SCI
7.4
9
Varun Shipping
8.9
10
Aban Offshore
6.1
6
Garware Offshore
6.3
7
Great Offshore
4.1
4
ABG Shipyard
4.0
3
Bharati Shipyard
5.0
5
Source: ICICIdirect.com Research
Both companies also have a low debt-equity ratio, which

is an additional comfort in a downturn
The valuation of Mercator Lines looks especially
attractive as the stock is trading at ~ half its FY10 book
value
ABG Shipyard is ranked at No. 3 because of its superior
financial performance. However, we would remain
cautious on account of the decline in order book pending
execution with each passing quarter. We expect the
revenue to peak out in FY12. After this, it is expected to
contract
Great Offshore is ranked at No. 4 again on account of its
superior operating parameters, attractive valuation and
conservative debt-equity ratio
Bharati Shipyard is ranked at No. 5 mainly on account of
its investment in Great Offshore as the consolidated
numbers are superior despite the under performance in its
core business
Page 23
ICICIdirect.com coverage universe (Shipping)

ESPLL
Idirect Code
MCap
G.E Shipping
Idirect Code
ESSSHI
6958.5
CMP (|)
Target (|)
% Upside
113
112
-1
FY10
FY11E
FY12E
GESHIP
CMP (|)
307
FY10
MCap
Mercator Lines
Idirect Code
4666.4
Target (|)
% Upside
356
16
FY11E
FY12E
MCap
SCI
Idirect Code
1298.0
CMP (|)
Target (|)
% Upside
55
63
15
FY10
FY11E
FY12E
MCap
Varun Shipping
Idirect Code
6860.7
CMP (|)
Target (|)
% Upside
162
162
0
FY10
FY11E
FY12E
VARSHI
CMP (|)
42
FY10
630.0
Target (|)
% Upside
36
-14
FY11E
FY12E
MCap
Aban Offshore
Idirect Code
MERLIN
SCI
ABALLO
CMP (|)
860
FY10
MCap
3250.8
Target (|)
% Upside
947
10
FY11E
FY12E
Garware Offshore
Idirect Code
GARSHI
CMP (|)
Target (|)
% Upside
121
139
15
FY10
FY11E
FY12E
CMP (|)
Target (|)
% Upside
385
444
15
FY10
FY11E
FY12E
CMP (|)
Target (|)
% Upside
244
241
-1
FY10
FY11E
FY12E
CMP (|)
Target (|)
% Upside
223
258
16
FY10
FY11E
FY12E
MCap
Great Offshore
Idirect Code
288.0
GREOFF
MCap
ABG Shipyard
Idirect Code
1428.4
MCap
Bharati Shipyard
Idirect Code
673.4
MCap
615.5
BHASHI
BHASHI
Sales (| Crore)
2999.4
3222.0
4227.4
Sales (| Crore)
2856.5
EPS (|)
1.5
2.5
5.3
EPS (|)
33.7
PE (x)
74.2
44.5
25.5
PE (x)
9.1
EV/EBITDA (x)
13.5
13.4
10.8
EV/EBITDA (x)
8.7
RoNW (%)
1.1
2.3
3.7
RoNW (%)
9.0
RoCE (%)
3.7
4.3
5.4
RoCE (%)
4.8
3194.7
3687.5
Sales (| Crore)
1808.7
2163.5
2576.9
Sales (| Crore)
3463.1
3771.8
4004.9
Sales (| Crore)
666.2
36.7
45.4
EPS (|)
2.2
3.4
8.3
EPS (|)
8.9
10.5
8.0
EPS (|)
0.8
8.4
6.8
PE (x)
24.9
16.3
6.6
PE (x)
18.2
15.4
20.3
PE (x)
50.2
7.4
5.8
EV/EBITDA (x)
5.2
4.2
2.7
EV/EBITDA (x)
13.4
13.6
11.5
EV/EBITDA (x)
13.9
9.1
10.4
RoNW (%)
2.3
3.4
7.7
RoNW (%)
3.5
3.3
2.0
RoNW (%)
1.5
6.5
8.7
RoCE (%)
5.3
6.1
8.3
RoCE (%)
1.6
2.1
2.3
RoCE (%)
0.1
636.7
749.7
Sales (| Crore)
3358.7
EPS (|)
71.5
PE (x)
12.0
12.8
8.6
EV/EBITDA (x)
8.4
RoNW (%)
14.3
3.8
RoCE (%)
10.0
3553.0
3679.8
87.9
199.7
11.7
4.4
6.8
5.9
13.1
26.2
11.9
13.2
Sales (| Crore)
212.4
207.8
230.7
Sales (| Crore)
1165.6
1246.7
1507.6
Sales (| Crore)
1812.4
2299.2
2613.3
Sales (| Crore)
1348.1
1421.0
1143.3
EPS (|)
17.3
12.4
17.7
EPS (|)
54.0
59.0
76.8
EPS (|)
42.8
45.1
47.4
EPS (|)
50.1
70.2
64.9
PE (x)
7.0
9.8
6.8
PE (x)
7.1
6.5
5.0
PE (x)
5.7
5.8
5.1
PE (x)
4.4
3.2
3.4
EV/EBITDA (x)
7.2
9.3
7.7
EV/EBITDA (x)
6.8
6.0
4.1
EV/EBITDA (x)
7.0
6.0
5.6
EV/EBITDA (x)
8.6
8.3
9.8
RoNW (%)
15.4
10.1
12.8
RoNW (%)
18.1
16.7
18.0
RoNW (%)
19.6
16.4
15.9
RoNW (%)
16.6
19.1
15.1
RoCE (%)
9.6
6.4
7.7
RoCE (%)
11.6
10.7
12.8
RoCE (%)
13.6
15.3
15.1
RoCE (%)
9.9
10.2
8.1
Page 24
Global Valuation (Shipping)

P/BV (x)
P/E (x)
EV/EBITDA (x)
ROE (%)
Company
Country
CY10E CY11E CY12E CY10E CY11E CY12E CY10E CY11E CY12E CY10E CY11E CY12E
Dry Bulk
Diana Shipping*
USA
0.9
0.9
0.8
7.9
8.3
10.5
5.7
5.8
6.9
11.3
9.2
6.9
DryShips*
USA
0.4
0.4
0.4
5.0
4.1
3.4
10.5
8.5
7.7
5.3
9.0
8.3
Genco Shipping*
USA
0.5
0.5
0.5
4.0
5.9
10.0
5.9
6.2
8.1
13.4
7.8
3.3
Mercator Lines#
India
0.6
0.5
0.5
24.9
16.3
6.6
5.2
4.2
2.7
2.3
3.4
7.7
Tanker
Frontline Ltd*
Norway
2.6
2.5
2.5
9.9
10.0
10.0
8.4
8.2
8.2
28.2
22.8
24.5
Overseas Shipholding Group*
USA
0.6
0.6
0.5
15.1
17.0
12.1
7.8
7.9
2.3
3.1
Teekay Corp.*
USA
1.0
1.0
0.9
19.5
16.7
9.5
8.6
8.4
5.4
5.5
GE Shipping#
India
0.8
0.8
0.7
9.1
8.4
6.8
8.7
7.4
5.8
9.0
9.1
10.4
SCI#
India
1.1
1.0
1.0
18.2
15.4
20.3
13.4
13.6
11.5
3.5
3.3
2.0
LPG/LNG
BW Gas*
Norway
6.7
Exmar*
Belgium
1.1
1.0
0.9
39.3
19.3
13.5
11.3
10.4
0.7
11.7
9.8
Varun Shipping#
India
0.8
0.8
0.9
50.2
13.9
12.8
8.6
1.5
Offshore
Diamond Offshore*
USA
2.3
2.0
1.9
9.0
9.2
11.0
5.1
5.2
5.8
26.8
24.4
19.4
ENSCO*
USA
1.1
1.0
0.9
12.4
10.6
9.0
6.6
5.6
4.9
9.0
10.4
11.5
Hercules Offshore*
USA
0.3
0.3
0.4
7.2
6.9
9.6
Transocean*
USA
0.9
0.8
0.8
8.5
7.6
7.9
5.7
5.3
5.5
10.9
11.1
10.6
Aban Offshore#
India
1.7
1.5
1.2
12.0
11.7
4.4
8.4
6.8
5.9
14.3
13.1
26.2
Garware Offshore#
India
1.1
1.0
0.9
7.0
9.8
6.8
7.2
9.3
7.7
15.4
10.1
12.8
Great Offshore#
India
1.3
1.1
0.9
7.1
6.5
5.0
6.8
6.0
4.1
18.1
16.7
18.0
Shipbuilding
Daewoo Shipbuilding*
South Korea
1.3
1.2
1.1
8.0
8.7
10.3
6.9
7.4
8.5
17.3
14.5
11.0
Hyundai Heavy Industries*
South Korea
1.8
1.5
1.3
7.4
8.5
9.0
6.5
7.1
7.5
27.1
19.2
15.6
Keppel Corp. Ltd*
Singapore
2.0
1.9
1.7
11.9
13.0
12.8
9.9
10.7
10.4
18.2
15.5
14.3
Samsung Heavy Industries*
South Korea
1.9
1.6
1.4
8.3
8.8
10.3
6.9
7.2
8.1
24.8
19.3
14.3
Sembcorp Marine*
Singapore
3.6
3.3
2.9
12.8
15.3
16.1
7.2
8.5
8.7
30.9
22.6
19.3
ABG Shipyard#
India
1.1
1.0
0.8
5.7
5.8
5.1
7.0
6.0
5.6
19.6
16.4
15.9
Bharati Shipyard#
India
0.7
0.6
0.5
4.4
3.2
3.4
8.6
8.3
9.8
16.6
19.1
15.1
Port and Terminal
Dubai Ports World*
Dubai
1.1
1.1
1.1
26.6
21.3
16.6
12.1
10.6
9.4
4.5
5.3
6.2
Mundra Port*
India
9.3
7.6
6.0
46.4
35.5
23.1
35.5
26.3
18.7
20.2
22.9
27.5
Conglomerate
A P Moller - Maersk A/S*
Denmark
1.2
1.1
0.9
9.6
9.9
8.4
3.8
3.8
3.7
15.5
12.4
13.2
COSCO Group*
China
1.6
1.5
1.4
15.1
13.7
10.6
10.0
9.4
8.1
11.0
10.8
12.5
Kawasaki Kisen*#
Japan
0.9
0.7
0.7
7.6
7.2
6.3
5.8
10.7
9.8
Mitsui OSK Lines*#
Japan
1.1
0.9
0.9
67.6
9.7
8.7
13.9
6.6
6.2
1.7
9.9
10.1
Nippon Yusen*#
Japan
0.9
0.8
0.8
8.3
8.2
17.3
6.4
6.2
10.0
10.0
ESPLL#
India
0.8
0.8
0.8
74.2
44.5
25.5
13.5
13.4
10.8
1.1
2.3
3.7
*consensus
# With regards to Indian companies and Mitsui, three year data represents FY10, FY11 and FY12 (financial year ending in March)
Page 25
Management view
Demand situation
GE Shipping
On tankers, there seem to be some signs of demand coming back in the
last few months. We have seen storage going down between January and
June. Also, the tanker phase out of the single hull is likely to happen by
the end of 2010 or early 2011. Those are a few positives for the tanker
business. However, everything is dependent on the state of the global
economy and how the western economy recovers.
On the dry bulk side, there is still a worry mainly on the China story. We
do not know which way China would move i.e. whether it is going to
continue growing at a very hectic pace that will absorb most of dry bulk
tonnage. Also, you have got Europe, which is a very large consumer of
steel where steel production has gone down over the last couple of
years.
Essar Shipping
Demand for commodities both dry bulk as well as wet bulk is
expected to show positive growth, going forward. The sustaining GDP
growth rates of China and India augur well for maintaining the demand
side, with the recovery in the European area adding more positive
sentiments. India related cargo movements should show substantial
growth prospects, with the upcoming power plants needing very
substantial increase in coal imports. The growth in the refining sector will
also result in increased the imports of crude oil. At some point of time this
will also entail export of products from the more modern refineries in
India. Project cargo movement and handling is another area that will see
good prospects in the next few years. Exim trade in India is expected to
rise in the next three years to a level that will require the port handling
facilities in India to double. The tonne-mile demand for various
commodities is also rising with long haul movements of crude oil as well
as iron ore, etc. All these factors will result in positive growth in demand
for shipping services.
Great Offshore
While there are spare assets available in case of rigs in certain markets
the utilisation as well as charter rates continue to be soft and are
expected to remain so for a while contingent to :
US stand on deep water drilling in Gulf of Mexico post November

2010 when the moratorium ends
Winter demand and requirement of crude oil in the western
hemisphere
Stability of oil prices over the long-term
Initiation of exploration & production budgets and planning for
exploration
Lastly, the geo political situation and environment can create
spurts in charter rates and vitiate the demand-supply equation
Bharati Shipyard
There is really no movement in the cargo sector. Demand is still weak in
the cargo sector but it is picking up in offshore and defence sector.
Page 26
Supply situation
GE Shipping
The order book in the bulk carrier market is much higher than in tanker
as it appears on paper. The order book is somewhere around 55-60% of
the total fleet. We are continuously having slippages of about 40-50%
The tanker order book is between 20-30% and is smaller than the dry
bulk order book that gives a little bit more comfort on the tanker
business.
Essar Shipping
The current order book in various shipyards of Japan, Korea and China
indicate substantial number of new building deliveries in 2010 and 2011.
While there was anticipation of a large number of cancellations
consequent to the global financial crisis in 2008, actual cancellations have
been lesser than anticipated. There have been many deliveries
rescheduled or ship types converted. The support lent by the government
especially in China and Korea in terms of funding support have helped the
shipyards to continue with their ship construction activities. The lenders
have also shown positive sentiments in the recent past. Hence, the buildup of tonnage is likely to continue. The phenomenon of VLCCs being
used for storage by traders has seen a significant decline in the last few
weeks. This would obviously result in these ships coming back into
normal play, adding to the number of ships available for chartering. While
scrapping of single hull tankers will provide some relief, the impact of
lower scrap rates per tonne will also have an effect on moderating
scrapping activities. However, the excess tonnage position in the near
term is likely to put pressure on freight rates. This, in turn, may induce
owners to look towards scrapping older vessels.
Mercator Lines
As far as supply side is concerned, similar to what happened last year,
there were some slippages in supply. I do not think the current year is
likely to be different. If there are slippages, this finally means it will result
in a delivery. It is cancellation, which will only result into non-delivery.
There are going to be some slippages. Last year, the slippages were quite
large. This year, we do not expect it to be any different from last year.
Great Offshore
While the asset supply side is more or less known with deliveries already
slated in the rig as well as OSV segments, they will get impacted by
probable delays by the envisaged slowdown and financial constraints on
part of shipyard (first generation) and reluctance on part of OEM suppliers
to extend credit as well as first generation clients
Page 27
Future outlook
Essar Shipping
A cautious outlook with freight rates under pressure in the near term.
The China and India growth story will help moderate any significant effect
of downward pressure on freight rates. If the recovery in the western
hemisphere is sustained and there are no more surprises from the Euro
zone, then freight sentiments are bound to pick up. Consumer sentiments
and consumer spending in the US will, of course, have a substantial
impact.
Mercator Lines
Going forward, the environment for shipping continues to remain
challenging, especially in the tanker trade. The dry bulk trade has been a
bit surprising for all of us. It is far better than what we, the shipping
fraternity as a whole, were expecting and what the market was expecting.
The tanker environment continues to remain challenging. You see, what
happens is that unless there is a recovery in the economic situation, the
chances of the shipping trade or shipping, improvement will be always
challenging. On e has to appreciate that the major consumption of oil
products continues to be in the US and Europe. US is roughly 25% of
world volumes. Hence, there has been a huge surge in demand from
China and India but relative to the US our consumption is very low. So,
the driver of demand continues to remain the US. Unless these
economies recover, personally I feel the environment for shipping will
continue to remain challenging.
As far as dredging is concerned, the demand continues to remain good
because all the ports in India require dredging. We have currently bid for
four or five tenders in India. All this work will start post-monsoon because
during monsoon one cannot do dredging. Whatever we do is very little.
We are doing some and it is not large. All these will pick up in September
and October. There is a huge mismatch between demand and supply.
The demand for dredgers in India is far greater than supply.
Great Offshore
The requirement or demand for offshore oil field assets is linked to the
E&P plans, oil security aspects and the extent of energy intensity.
Interestingly, the usage of alternative/renewal fuel is insufficient to meet
the increased demand for hydrocarbons. Hence, demand for oil being
directly linked to GDP growth would continue.
Bharati Shipyard
Most of the new demand will be from the offshore oil sector and
defence. We do not see much demand coming from the cargo sector.
Page 28
Expansion Plans
GE Shipping
Expansion plans would depend on how the shipping cycle develops. The
idea of keeping a large amount cash is not that this cash is going to stay
on our balance sheet permanently, which would be a bit of a waste of
resources. However, the intention is that this cash is being kept for us to
be able to take advantage of any asset opportunities that may come up. If
we are able to see assets at reasonable valuations then it will help us to
move quickly to buy the asset.
Essar Shipping
Essar Shippings existing shipping tonnage is well protected and hedged
against the downturn in freight rates through a mix of long-term charters
and contracts of affreightment (COAs). The new buildings on order are
also backed by long-term committed business. The company has
currently on order six Supramax bulk carriers and six minicape vessels.
These vessels are due for delivery over the next six quarters. The
company is constantly on the look out for suitable opportunities to
acquire control of tonnage, with visible contracts behind them. The
company will focus in a large way on catering to the core sectors of
power, steel and oil that are expected to grow tremendously in the years
to come. These sectors, besides being fundamental to any economys
growth, are also sectors where Essar Shipping can leverage third party
business with its own cargo base.
Great Offshore
As a company we have two new builds on order, 350 feet jack up rigs
and one multi support vessel. In line with the industry we continuously
evaluate sale & purchase opportunities both in the second-hand market as
well as in case of new build contracts. This enables us to keep abreast of
market valuations and cherry pick value buys at an appropriate time.
Bharati Shipyard
Expansion work is going on in two of the shipyards, one at Dabhol and
the second at Mangalore. At both places it is going on at a satisfactory
pace. Hence, I think very soon in the next 1.5 years Dabhol would get
completed while in two years Mangalore would get completed.
Page 29
Rating matrix
Rating
Reduce
Target
| 112
Target Period
12 months
Potential Upside
-1%
Essar Shipping (ESSSHI)

| 113
Key Financials
FY09
(| cr)
Net Sales
EBITDA
Net Profit
FY10 FY11E FY12E
2574.2 2999.4 3222.0 4227.4

834.5 1048.7 1259.8 1656.8
77.2
93.8 167.3 328.5
FY09
3.1
89.0
16.3
0.9
1.0
3.1
FY10 FY11E FY12E

74.2
73.3
13.5
0.8
1.1
3.7
44.5
44.0
13.4
0.8
2.3
4.3
25.5
25.2
10.8
0.8
3.7
5.4
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
Cash (FY10E) (| cr)
EV (| cr)
52 week H/L (| cr)
Equity capital (| cr)
Face value |
MF Holding (%)
FII Holding (%)
6959
7508
281
14186
136 / 54
615.8
10
0.2
8.3
Price movement
6000
5500
5000
150
4500
4000
3500
3000
Aug-09
90
120
60
30
Nov-09
NIFTY
PRICE TARGET .............................................................................................. Unchanged

EPS (FY11E) .................................................................................................. Unchanged
RATING.......................................................................................................... Unchanged
Valuation summary
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
WHATS CHANGED
Feb-10
May-10
Essar Shipping (RHS)
Diversified play
Essar Shipping Ports and Logistics Ltd (Essar Shipping) offers a play on
the Indian shipping, logistics and ports business. In the last few years,
the company has not only consolidated its position in its traditional
shipping and logistics business but also ramped up its presence in the
ports and terminal business with the Vadinar (46 MTPA wet cargo) port
terminal and Hazira (30 MTPA dry cargo) port. Over the next three
years, the company has chalked out plans to further increase its port
capacity to 158 MTPA with the establishment of new ports and
expansion of existing port operations.
Essar Shipping is also scaling up its presence in the offshore space and
will receive delivery of two jack-up rigs by FY12. The company currently
operates one semi submersible rig and 12 onshore rigs. It is also
acquiring 12 dry bulk vessels over the next two years to add to its fleet
of 19 dry bulk vessels. In the last couple of years, Essar Shipping has
been rapidly expanding its scope of operations across segments and
has committed to substantial capex. The benefits from this would be
visible over the next couple of years.
Changing revenue mix to drive growth
Revenue from the port business is expected to grow by 82% in FY11 to |
753 crore and by 68% in FY12 to | 1268 crore making it the second
largest segment for the company. The operating margin is expected to
expand from 35% in FY10 to 39% in FY12 as the share from the ports and
terminals business (high margin business) increases. PAT is also
expected to rise from | 93.8 crore in FY10 to | 328.5 crore in FY12.
Valuation
We have valued each division of ESPLL on a DCF basis and arrived at our
SOTP price target of | 112.
Exhibit 37: Financial Performance ( | cr)
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)
676.1
275.6
40.8
116.6
135.1
6.1
0.1
671.2
236.4
35.2
107.1
128.6
2.3
0.0
800.6
267.2
33.4
116.7
128.8
21.9
0.4
851.6
269.6
31.7
106.6
144.9
63.5
1.0
795.1
240.8
30.3
116.8
158.2
39.5
0.6
Page 30
Exhibit 38: Revenue expected to steadily rise

We expect the company to report a steady rise in
revenue over the next two years as additional port
4500
capacity gets commissioned
4000
4227.4
3500
| cr
2500
2000
3222.0
2999.4
3000
2574.2
1842.4
1500
1000
500
0
FY08
FY09
FY10
FY11E
FY12E
Revenue
Exhibit 39: Operating margin expected to inch up gradually

1800
1656.8
1600
company ramps up its port business, which offers higher
1400
business
1200
| cr
margin compared to Essar Shippings traditional shipping
1259.8 39
39
30
800
600
400
382.0
40
35
1048.735
834.5 32
1000
45
The operating margin is also likely to improve as the
25
21
20
200
0
15
FY08
FY09
FY10
FY11E
EBITDA
FY12E
OPM
Exhibit 40: PAT, net profit margin to improve

The bottomline is also expected to grow significantly over
300
the next two years
277.4
273.3
15
250
16
14
12
10
156.4
150
8
93.8
77.2
100
6
4
50
| cr
200
0
FY08
FY09
FY10
PAT
FY11E
FY12E
NPM
Page 31
Exhibit 41: Current fleet profile

20
The current fleet consists of 40 vessels, which include 19

bulk carriers, two VLCCs, six tugs, one semi submersible
18
rig and 12 onshore rigs
16
19
No of vessels
14
12
12
10
8
6
4
0
Dry Bulk
VLCC
Tugs
Semisub Rig
Onshore Rig
Exhibit 42: Operating margin comparison

The operating margin for Essar Shipping has been
50
consistently improving on account of a rise in revenue
45
from the ports and terminal business, which is a high
40
logistics business
margin business compared to its traditional shipping and
35
30
25
20
15
FY08
FY09
FY10
ESPLL
MLL
FY11E
FY12E
GE Shipping
Exhibit 43: Debt-equity ratio analysis

The company is appropriately leveraged as its debt-equity
12000
ratio has hovered close to 1.0 in the last three years. We

over the next two years as it expands its offshore oilfield
8000
presence with the acquisition of two jack-up rigs. It will

also aggressively expand its ports and terminal business
with the establishment of new port at Salaya in Gujarat
and two berths in Orissa (CQ3 and Coal)
| cr
expect the debt-equity ratio to inch up higher to 1.1 levels
10000
6000
4000
1.2
7927
6739
8629
7508
10146
8777
1.2
11196
9041
1.2
1.4
1.2
1.0
4170
3468
0.9
0.9
0.8
2000
0.6
0
FY 08
FY 09
Debt
FY 10
FY 11E
Equity
D/E Ratio
FY 12E
Page 32
Essar Shipping offers a diversified play in the Indian shipping, logistics

and ports business. In the last few years, the company has not only
consolidated its position in its traditional shipping and logistics business
but has also ramped up its presence in the ports and terminal business
with the Vadinar (46 MTPA wet cargo) port terminal and Hazira (30 MTPA
dry cargo) port. Over the next three years, the company has chalked out
plans to further increase its port capacity to 158 MTPA with the
establishment of new ports and expansion of existing port operations.
Further, the company will also receive the delivery of two new jack-up
rigs over the next 1.5 years, thereby increasing its presence in the
offshore oilfield business.
We have valued each division of ESPLL on a DCF basis and arrived at our
SOTP price target of | 112.
Exhibit 44: Valuation parameters
Business
DCF/|
Sea and Surface Transport Business
23
Oilfield Services Business
21
Ports & Terminal

VOTL & VPTL
18
Hazira Bulk Terminal
33
Salaya Bulk Terminal
11
Paradip CQ3 Berth
Paradip Coal Berth
Total Value
68
Total SOTP Valuation
112
Exhibit 45: Valuation

FY10
FY11E
FY12E
Sales
(| cr)
2999.4
3222.0
4227.4
Sales
Growth (%)
16.6
7.4
31.2
EPS
(|)
1.5
2.5
5.3
EPS
Growth (%)
23.2
66.8
110.0
PE
(x)
74.2
44.5
25.5
EV/EBITDA RoNW RoCE

(x)
(%)
(%)
13.5
1.1
3.7
13.4
2.3
4.3
10.8
3.7
5.4
Page 33
Rating matrix
GE Shipping (GESHIP)
Rating
Buy
Target
| 356
Target Period
12 months
Potential Upside
16 %
WHATS CHANGED
PRICE TARGET ............................................................. Changed from Rs 334 to Rs 356
Key Financials
(| cr)
Net Sales
EBITDA
Net Profit
FY09
FY10 FY11E FY12E
3800.8 2856.5 3194.7 3687.5
1662.1 959.5 1158.1 1475.0
1407.6 512.8 558.5 691.9
FY09
3.3
3.6
4.0
0.9
26.9
12.7
PE (x)
Target PE (x)
EV to EBITDA(x)
Price to book (x)
RoNW (%)
RoCE (%)
FY10
9.1
9.9
8.7
0.8
9.0
4.8
FY11E
8.4
9.1
7.4
0.8
9.1
6.5
FY12E
6.8
7.4
5.8
0.7
10.4
8.7
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
Cash (FY10E) (| cr)
EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
4675
5370
1743
8302
345 / 227
152.3
10
12.7
12.6
Price movement
6000
350
5500
5000
300
4500
4000
250
3500
Oct-09
NIFTY

Subsidiary IPO to lead to value unlocking
Valuation summary
3000
Jul-09
| 307
Jan-10
Apr-10
Great Eastern Shipping Company Ltd
200
Jul-10
Great Eastern Shipping Ltd (GE Shipping) is one of the largest shipping
companies in India operating a fleet of 62 shipping and offshore vessels.
The company has the best financials in the shipping space. Its under
leveraged balance sheet would enable it to acquire additional shipping
assets in the second-hand market. Due to the challenging business
environment, the operating performance of the company could remain
volatile in the near term. However, the company would benefit
immensely as the shipping cycle turns around in the next couple of
years. Greatship Ltd, a subsidiary company of GE Shipping, has filed its
DRHP and is expected to get listed in Q3FY11. The offshore business of
GE Shipping is housed under its subsidiary Greatship Ltd. Its listing will
lead to value unlocking for the parent company i.e. GE Shipping.
Consistent performer in volatile industry
The company is ramping up its fleet (especially in the offshore segment),
which will be scaled up to 27 vessels and the total fleet size would rise to
74 vessels in FY12. Scaling up of the fleet along with improvement in
tanker freight rates is likely to result in an improvement in the operating
performance. We expect the topline to report a steady rise over the next
two years on account of new vessel additions accompanied by a
marginal rise in tanker freight rates. GE Shipping is likely to report an
operating margin expansion along with a rise in bottomline.
Valuation
We have valued GE on multiple valuation parameters and recommend
BUY with a price target of | 356.

Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)

720.8
662.7
706.3
766.7
644.3
256.7
168.4
199.3
335.1
261.4
35.6
25.4
28.2
43.7
40.6
96.1
107.8
109.3
111.3
104.7
44.6
70.7
50.5
46.4
93.1
154.2
108.5
94.4
155.7
171.8
10.1
7.1
6.2
10.2
11.3
Page 34
| cr
Exhibit 47: Revenue to gain traction

4000
3500
3000
2500
2000
1500
1000
500
0
3800.8
3687.5
3130.8
FY08
3194.7
2856.5
FY09
FY10
FY11E
FY12E
Revenue
1800
1600
1400
1200
1000
800
600
400
200
0
1662.1
1385.6
44
44
959.5
FY08
FY09
50
45
40
35
30
25
20
15
10
5
0
1475.0
40
1158.1
36
34
FY10
EBITDA
FY11E
| cr
Exhibit 48: Operating margin expected to steadily improve
FY12E
OPM
1600
1400
1200
1000
800
600
400
200
0
1453.6
46
50
1407.6
40
37
512.8 18
558.5
691.9
17
19
30
%
| cr
Exhibit 49: PAT expected to rise significantly in FY12
20
10
0
FY08
FY09
FY10
PAT
FY11E
FY12E
NPM
Page 35
Exhibit 50: Revenue days Register a drop

Revenue days dropped from 3,374 days in Q4FY10 to
3400
3374
3,315 days in Q1FY11
3315
3300
3200
Q4FY10
Q1FY11
Revunue Days
Exhibit 51: Average TCE $ per day

Crude oil tanker rates declined 30.3% QoQ while product
carrier rates declined by 13.6% QoQ. However, dry bulk
TCE $/day
freight rates rose by 2.2% over the same period
35000
30000
25000
20000
15000
10000
5000
0
29322
23963 24484
20444
17920
Crude
15485
Product
Q4FY10
Dry Bulk
Q1FY11
Exhibit 52: Present fleet and fleet size post expansion

20
19 19
18
15
No. of vessels
16
14
12
15
13
12
10
10
11
6
4
2 2
1 1
2
0
Crude
Product
LPG
Dry Bulk
FY10
Rig
AHTS
OSV
FY12E
Page 36
Exhibit 53: NAV

350
339
340
330
317
320
310
303
303
Q3FY10
Q4FY10
300
290
280
Q2FY10
Q1FY11
NAV
Exhibit 54: Coordination between NAV and market price

700
632
600
557
500
405
400
300
282
231
200
100
0
67
24
FY01
67
33
FY02
167
139
154
84
FY03
FY04
FY05
NAV
356
280
335
202
200
FY06
339
296
FY07
FY08
FY09
FY10
Market Price
Page 37
The company is ramping up its fleet (especially in the offshore segment),

which will be scaled up to 27 vessels and total fleet size would rise to 74
vessels in FY12. Scaling up of fleet along with improvement in tanker
freight rates is likely to result in an improvement in performance over the
next one year. We have valued GE on multiple valuation parameters and
Valuation based on
Global average
Target multiple
Target price (|)
14.5
6.00
273
1.3
1.00
PE multiple (x)
Price to book value (x)
438
Average target price (|)
356
Current market price (|)
307
Upside (%)
15.8

Sales
Sales
EPS
EPS
PE
EV/EBITDA
RoNW
(| Cr)
Growth (%)
(|)
Growth (%)
(x)
(x)
(%)
RoCE
(%)
FY10
3358.7
10.1
71.5
-50.0
12.0
8.4
14.3
10.0
FY11E
3553.0
5.8
87.9
22.8
11.7
6.8
13.1
11.9
FY12E
3679.8
3.6
199.7
127.2
4.4
5.9
26.2
13.2
Page 38
Rating matrix
Mercator Lines (MERLIN)
Rating
Buy
Target
| 63
Target Period
12 months
Potential Upside
15 %
| 55
Key Financials
(| cr)
Net Sales
EBITDA
FY09
FY10 FY11E FY12E
2210.5 1808.7 2163.5 2576.9
949.3 644.9 671.3 801.3
Net Profit
376.5
53.3
81.5
200.5
PE (x)
FY09 FY10
3.4 24.9
Target PE (x)
EV to EBITDA(x)
Price to book (x)
RoNW (%)
RoCE (%)
3.5
3.5
0.6
16.5
12.6
FY11E
16.3
FY12E
6.6
16.6
4.2
0.5
3.4
6.1
6.7
2.7
0.5
7.7
8.3
25.3
5.2
0.6
2.3
5.3
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
1297
3017
Cash (FY10E) (| cr)

EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
956
3358
72 / 42
24.1
1
3.9
17.3
Price movement
6000
80
5500
60
5000
40
4500
20
Jan-10
NIFTY
PRICE TARGET ................................................................. Changed from Rs 56 to Rs 63

Valuation summary
4000
Oct-09
WHATS CHANGED
Apr-10
0
Jul-10
Mercator Lines Ltd (RHS)
Re-rating candidate
In the last few years, Mercator Lines (MLL) has not only reported a
steady growth in its core business but has also diversified into related
areas. This has not only enabled MLL to scale up its business
significantly but has also reduced the exposure to the volatile shipping
business. MLL operates dry bulk carriers, crude and product carriers,
offshore jack-up rig and dredgers. The company also owns and operates
coal mines in Indonesia. In addition, it also carries out significant
quantity of coal trading. MLL is also entering into new business areas
such as floating production cum storage unit, which would get
operational in FY11. It is well placed to ride the volatility of the shipping
business on account of inherent advantages such as diversified revenue
stream, presence across segments, long-term charter contracts,
comfortable debt-equity ratio and strong management capability. MLL
would be the most likely outperformer among shipping stocks in case of
an upturn in the shipping cycle. The stock is trading at half its FY10 BV
of | 97 and is a likely re-rating candidate.
Diversified operations to insulate MLL from volatile shipping business
FY11 is likely to be a very volatile year for the company as earnings are
likely to be volatile on account of wide fluctuations in freight rates. A
majority of dry bulk revenues is derived from long-term contracts, which
insulate the company from volatile freight rates. However, its tanker fleet
is deployed on medium-term contracts ranging from 6-12 months. This
can drag down the performance as crude and product carrier rates have
been extremely subdued. However, the company is ramping up its coal
trading and mining activities, which would result in an improvement in
the topline and bottomline in FY12.
Valuation
We have valued MLL on a P/BV and P/E multiple basis to arrive at a price
target of | 63 and recommend BUY rating on the stock.
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)

447.3
406.6
472.8
482.0
599.3
223.9
50.1
88.3
56.3
44.5
1.9
140.1
34.5
92.5
48.4
-1.8
-
141.2
29.9
84.9
48.7
1.0
0.0
139.7
29.0
75.2
52.4
9.6
0.4
198.2
33.1
76.0
48.8
61.7
2.6
Page 39
Exhibit 58: Revenue to report steady growth

3000
2576.9
2500
| cr
2000
1500
2210.5
2163.5
1808.7
1476.9
1000
500
0
FY08
FY09
FY10
FY11E
FY12E
Revenue
Exhibit 59: Operating margin to soften, going ahead, as share of coal trading increases
949.3
50
900
800
700
41
609.4
43
40
671.3
644.9
36
600
| cr
45
801.3
31
31
500
35
30
25
400
20
300
15
200
10
100
1000
0
FY08
FY09
FY10
FY11E
EBITDA
FY12E
OPM
Exhibit 60: PAT expected to improve sharply

376.5
400
350
25
327.7
22
20
300
17
15
200.5
200
| cr
250
10
150
100
53.3
50
81.5
0
FY08
FY09
FY10
PAT
FY11E
FY12E
NPM
Page 40

The current fleet has 31 vessels, which include 15 dry
bulk carriers, 11 crude/product tankers, four dredgers and
one jack-up rig
15
16
14
11
12
10
8
6
2
0
Tankers
Dry Bulk
Dredgers
Offshore
Exhibit 62: Operating days and TCE - Dry bulk division

35000
30001
29258
30000
25000
20000
Operating days of the dry bulk division increased from
15000
1,097 days in Q1FY10 to 1,251 days in Q1FY11
10000
TCE of the dry bulk division increased from $29,258 per
5000
1097
1251
day in Q1FY10 to $30,001 per day in Q1FY11
Operating Days
TCE
Q1FY10
Q1FY11
Exhibit 63: Shareholding pattern change
Due to volatility in freight rates, FIIs and DIIs pared their

holding in the stock in Q1FY11, which was one of the
factors leading to the correction in the stock price
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
39.7
38.0 38.0
35.0
18.4 17.3
8.6
Promoters
FII
Mar-10
5.0
DII
Others
Jun-10
Page 41
MLL reported a sharp improvement in its operating performance in

Q1FY11 with the dry bulk division performing reasonably well. The
company has also ramped up its coal business (mining as well as
trading), which would increasingly contribute to its topline.
Freight rates are expected to be volatile over the next one year, which
could lead to fluctuations in the operating performance of the company,
going ahead. However, MLL is well placed to ride the volatility of the
shipping business on account of inherent advantages such as a
diversified revenue stream, presence across segments, long-term charter
contracts, comfortable debt-equity ratio and strong management
capability.
MLL is trading at a significant discount to its global peers and almost at
0.5x its FY10 book value, which provides an appropriate entry point for
long-term investors. We have valued MLL on a P/BV and P/E basis to
arrive at a price target of | 63 and recommend BUY rating on the stock.
Global average
Target multiple
Target price (|)
PE multiple (x)
Valuation based on
8.0
6.0
50
0.6
0.7
76
63
55
Upside (%)
15
FY10
FY11E
FY12E
Sales
Sales
EPS
EPS
PE
EV/EBITDA
RoNW
(| cr)
1808.7
Growth (%)
-18.2
(|)
Growth (%)
(x)
(x)
(%)
RoCE
(%)
2163.5
2576.9
19.6
19.1
2.2
3.4
8.3
-86.3
53.0
145.9
24.9
16.3
6.6
5.2
4.2
2.7
2.3
3.4
7.7
5.3
6.1
8.3
Page 42
Rating matrix
Rating
Reduce
Target
| 162
Shipping Corporation of India (SCI)
Target Period
12 months
Potential Upside
0%
| 162
Key Financials
FY09
(| cr)
Net Sales
EBITDA
Net Profit
FY10
FY11E FY12E
4166.6 3463.1 3771.8 4004.9

1086.9 527.1 712.7 885.7
940.5 376.8 389.7 250.2
FY09
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
7.3
7.5
6.1
1.1
10.8
8.8
FY10
FY11E FY12E
18.2
18.7
13.4
1.1
3.5
1.6
15.4
15.8
13.6
1.0
3.3
2.1
20.3
20.8
11.5
1.0
2.0
2.3
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
Cash (FY10E) (| cr)
EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
6861
2694
2472
7083
182 / 122
423.0
10
0.2
2.0
Price movement
200
150
100
50
Nov-09
Jan-10
NIFTY

Valuation summary
5600
5400
5200
5000
4800
4600
4400
4200
4000
Sep-09
WHATS CHANGED
Mar-10
May-10
Shipping Corporation of India Ltd
0
Jul-10
Disinvestment play
SCI is trading at a significant premium to its domestic peers. The
premium valuation is justified on account of it being the largest
shipping company in India and a Navratna PSU. In addition, the
company has insignificant debt, which will enable it to leverage its
balance sheet and borrow in the international market at competitive
interest rates. In addition, the follow on public offer (FPO) of SCI has
revived investor interest in the stock.
The average age of SCIs fleet is 18.1 years, which is twice the age of
Indian shipping companies. In order to replace its ageing fleet, SCI has
committed to incur capex of ~| 8000 crore over the next two years.
Despite the improvement in topline and operating margin, higher
depreciation and interest costs is likely to exert pressure on the
bottomline. A rise in the equity base on fresh issue of shares is further
expected to dilute the earnings.
Capex to fuel topline growth
SCI has reported an improvement in performance over the last two
quarters with the rise in freight rates across vessel categories. The liner
business of the company, which has been posting losses for the last
many quarters also turned around and posted profits in Q1FY11. We
expect the topline to increase at a steady pace over the next two years
combined with expansion of operating margins to 22.1% in FY12. The
main factors leading to the expansion in operating margin would be a rise
in freight rates and drop in repair and maintenance expenses on account
of new fleet addition. However, capex spend would also lead to a rise in
depreciation and interest costs resulting in pressure on net profits.
Valuation
We have valued SCI at 1.0x book value to arrive at a price target of | 162.

Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)
882.8
151.5
17.2
86.5
14.6
119.9
2.8
844.9
106.3
12.6
95.7
15.0
33.7
0.8
845.4
87.9
10.4
98.9
12.2
87.4
2.1
889.4
174.9
19.7
99.0
10.7
135.9
3.2
906.5
222.9
24.6
101.3
12.3
191.5
4.5
Page 43
Exhibit 67: EBITDA margin to improve, going ahead

920
900
906.5
889.4
882.8
| cr
880
860
844.9
845.4
Q2FY10
Q3FY10
840
820
800
Q1FY10
Q4FY10
Q1FY11
Revenue
Exhibit 68: EBITDA margin to improve, going ahead

250
222.9
| cr
150
25
174.9
151.5
20
17
100
106.3 13
87.9
30
20
15
10
200
25
10
50
5
0
0
Q1FY10
Q2FY10
Q3FY10
Q4FY10
EBITDA
Q1FY11
OPM
Exhibit 69: PAT likely to decline on higher interest and depreciation costs
25
250
191.5 21
200
135.9
119.9 14
87.4
100
33.7
50
15
15
| cr
150
20
10
10
0
Q1FY10
Q2FY10
Q3FY10
PAT
Q4FY10
Q1FY11
NPM
Page 44
Exhibit 70: Current fleet

35
The current fleet is 80 vessels, which consists of 30
30
No. of vessels
crude tankers and 19 dry bulk carriers
30
25
19
20
12
15
10
10
7
2
5
0
Crude
Product
Dry Bulk
Offshore
Container
LPG
Exhibit 71: Fleet profile in FY12

The fleet size is expected to increase to 84 vessels in
30
FY12. Despite substantial capex, the fleet size is expected
25
to increase marginally as 20 vessels are expected to get
No. of vessels
scrapped over the next two years

However, tonnage is likely to increase as new vessels
would have a higher DWT
25
20
20
16
15
15
10
0
Crude
Product
Dry Bulk
Offshore
Container
LPG
Exhibit 72: Age profile of fleet

Vessel Type
SCI has one of the oldest fleets among Indian shipping

companies with an average age of 18.1 years
No.of vessels
Average Age
Crude Tankers
29
Dry Bulk
19
Product Tankers
13
Offshore Vessels
10
250
Liners
LPG
Total vessels
Average age
80
18.1
Page 45
The average age of SCIs fleet is 18.1 years, which is twice the age of
Indian shipping companies. In order to replace its ageing fleet, SCI has
committed to incur capex of ~| 8000 crore over the next couple of years.
This would result in higher depreciation and interest expenses, going
forward, and impact its profitability. We have valued SCI at 1.0x P/BV to
arrive at a price target of | 162.
Valuation based on
PE multiple (x)
Upside (%)
Global average
8.0
1.3
Target multiple
1.0
Target price (|)

162.0
162.0
162.0
0.0
FY10
FY11E
FY12E
Sales
(| Cr)
3463.1
Sales
Growth (%)
-16.9
3771.8
4004.9
8.9
6.2
EPS
(|)
EPS
Growth (%)
PE
(x)
EV/EBITDA
(x)
RoNW
(%)
RoCE
(%)
8.9
10.5
8.0
-59.9
18.1
-24.2
18.2
15.4
20.3
13.4
13.6
11.5
3.5
3.3
2.0
1.6
2.1
2.3
Page 46
Rating matrix
Rating
Sell
Target
| 36
Target Period
12 months
Potential Upside
-14%
Varun Shipping (VARSHI)

WHATS CHANGED
Key Financials
(| cr)
Net Sales
EBITDA
Net Profit
FY09
914.7
476.0
122.8
FY10
666.2
240.0
12.6
FY09
5.1
4.4
7.1
0.8
15.1
5.6
FY10
50.2
43.0
13.9
0.8
1.5
0.1
FY11E
636.7
241.1
-52.8
FY12E
749.7
330.2
-56.4
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
FY11E FY12E
12.8
8.6
0.8
0.9
0.1
3.8
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
Cash (FY10E) (| cr)
EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
630
2741
34
3337
64 / 40
150.0
10
0.01
13.73
Price movement
70
60
50
40
30
Nov-09
NIFTY

Under pressure
Valuation summary
6000
5500
5000
4500
4000
3500
3000
Aug-09
| 42
Feb-10
May-10
20
Aug-10
Varun Shipping (RHS)
Varun Shipping Company Ltd (Varun Shipping) has a dominant

presence in the Indian LPG space and operates 10 LPG carriers. The
company also expanded its presence in the offshore segment with the
acquisition of high-end AHTS vessels. However, the economic downturn
and correction in freight rates had a cascading effect on the operational
performance of the company, which has been under pressure for the
last one year. The strain is likely to continue. A high debt level has also
compounded the problems. However, if there is a recovery in high-end
AHTS vessel rates it could enable the company to emerge from the
crisis earlier than expected.
Long road to recovery
Due to oversupply of LPG carriers combined with subdued demand, LPG
freight rates are expected to remain sluggish. As LPG constitutes 50% of
Varun Shippings fleet, the performance is expected to be subdued. We
expect crude tanker rates to increase marginally while AHTS rates are
expected to rise at a faster pace over the next two years. The operating
margin of the company is also likely to improve to 44% from the current
36% on account of a rise in high-end AHTS vessel rates.
However, the company is also highly leveraged and significant interest
outgo is likely to strain the performance. Due to high depreciation and
interest costs, Varun Shipping is likely to report a net loss from operations
in FY11.
Valuation
We have valued Varun Shipping at 0.80x FY12E P/BV to arrive at a price
target of | 36. We maintain our SELL recommendation on the stock.
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)

175.7
157.3
172.0
161.2
132.2
72.3
70.6
48.3
48.9
17.0
41.1
44.9
28.0
30.3
12.8
66.1
63.0
61.9
45.4
51.4
43.0
52.2
55.1
43.0
53.6
1.9
13.0
-1.4
-1.0
23.6
0.1
0.9
1.6
Page 47
Exhibit 76: Revenue likely to show improvement only in FY12

1000
850.8
914.7
| cr
800
749.7
666.2
636.7
FY10
FY11E
600
400
200
0
FY08
FY09
FY12E
Revenue
Exhibit 77: Operating margin expected to improve in FY12
500
493.1 58
70
476.0
60
52
| cr
400
300
330.2
240.0
50
44
241.1 38
36
40
%
600
30
200
20
100
10
0
0
FY08
FY09
FY10
EBITDA
FY11E
FY12E
EBITDA %
Exhibit 78: Expected to post losses for next two years

30
225.8 27
25
200
| cr
20
122.8
150
15
13
100
50
10
12.6
0
-50
FY08
FY09
5
2
FY10
-100
PAT
250
0
FY11E -8
FY12E -8
-52.8
-56.4
-5
-10
-15
PAT %
Page 48

The current fleet consists of 20 vessels, which includes
10 LPG carriers, seven AHTS vessels and three crude
tankers
12
10
10
8
6
4
2
0
LPG
AHTS
LPG
Crude
AHTS
Crude
Exhibit 80: Dividend history

60
and has been a high dividend yield stock
14
50
| cr
40
30
20
45
45
8
9
30
50
50
12
12
10
9
6
The company has a consistent dividend payment record
16
10
4
2
0
0
FY04
FY05
FY06
FY07
FY08
Dividend % (LHS)
FY09
FY10
Dividend yield (RHS)

50
43.1 42.2
35.1 36.3
40
There has been a drop in the promoter and FII holding in

the company in the last quarter
30
20
14.7 13.7
7.1 7.8
10
0
Promoters
FII
Mar-10
DII
Others
Jun-10
Page 49
The operational performance of Varun Shipping has been under pressure

for the last one year as all segments in which the company operates i.e.
LPG, crude tankers and AHTS vessels have witnessed a softening of
freight rates. Due to the oversupply of LPG carriers combined with
subdued demand, LPG freight rates are expected to remain sluggish,
going forward, while crude oil tanker rates are expected to rise
marginally. Upsides can emerge from its high-end and new AHTS vessels,
which could report a rise in freight rates with a pick-up in oil exploration
and drilling activities.
Further, the company has also entered into a sale and lease back
arrangement for four of its LPG carriers to tide over the steep drop in
operating profits. Although this has resulted in an extraordinary profit in
the short-term it would lead to a drag on the EBITDA over the next few
years as the company would have to incur charter hire expenses. We
have valued Varun Shipping at 0.80x FY12E P/BV to arrive at our price
target of | 36. We maintain our SELL recommendation on the stock.
Valuation based on
Global average
Target multiple
Target price (|)
19.3
0.9
0.8
PE multiple (x)
36.0
36.0
42.0
Upside (%)
-14.3
FY10
FY11E
FY12E
Sales
(| Cr)
Sales
Growth (%)
EPS
(|)
EPS
Growth (%)
PE
(x)
666.2
636.7
749.7
-27.2
-4.4
17.8
0.8
-3.5
-3.8
-90.2
-
50.2
-
EV/EBITDA RoNW RoCE

(x)
(%)
(%)
13.9
12.8
8.6
1.5
-
0.1
3.8
Page 50
Rating matrix
Aban Offshore (ABALLO)
Rating
Buy
Target
| 947
Target Period
12 months
Potential Upside
10 %
Key Financials
FY09
FY10 FY11E FY12E
(| cr)
Net Sales
3050.1 3358.7 3553.0 3679.8
EBITDA
1776.9 2100.9 2243.2 2310.0
Net Profit
540.7
311.1
382.2
868.2
Valuation summary
FY09
FY10 FY11E FY12E
PE (x)
6.0
12.0
11.7
4.4
Target PE (x)
6.6
13.2
12.9
4.8
EV to EBITDA (x)
11.1
8.4
6.8
5.9
Price to book (x)
1.9
1.7
1.5
1.2
RoNW (%)
31.0
14.3
13.1
26.2
RoCE (%)
6.4
10.0
11.9
13.2
Stock data
Market Cap. (| cr)
3742
Debt( FY10E) (| cr)
14164
Cash (FY10E) (| cr)
236
EV (| cr)
17670
52 week H/L (| cr)
1680 / 637
8.7
Face value |
MF Holding (%)
FII Holding (%)
2
14.5
9.6
Price movement
6000
5500
5000
4500
4000
3500
3000
Jul-09
| 860
WHATS CHANGED
Oct-09
Jan-10
NIFTY
Apr-10
Aban Offshore Ltd
1900
1700
1500
1300
1100
900
700
500
Jul-10

RATING................................................................................... Changed from Add to Buy
Banking on exploration spend

Aban Offshore Ltd (Aban) ranks among the top 16 offshore drilling
companies in the world with a significant presence in the high-end
offshore drilling market. The company operates a fleet of 15 jack-up
rigs, three drill ships and one floating production unit. The global
economic crisis and resultant decline in crude oil prices led to a drop in
exploration and drilling activities globally, which resulted in a drop in
utilisation levels for Abans fleet. High leverage post acquisition of
Sinvest and sinking of Aban Pearl further led to a dip in performance.
In the last few months, Aban secured long-term contracts for
deployment of its idle vessels leading to higher utilisation levels and
improvement in operating performance. Also, crude oil prices have
consistently sustained above $60/barrel for the last 15 months. This
would lead to increased spend towards offshore exploration and
drilling.
Operating performance to gain traction
Currently, only two vessels out of its fleet of 19 are idle and under
marketing while out of the remaining 14 assets are already deployed
while three have secured contracts for deployment. This provides stable
earnings visibility over the next two years. Aban has also provided for
the loss of Aban Pearl and also for Petrojack bankruptcy. This means that
the recent setbacks have been factored in the stock price. High debt
levels are the single biggest concern for Aban Offshore. However, as
operating performance improves, debt/equity ratio is likely to moderate.
Valuation
We have valued the stock on multiple valuation parameters and
Net Sales
793.5
702.9
841.3
1021.0
842.5
EBITDA
468.9
452.9
519.3
659.8
520.2
EBITDA Margin (%)
59.1
64.4
61.7
64.6
61.7
Depreciation
98.9
99.4
135.2
128.1
129.1
Interest
236.4
261.1
259.9
219.4
227.2
Reported PAT
EPS (`)
110.8
29.3
71.4
18.9
89.4
20.6
39.8
9.1
-143.9
-
Page 51
Exhibit 85: Revenue expected to gradually rise

4000
3500
3050.1
3679.8
3525.4
3358.7
3000
| cr
2500
2047.0
2000
1500
1000
500
0
FY08
FY09
FY10
FY11E
FY12E
Revenue
Exhibit 86: Operating margin likely to sustain at current level

2500
2100.963
62
2000
64
2310.0
63
63
63
62
1776.9
61
1274.5
59
1000
58
60
| cr
1500
2219.4
58
57
500
56
55
0
FY08
FY09
FY10
EBITDA
FY11E
FY12E
EBITDA %
Exhibit 87: PAT to rise sharply in FY12

851.2
900
800
540.7
600
15
18
500
| cr
25
20
700
400
311.1
300
200
23
123.0
319.8
10
100
0
0
FY08
FY09
FY10
PAT
FY11E
FY12E
PAT %
Page 52
Exhibit 88: Current fleet

16
and one floating production unit
No. of vessels
The current fleet includes 15 jack-up rigs, three drill ships
15
12
8
3
0
Jack-up Rigs
Drillship
FPU
Fleet Profile
Exhibit 89: Rig wise deployment data
Total 14 out of its 19 assets are deployed on long-term

contracts across the globe. Further, three other assets
have secured long-term contracts and the deployment is
likely to commence operations in Q3FY11
No.
I
1
2
3
4
5
6
II
1
2
3
4
5
III
1
2
3
4
IV
1
2
3
V
1
Fleet
Jack Up Rigs
Aban 2
Aban 3
Aban 4
Aban 5
Aban 6
Aban 7
Jack Up Rigs-KFLES Superb class
Deep Driller 2
Deep Driller 3
Deep Driller 5
Deep Driller 6
Deep Driller 8
Jack Up Rig-BMC Pacific 375 Class
Deep Driller 1
Deep Driller 4
Deep Driller 7
Aban 8
Drillship
Aban Ice
Aban Abraham
Deep Venture
FPU
Tahara
Vessel Type
Depth
"
Location
Age
Jack up
Jack up
Jack up
Jack up
Jack up
Jack up
Shallow
Shallow
Shallow
Shallow
Shallow
Shallow
350
350
350
350
350
350
India
India
India
Middle East
-
28
35
26
27
34
36
Jack up
Jack up
Jack up
Jack up
Jack up
Shallow
Shallow
Shallow
Shallow
Shallow
350
350
350
350
350
Middle East
Malaysia
Middle East
Middle East
Brunei
2
2
2
1
1
Jack up
Jack up
Jack up
Jack up
Shallow
Shallow
Shallow
Shallow
350
350
350
350
India
Middle East
Mexico
Middle East
2
2
1
1
Drillship
Drillship
Drillship
Deep water
Deep water
Deep water
2000 India
6600 4200 -
50
33
28
FPU
Floater
India
36
Exhibit 90: Return ratio to improve sharply in FY12

35
Return ratios are likely to improve In FY12
30
25
%
20
15
10
5
0
FY08
FY09
RONW %
FY10
FY11E
FY12E
ROCE %
Page 53
Exhibit 91: Steady improvement in debt-equity ratio

16645
16000
16
15000
| cr
20
14000
15
14164
13043
10
10
13000
12000
11687
11000
17000
Debt-equity levels will moderate, going forward
5
10215 3
0
10000
FY08
FY09
FY10
Debt
FY11E
FY12E
Debt-Equity
Currently, 15 out of 19 vessels are deployed on long-term contracts with

four idle vessels. In the last quarter, Aban secured contracts for
deployment of three of its assets i.e. Deep Driller 1 and Deep Driller 6 to
be deployed from July 2010 and Deep Driller 8 to be deployed from
October 2010. Deployment of the above assets will improve the earnings
visibility in FY11 and FY12. Four of its idle assets are under marketing and
are likely to secure long-term contracts within the next six months.
The company has provided for the Aban Pearl loss and also with respect
to its investment in Petrojack. We have valued the company on multiple
valuation parameters and recommend BUY with a price target of | 947.
Global average
Target multiple
Target price (|)
PE multiple (x)
Valuation based on
9.3
6.0
1,142
1.0
1.0
751
947
860
Upside (%)
10.1

Sales
Sales
EPS
EPS
PE
EV/EBITDA
RoNW
(| Cr)
Growth (%)
(|)
Growth (%)
(x)
(x)
(%)
RoCE
(%)
FY10
3358.7
10.1
71.5
-50.0
12.0
8.4
14.3
10.0
FY11E
3553.0
5.8
87.9
22.8
11.7
6.8
13.1
11.9
FY12E
3679.8
3.6
199.7
127.2
4.4
5.9
26.2
13.2
Page 54
Rating matrix
Garware Offshore (GARSHI)
Rating
Buy
Target
| 139
Target Period
12 months
Potential Upside
15 %
| 121
Key Financials
(| cr)
Net Sales
WHATS CHANGED
FY09
163.2
FY10
212.4
FY11E
207.8
FY12E
230.7
EBITDA
95.9
108.1
103.1
116.8
Net Profit
41.1
41.2
29.4
42.1

RATING................................................................................... Changed from Add to Buy
Valuation summary
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
FY09
7.0
FY10
7.0
FY11E
9.8
FY12E
6.8
8.1
8.0
11.3
7.9
9.7
1.2
17.6
8.2
7.2
1.1
15.4
9.6
9.3
1.0
10.1
6.4
7.7
0.9
12.8
7.7
Stock data
Market Cap. (| cr)
288
Debt( FY10E) (| cr)
503
Cash (FY10E) (| cr)

EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
11
780
230 / 123
23.8
10
0.1
0.2
Price movement
6000
5500
5000
4500
4000
3500
3000
Aug-09
NIFTY
250
220
190
160
130
Nov-09
Feb-10
May-10
100
Aug-10
Garware Offshore Services (RHS)
Consolidation mode
Garware Offshore Ltd (Garware Offshore) currently operates a fleet of
12 vessels, which consists of seven AHTS vessels, four PSVs and one
construction barge. The fleet is a combination of small and mid-sized
vessels, which provide stable revenues for the company. Garware
Offshore acquired two vessels in Q2FY10. The company has on order
one platform support vessel, which is under construction and is
expected to join the fleet by the end of FY11. It has a reasonably good
revenue visibility as 71% of its fleet is deployed on long-term charter
contract, which ensures higher utilisation level for its fleet.
Operating performance to recover after a dip in FY11
Except one platform support vessel, which is expected to join by the end
of FY11, it is through with its fleet expansion programme. This would
imply that topline and bottomline growth for the next couple of years
would be muted. Further, the company is also slightly more leveraged
with a debt-equity ratio of 1.9, which would compel it to consolidate its
position over the next two years. After a small dip in net profit in FY11, it
is expected to recover significantly in FY12.
Valuation
We have valued Garware Offshore on multiple valuation parameters and
recommend BUY on the stock with a price target of | 139.
Net Sales
EBITDA
EBITDA Margin (%)

57.1
54.2
63.8
37.3
48.5
32.0
22.7
26.5
27.0
19.5
56.0
41.9
41.5
72.2
40.1
Depreciation
7.7
8.5
9.2
9.1
8.1
Interest
Reported PAT
EPS (`)
8.9
15.5
6.5
7.9
6.4
2.7
7.9
13.1
5.5
6.3
18.5
7.8
5.9
5.5
2.3
Page 55
Exhibit 95: Revenue likely to rise marginally
250
200
| cr
150
212.4
207.8
FY10
Revenue
FY11E
230.7
163.2
113.7
100
50
0
FY08
FY09
FY12E
Exhibit 96: Operating margin likely to be stable over the next two years
140
60
59
120
108.1
57
58
103.1
95.9
56
54
64.2
60
51
52
51
50
| cr
100
80
116.8
50
40
48
20
46
44
FY08
FY09
FY10
EBITDA
FY11E
FY12E
OPM
Exhibit 97: PAT expected to improve in FY12 after dipping in FY11

50
42.5
37
40
42.1
41.2
41.1
40
33
29.4
30
26
%
| cr
25
19
20
14
10
18
19
12
5
FY08
FY09
FY10
PAT
FY11E
FY12E
NPM
Page 56

8
barge
No. of vessels
seven AHTS vessels, four PSVs and one construction
6
5
4
3
2
1
0
AHTS
PSV
Barge
Exhibit 99: Long-term charter contracts proportion

Spot
29%
Currently, 71% of the fleet is deployed on long-term

charter contract, which provides stable revenue visibility
Contract
71%

70.0
There has been no change in the shareholding pattern in

the last quarter
62.4 62.4
60.0
50.0
40.0
30.7 30.6
30.0
20.0
6.8 6.8
10.0
0.2 0.2
0.0
Promoters
FII
DII
Mar-10
Others
Jun-10
Page 57
Valuation rationale
Garware Offshore currently operates a fleet of 12 vessels, which consists
of seven AHTS vessels, four PSVs and one construction barge. The fleet
is a combination of small and mid-sized vessels, which provide stable
revenues for the company. Garware Offshore acquired two vessels in
Q2FY10. It has on order a platform support vessel, which is under
construction and is expected to join the fleet by the end of FY11. The
company has reasonably good revenue visibility as 71% of its fleet is
deployed on long-term charter contract, which ensures higher utilisation
levels for its fleet.
Except one platform support vessel, which is expected to join by the end
of FY11, the company is through with its fleet expansion programme. This
would imply that topline and bottomline growth for the next couple of
years would be muted. Further, the company is also slightly more
leveraged with a debt-equity ratio of 1.9, which would compel it to
consolidate its position over the next two years.
We have valued Garware Offshore on multiple valuation parameters and
recommend BUY on the stock with a price target of | 139.
Exhibit 101: Valuation parameter
Global average
Target multiple
PE multiple (x)
Valuation based on
9.3
6.0
106
1.0
1.3
172
139
Target price (|)
121
Upside (%)
14.9
FY10
Sales
(| Cr)
212.4
Sales
Growth (%)
30.1
FY11E
207.8
-2.2
FY12E
230.7
11.0
EPS
(|)
EPS
Growth (%)
PE
(x)
EV/EBITDA
(x)
RoNW
(%)
RoCE
(%)
17.3
0.4
7.0
7.2
15.4
9.6
12.4
-28.6
9.8
9.3
10.1
6.4
17.7
43.1
6.8
7.7
12.8
7.7
Page 58
Rating matrix
Great Offshore (GREOFF)
Rating
Buy
Target
| 444
Target Period
12 months
Potential Upside
15 %
| 385
Key Financials
(| cr)
Net Sales
FY09
FY10 FY11E FY12E
1081.1 1165.6 1246.7 1507.6
EBITDA
Net Profit
483.0
275.5
542.6
201.0
560.4
219.8
677.0
285.8
PRICE TARGET ............................................................. Changed from Rs 476 to Rs 444

Valuation summary
FY09
5.2
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
FY10 FY11E FY12E

7.1
6.5
5.0
6.4
6.7
8.8
6.8
8.1
6.0
6.2
4.1
1.9
36.9
13.1
1.3
18.1
11.6
1.1
16.7
10.7
0.9
18.0
12.8
Stock data
Market Cap. (| cr)
1433
Debt( FY10E) (| cr)

Cash (FY10E) (| cr)
2343
100
EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
3676
584 / 245
37.2
10
1.4
8.2
Price movement
6000
600
5500
525
5000
450
4500
375
4000
Aug-09
WHATS CHANGED
Dec-09
NIFTY
Apr-10
300
Aug-10
Great Offshore (RHS)
Steady play
Great Offshore Ltd (GOL) is the most consistent player among Indian
offshore shipping companies with a steady rise in revenue, stable
margins and steady return ratios. The company also has a sizeable
presence in the Indian offshore space with a diversified fleet of 46
vessels consisting of 28 offshore support vessels, 12 harbour tugs, three
construction barges and three drilling rigs. The company has a
successful operating track record and long-term contracts with
domestic and foreign oil exploration and drilling companies.
Stable performance to continue
We expect revenues to grow by 21% in FY12E as utilisation levels of its
drilling rigs increases. Three of its drilling rigs (Badrinath, Kedarnath and
Amarnath have secured long-term contracts and will be operating at
100% utilisation levels in FY12. The company has a slightly higher debt
equity ratio of 2.1 but this is not a concern as the ratio is expected to
improve to 1.1 by FY12 as it has completed most of its capex spend with
very marginal new capex over the next two years while the earnings from
operations are expected to rise significantly over the same period.
Valuation
We have valued Great Offshore on multiple valuation parameters and

Net Sales

229.3
228.7
241.9
278.5
239.3
EBITDA
EBITDA Margin (%)
79.5
34.7
97.1
42.5
116.1
48.0
140.3
50.4
99.8
41.7
Depreciation
Interest
Reported PAT
EPS (`)
29.8
25.1
22.2
6.0
31.7
30.5
31.4
8.4
34.4
26.5
49.5
13.3
36.3
26.1
73.1
19.6
44.0
31.1
26.7
7.2
Page 59
Exhibit 104: Revenue likely to report significant traction in FY12
1507.6
1600
1400
| cr
1000
800
1246.7
1165.6
1081.1
1200
745.9
600
400
200
0
FY08
FY09
FY10
FY11E
FY12E
Revenue
Exhibit 105: Operating margin, going ahead, likely to be lower but stable
800
49
677.0
700
483.0
| cr
500
400
312.4
300
47
560.4
542.6 47
45
45
45
45
43
42
600
41
200
39
100
0
37
FY08
FY09
FY10
FY11E
EBITDA
FY12E
OPM
Exhibit 106: Likely to improve significantly in FY12
| cr
250
30
27
275.5
300
285.8
25
201.6
201.0
200
25
219.8
17
19
18
20
15
150
350
10
100
50
0
FY08
FY09
FY10
PAT
FY11E
FY12E
NPM
Page 60

30
The current fleet consists of 46 vessels, which include 28

offshore support vessels, 12 harbour tugs, three
28
25
construction barges and three jack-up rigs
No. of vessels
20
15
12
10
5
Barge
Rigs
0
OSV
Harbour Tugs
Exhibit 108: Return ratios

40
35
30
25
ahead, on account of its diversified fleet profile and long-
20
term contracts
The company is expected to provide stable returns, going
15
10
5
0
FY08
FY09
FY10
RONW %
FY11E
FY12E
ROCE %

100.0
Post the completion of the open offer, Bharati Shipyard
80.0
has emerged as the promoter in Great Offshore with a
70.0
49.7% stake in the company. This is a positive
60.0
%
development as the company has a promoter group in

place and is also a part of the management team
89.7
90.0
49.7
50.0
38.8
40.0
Further, FIIs have also shown their confidence in the
30.0
company by raising their stake to 8.2% in the company in

the last quarter
20.0
10.0
0.0
0.0
Promoters
8.2
6.9
3.4
FII
Mar-10
3.3
DII
Others
Jun-10
Page 61
Great Offshore is the most consistent player among Indian shipping

companies with a steady rise in revenue, stable margins and steady
return ratios. GOL also has a sizeable presence in the Indian offshore
space with a diversified fleet of 46 vessels consisting of 28 offshore
support vessels, 12 harbour tugs, three construction barges and three
drilling rigs. The company also has a successful operating track record
and long-term contracts with domestic and foreign oil exploration and
drilling companies.
We expect revenues to grow by 21% in FY12E as the utilisation levels of
its drilling rigs increases. Three of its drilling rigs (Badrinath, Kedarnath
and Amarnath have secured long-term contracts and will be operating at
100% utilisation levels in FY12. The company has a slightly higher debt
equity ratio of 2.1 but this is not a concern as the ratio is expected to
improve to 1.1 by FY12 as GOL has completed most of its capex spend
with very marginal new capex over the next two years while earnings
from operations are expected to rise significantly over the same period.
We have valued Great Offshore on multiple valuation parameters and
Global average
Target multiple
Target price (|)
PE multiple (x)
Valuation based on
9.3
6.0
461
1.0
1.0
427
444
385
Upside (%)
15.3

Sales
Sales
EPS
EPS
PE
EV/EBITDA RoNW
Growth (%)
8.5
(|)
Growth (%)
(x)
(x)
(%)
(%)
FY10
(| Cr)
1165.6
RoCE
54.0
-27.4
7.1
6.8
18.1
11.6
FY11E
FY12E
1246.7
1507.6
7.0
20.9
59.0
76.8
9.3
30.1
6.5
5.0
6.0
4.1
16.7
18.0
10.7
12.8
Page 62
Rating matrix
Rating
Reduce
Target
| 241
Target Period
12 months
Potential Upside
-1 %
ABG Shipyard (ABGSHI)

| 244
WHATS CHANGED
Key Financials
(| cr)
Net Sales
EBITDA
Net Profit
FY09
FY10 FY11E FY12E
1413.0 1812.4 2299.2 2613.3
331.6 472.5 563.9 558.5
171.2 218.1 229.8 241.5
Price to book (x)

RoNW (%)
RoCE (%)
FY09
7.3
7.2
8.9
1.4
FY10
5.7
5.6
7.0
1.1
18.6
11.4
19.6
13.6
FY11E FY12E
5.8
5.1
5.8
5.1
6.0
5.6
1.0
0.8
16.4
15.3
15.9
15.1
Stock data
Market Cap. (| cr)
Debt( FY10E) (| cr)
Cash (FY10E) (| cr)
EV (| cr)
1242
2131
61
3312
52 week H/L (| cr)

Face value |
MF Holding (%)
FII Holding (%)
346 / 168
50.9
10
0.9
10.8
Price movement
400
6000
5500
5000
300
4500
200
4000
3500
3000
Aug-09
Nov-09
NIFTY

Valuation summary
PE (x)
Target PE (x)
EV to EBITDA (x)
Feb-10
May-10
100
Aug-10
ABG Shipyard (RHS)
Banking on order book

ABG Shipyard Ltd (ABG) has performed extremely well in the last one
year with 28.3% revenue growth and 27.4% PAT growth. With the
ramp-up in yard capacities at Dahej and Surat, ABG has increased the
pace of order execution in the last one year. This has helped the
company to book higher revenues in FY10. ABG is expected to maintain
its growth pace over the next two years as incremental capacity gets
added and order execution gains pace.
The order book pending execution is almost 4x FY10 sales. This
provides comfort and would also ensure revenue growth over the next
two years on the back of stable order execution. However, globally
oversupply of vessels has resulted in a drying up of new build orders for
shipyards globally. ABG has also received marginal orders in the last 1.5
years. This reduces the earnings visibility for the company over the
long-term as revenues are expected to peak in FY12. However, post that
a steady decline is expected in both topline and bottomline.
Operating performance expected to be stable
ABG Shipyard has a sizeable order book and its execution would ensure
steady revenue growth over next two years. We expect revenues to rise
from | 1812 crore in FY10 to | 2299 crore in FY11 and further to | 2613
crore in FY12. However, the operating margin is likely to moderate from
26% in FY10 to 21% in FY12 on account of a rise in raw material costs.
The company has almost completed its capex spend at the Dahej and
Surat yards. As debt repayments get under way, we expect the debtequity ratio to improve from 1.9 to 1.3 over the next two years.
Valuation
We have valued ABG Shipyard at 0.80x FY12E P/BV to arrive at a price
target of | 241. We maintain our REDUCE rating on the stock.
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)

393.1
401.6
492.8
520.2
449.5
107.1
109.0
144.3
111.2
124.4
27.2
27.2
29.3
21.4
27.7
4.6
33.7
47.0
9.2
4.7
42.5
45.9
9.0
17.3
38.1
82.3
16.2
12.2
36.3
52.9
10.4
13.7
42.1
38.4
7.5
Page 63
Exhibit 113: Likely to report stable revenue growth

3000
2613.3
2299.2
2500
1812.4
| cr
2000
1413.0
1500
1000
966.8
500
0
FY08
FY09
FY10
FY11E
FY12E
563.9
558.5
Revenue
Exhibit 114: Operating margin likely to dip, going ahead

600
500
| cr
291.7
30
331.6
26
200
25
25
23
21
100
30
400
300
35
472.5
20
15
0
FY08
FY09
FY10
EBITDA
FY11E
FY12E
EBITDA %
Exhibit 115: PAT expected to rise despite drop in net profit margin
20
300
250
160.7
213.1
15
171.2
150
| cr
200
241.5
218.1
17
12
100
12
10
9
50
0
FY08
FY09
FY10
PAT
FY11E
FY12E
PAT %
Page 64
Exhibit 116: Order book break-up

Dry bulk vessels constitute the largest portion of the order
Others
4%
Defence
5%
book for the company i.e. 48% followed by offshore

support vessels, which constitute 26% of the order book
Offshore AHTS/MPSV
26%
The order for two jack-up rigs placed by Essar Shipping

constitutes 17% of the order book for ABG Shipyard
Dry Bulk
48%
Offshore - RIGS
17%
Exhibit 117: Debt-equity ratio

2500
2000
expected to come down to 1.3 by FY12
2155.8
2130.8
The company has a debt-equity ratio of 1.9, which is
1770.91.9
2.5
1947.5
1.9
1.7
1.5
| cr
1500
2.0
1.3
1000
1.0
522.2 0.7
0.5
500
0.0
0
FY08
FY09
FY10
Debt
FY11E
FY12E
Debt-Equity

60.0
There has been a drop in the FII and DII holding in the
company in the last quarter
57.1 57.1
50.0
40.0
30.0
20.0
12.8 10.8
17.3 16.8
12.8
15.2
10.0
0.0
Promoters
FII
DII
Mar-10
Others
Jun-10
Page 65
Valuation Rationale
ABG has performed extremely well in the last one year with 28.3%
revenue growth and 27.4% PAT growth. With the ramp-up in yard
capacities at Dahej and Surat, ABG has increased the pace of order
execution in the last one year. This has helped the company to book
higher revenues in FY10. ABG is expected to maintain its high growth
pace over the next two years as incremental yard capacity gets added
and order execution gains pace.
The order book pending execution is almost 4x FY10 sales, which
provides comfort and would also ensure revenue growth over the next
two years on the back of stable order execution. However, globally
oversupply of vessels has resulted in a drying up of new build orders for
shipyards globally. ABG has also received marginal orders in the last 1.5
years. This reduces the earnings visibility for the company over the longterm as revenues are expected to peak in FY12. After this, a steady
decline is expected in both the topline as well as bottomline.
We have valued ABG Shipyard at 0.80x FY12E P/BV to arrive at a price
target of | 241. We maintain our REDUCE rating on the stock.
Exhibit 119: Valuation Parameters
Valuation based on
Global average
Target multiple
11.7
1.7
0.8
241
PE multiple (x)
Target price (|)
241
244
Upside (%)
(1.2)
FY10
FY11E
Sales
(| Cr)
1812.4
Sales
Growth (%)
28.3
EPS
(|)
EPS
Growth (%)
PE
(x)
2299.2
FY12E
2613.3
EV/EBITDA RoNW RoCE

(x)
(%)
(%)
26.9
42.8
45.1
27.5
5.4
5.7
5.8
7.0
6.0
19.6
16.4
13.6
15.3
13.7
47.4
5.1
5.1
5.6
15.9
15.1
Page 66
Rating matrix
Bharati Shipyard (BHASHI)
Rating
Buy
Target
| 258
Target Period
12 months
Potential Upside
15 %
| 223
WHATS CHANGED
Key Financials
(| cr)
Net Sales
FY09
FY10 FY11E FY12E
1019.9 1348.1 1421.0 1143.3
EBITDA
Net Profit
256.8
133.5
315.4
138.2
333.9
193.5
257.2
178.9
Valuation summary
FY09
4.6
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
FY10 FY11E FY12E

4.4
3.2
3.4
5.3
5.4
5.1
8.6
3.7
8.3
4.0
9.8
0.9
19.0
14.7
0.7
16.6
9.9
0.6
19.1
10.2
0.5
15.1
8.1
Stock data
Market Cap. (| cr)
615
Debt( FY10E) (| cr)

Cash (FY10E) (| cr)
2323
216
EV (| cr)
52 week H/L (| cr)
Face value |
MF Holding (%)
FII Holding (%)
2722
353 / 142
27.6
10
0.4
2.8
Price movement
5600
5400
5200
5000
4800
4600
4400
4200
4000
400
350
300
250
200
150
100
Aug-09
Nov-09
NIFTY
Feb-10
May-10
Aug-10
Bharati Shipyard (RHS)

Banking on Great Offshore

The global oversupply of vessel means that new build orders would be
marginal over the next couple of years, which reduces earnings visibility
for the company from its core shipbuilding business. However, the
acquisition of Great Offshore would immensely help Bharati Shipyard in
the future as it would provide new building orders as Great Offshore
undertakes expansion of its fleet. Great Offshore has a significant
presence in the Indian offshore shipping space and its earnings are
expected to rise over the next couple of years. Bharati Shipyard has
acquired equity as well as management control in Great Offshore. This
would also provide synergies to Bharati Shipyard as the operations of
both companies are likely to get integrated, going forward.
Operating performance to dip post FY11
Bharati Shipyard has failed to bag new build orders of significant size in
the last 1.5 years. This has resulted in the total order book shrinking to |
4998 crore while the order book pending execution has dropped sharply
from | 2560 crore at the end of Q1FY11 to | 1920 crore i.e. a drop of
33.3% on a QoQ basis. Due to the above factors, the topline is expected
to peak in FY11 with revenues of | 1421 crore post which the topline is
expected to correct to | 1143 crore. The EBITDA is also expected to
correct in FY12. However, on account of inclusion of profit from Great
Offshore, the bottomline would drop marginally in FY12.
Valuation
We have valued Bharati Shipyard at 0.60x FY12E P/BV to arrive at our
price target of | 258. We maintain our BUY recommendation on the stock.
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
Interest
Reported PAT
EPS (`)
329.4
81.2
333.2
76.4
336.3
76.3
349.2
79.8
362.6
92.7
24.7
3.5
24.1
37.2
13.5
22.9
3.6
23.6
32.7
11.8
22.7
4.0
23.1
32.9
11.9
22.8
4.4
24.0
35.6
12.9
25.6
4.9
54.7
22.1
7.7
Page 67
Exhibit 122: Revenue likely to peak in FY11

1600
1421.0
1348.1
1400
1200
1143.3
1019.9
| cr
1000
800
704.9
600
400
200
0
FY08
FY09
FY10
FY11E
FY12E
Revenue
Exhibit 123: Operating margin expected to be stable

400
350
| cr
250
200
315.4
27
300
189.1
28
333.9
26
257.2
256.8
25
24
23
24
23
150
100
22
50
0
20
FY08
FY09
FY10
FY11E
EBITDA
FY12E
EBITDA %
Exhibit 124: Share of profit from Great Offshore to aid rise in net profit
250
35
193.5
200
30
107.6
| cr
138.2
133.5
27
26
26
31
150
178.9 30
100
23
20
50
19
15
FY08
FY09
FY10
PAT
FY11E
FY12E
PAT %
Page 68
Exhibit 125: Order book details

The order book pending execution has been consistently
6000
coming down over the last five quarters except Q4FY10.
5000
4998 crore while the order book pending execution has
4000
come down to Rs 1920 crore
| cr
In Q1FY11, the total order book has come down to Rs
5066
5066
3106
2794
3000
5076
4987
4998
2560
2472
1920
2000
1000
0
Q1FY10
Q2FY10
Q3FY10
Total Order Book
Q4FY10
Q1FY11
Order Book Pending Execution
Exhibit 126: Debt-equity ratio

debt levels for Bharati Shipyard, which has seen its debt
| cr
times in the previous year
2237.9
2.8
2.2
1500
1.7
1.4
431.7
1.5
1.0
0.7
2.5
2.0
1003.4
1000
500
3.0
1957.9
2000
rise to Rs 2323 crore in FY10. This has also led to a

ballooning of the debt-equity ratio to 2.8 times from 1.4
2323.4
2500
The acquisition of Great Offshore has resulted in a rise in
FY08
0.5
FY09
FY10
Debt
FY11E
FY12E
Debt-Equity

50.0
FIIs and DIIs have pared their holding in Bharati Shipyard
45.0
even as promoters have increased their holding in the

company
35.0
40.0
39.0
43.5
41.8
39.1
30.0
25.0
20.0
15.6
15.0
10.0
6.4
11.9
2.8
5.0
0.0
Promoters
FII
Mar-10
DII
Others
Jun-10
Page 69
Bharati Shipyard has failed to bag new build orders of a significant size in
the last 1.5 years. This has resulted in the total order book shrinking to |
4998 crore while the order book pending execution has dropped sharply
from | 2560 crore at the end of Q1FY11 to | 1920 crore i.e. a drop of
33.3% on a QoQ basis. Global oversupply of vessels would mean that
new build orders would be marginal over the next couple of years. This
reduces the earnings visibility for the company from its core shipbuilding
business, which is a cause for concern.
However, the acquisition of Great Offshore would immensely help Bharati
Shipyard in the future as it would provide new building orders as Great
Offshore undertakes expansion of its fleet. Great Offshore has a
significant presence in the Indian offshore shipping space and its earnings
are expected to rise over the next couple of years. Bharati Shipyard has
acquired equity as well as management control in Great Offshore. This
would also provide synergies to Bharati Shipyard as the operations of
both companies are likely to get integrated, going forward.
We have valued Bharati Shipyard at 0.60x FY12E P/BV to arrive at our
price target of | 258. We maintain our BUY recommendation on the stock.
Valuation based on
PE multiple (x)
Upside (%)
Global average
11.7
1.7
Target multiple
0.60
Target price (|)

258
258
223
15.7
FY10
FY11E
FY12E
Sales
Sales
EPS
EPS
PE
EV/EBITDA
RoNW
(| Cr)
1348.1
Growth (%)
32.3
(|)
Growth (%)
(x)
(x)
(%)
RoCE
(%)
1421.0
1143.3
5.4
-19.5
50.1
70.2
64.9
-2.3
40.0
-7.5
4.4
3.2
3.4
8.6
8.3
9.8
16.6
19.1
15.1
9.9
10.2
8.1
Page 70
Essar Shipping Demerger

Demerger of business
Essar Shipping Ports and Logistics Ltd (Essar Shipping) announced a
demerger plan in which the existing company would be renamed Essar
Ports Ltd. It would handle the ports and terminal business while all the
remaining businesses would be demerged under a separate entity Essar
Shipping Ltd, which would also be listed. The management has
announced that demerger would lead to value unlocking for investors.
Demerger of shipping, logistics, onshore and offshore business
Essar Shipping Ports and Logistics Ltd operates sea transport, logistics,
onshore, offshore and ports and terminal business. Under the new
arrangement, the existing company would be re-named Essar Ports Ltd. It
will handle only the ports and terminal business while all remaining
businesses i.e. sea transport, logistics, onshore and offshore businesses
would be demerged into a single separate entity. This will be named
Essar Shipping. The ratio for the split has been arrived at as two shares of
Essar Ports and one share of Essar Shipping.
Demerger rationale
The management has stated that the ports and terminal business has
attained significant scale with the commissioning of the Vadinar and
Hazira port terminals. The remaining businesses i.e. shipping, logistics
and oilfield have also been ramped up significantly. Hence, shareholders
would benefit from the creation of independent companies, which would
also lead to value unlocking for investors.
Our view
According to our valuations, post demerger the value per share of Essar
Ports Ltd should be | 68 while the value per share of Essar Shipping Ltd
should be | 44.
Business
DCF/|
Ports & Terminal

VOTL & VPTL
33
11
Paradip CQ3 Berth

Paradip Coal Berth
Total Value
Business
Sea and Surface Transport Business
18
3
3
68
DCF/|
23
21
Total Value
44
Page 71

19
20

19 bulk carriers, two VLCCs, six tugs, one semi
18
submersible rig and 12 onshore rigs
16
No of vessels
14
12
12
10
8
6
4
0
Dry Bulk
VLCC
Tugs
Semisub Rig
Onshore Rig
Exhibit 131: Revenue contribution of various business divisions from FY10-FY12

5000
The contribution from the ports and terminal business is
expected to get ramped up significantly over the next two
4000
927
years as additional port capacities get commissioned
3000
773
| cr
736
2000
1000
1268
413
515
753
1336
1147
1364
FY10
FY11E
FY12E
669
549
Sea Transportation Business
Port & Terminal Services Business
Surface Transport Business
Exhibit 132: Debt-equity ratio analysis

12000
The company is appropriately leveraged as its debt-equity

ratio has hovered close to 1.0 in the last three years. We
10000
expect the debt-equity ratio to inch up higher to 1.1 levels

presence with the acquisition of two jack-up rigs. Also, it
8000
| cr
over the next two years as it expands its offshore oilfield
6000
will aggressively expand its ports and terminal business
4000
with the establishment of new port at Salaya in Gujarat

and two berths in Orissa (CQ3 and Coal)
2000
1.2
7927
6739
8629
7508
10146
8777
1.2
11196
9041
1.2
1.4
1.2
1.0
4170
3468
0.9
0.9
0.8
0.6
0
FY 08
FY 09
Debt
FY 10
FY 11E
Equity
D/E Ratio
FY 12E
Page 72
Exhibit 133: Port profile - Vadinar

Project Details
Vadinar Terminal
Capacity
58 mtpa
Cargo
Crude & Refined petroleum products
Clients
Essar Oil
Contract period
30 years
Project Cost
Rs 4530 crores
Financial Status
Financial closure achieved for 53 mtpa
Project Status
Operational
Present capacity
46 mtpa
Apr-13
58 mtpa
Connectivity
Rail connectivity
Road connectivity
Subsea and cross country pipelines
Exhibit 134: Port profile - Hazira

Project Details
Capacity
50 mtpa
Cargo
Iron ore pellets, coal, limestone & finished steel products
Clients
Essar Steel
Contract period
20 years
Project Cost
Rs 1773 crore
Financial Status
Project Status
Operational
Present capacity
30 mtpa
Oct-11
50 mtpa
Connectivity
Road connectivity
Conveyor system
Exhibit 135: Port profile - Salaya

Project Details
Capacity
20 mtpa
Cargo
Coal and pet coke
Clients
Essar Power
Contract period
30 years
Project Cost
Rs 1370 crore
Financial Status
Project Status
Under construction
Present capacity
NIL
Sep-11
20 mtpa
Connectivity
Road connectivity
Conveyor system
Page 73
Exhibit 136: Port profile Paradip CQ3 Berth

Project Details
Paradip CQ3 Berth
Capacity
16 mtpa
Cargo
Coal and iron ore
Clients
Essar Steel
Contract period
10 years
Project Cost
Rs 435 crore
Financial Status
Financial closure achieved
Project Status
Under construction
Present capacity
NIL
Oct-11
16 mtpa
Connectivity
Road connectivity
Conveyor system
Exhibit 137: Port profile Paradip Coal Berth

Project Details
Paradip Coal Berth
Capacity
14 mtpa
Cargo
Coal
Clients
Merchant Port
Concession agreement period
30 years
Project Cost
Rs 550 crores
Financial Status
Financial closure achieved
Project Status
Under Construction
Present capacity
NIL
Oct-12
14 mtpa
Connectivity
Road connectivity
Conveyor system
Page 74
Greatship - IPO
Unlocking value
Greatship Ltd, which is a subsidiary of GE Shipping, has filed the DRHP
and is expected to get listed in Q3FY11. The offshore business of GE
Shipping is housed under its subsidiary Greatship Ltd, which has a fleet
size of 21 vessels. The listing of Greatship Ltd is likely to result in value
unlocking for GE Shipping.
Issue Highlights
Greatship Ltd is planning to issue 2.21 crore shares, which would be ~
20% of the post issue equity capital. The issue size is ~ | 400 crore,
which would result in a market cap of ~ | 2000 crore. Of the issue
proceeds, | 163 crore (41%) would be used towards repayment of debt, |
112 crore (28%) would be used for acquisition of vessels, | 71 crore
(18%) would be used for general corporate purposes while the rest | 54
crore (14%) would be used for early redemption of preference shares.
Key Positives
The company is ramping up its offshore vessel fleet from 21 vessels to 27
vessels over the next two years. Crude oil prices have consistently
sustained above $60/ barrel for the last 15 months. This has improved the
outlook for oil exploration and drilling. In the shipping space, we expect
the offshore segment to be the most consistent performer as utilisation
levels improve along with firming up of freight rates over the next couple
of years. The management has considerable expertise in the offshore
business, which would lead to efficient operations and also help in
securing long-term contracts.
Some Concerns
A correction in crude oil prices could lead to a slowdown in
exploration/drilling activities. This, in turn, could lead to a softening of
freight rates, thereby affecting the performance.
Value unlocking for GE Shipping
The market capitalisation of Greatship Ltd is likely to be ~ | 2000 crore
post the IPO. The present market cap of GE Shipping is ~ | 4500 crore,
which post the IPO is likely to get re-rated. Post the issue, the balance
sheet of GE Shipping would be significantly under leveraged. This would
also provide a good opportunity to acquire vessels in the second-hand
market at competitive prices, which would be beneficial in the long-term.
Page 75
SCI - FPO
Divestment and fresh issue of shares
In order to expand its tonnage and also replace its ageing fleet, SCI has
committed to incur capex of ~| 8000 crore over next two years. The
capex would be funded by a mix of both debt and equity. SCI has
initiated plans to come out with a follow on public offer (FPO)
Issue Highlights
The issue size is expected to be ~ | 1300 crore and would comprise a
10% stake sale by the government (| 650 crore) and a 10% fresh equity
offer (| 650 crore) by the company. SCI has already placed orders for 31
vessels worth | 8069 crore. Of this, 27 vessels would be delivered before
March 2012. The average age of SCIs fleet is 18.1 years, which is twice
the age of Indian shipping companies but is expected to come down on
acquisition of new vessels.
Key Positives
The induction of a new fleet will improve the operational efficiencies for
SCI as the new fleet is of a larger size and, hence, is more economical to
operate. Phasing out of older vessels would also lead to a reduction in
repair and maintenance expenses leading to an improvement in the
operating margin. SCI is the largest shipping company in India and being
a Navratna PSU enjoys government backing. The company has
insignificant debt on its balance sheet, which will enable SCI to increase
its leverage and borrow in the international markets at competitive
interest rates. The company also has a strong client base such as PSU oil
companies, which provide steady business.
Numerous power and steel projects are being set up in India, which
would create large requirements for coking coal and thermal coal, which
is likely to be imported. To tap this opportunity, SCI is also exploring the
possibility of entering into joint ventures with PSU companies, which will
enable it to secure steady business and will be better placed to manage
the volatility of the cyclical shipping business. In this regard, SCI has also
entered into a joint venture with SAIL for shipment of coking coal and is
also exploring the possibility of entering into joint ventures with other
PSU companies such as NTPC and Coal India Ltd.
Some Concerns
Despite an improvement in topline and operating margin post expansion,
net profit is likely to be under pressure on account of a significant rise in
depreciation and interest costs over next two years. A rise in the equity
base on fresh issue of shares is further expected to dilute the earnings.
Page 76
Annexure
Global fleet status
Dry bulk vessels constitute the largest segment of the global shipping
fleet, followed by liner vessels, crude tankers and product carriers.
Exhibit 138: Global fleet - Number of vessels %
Dry bulk and liner vessels are the two largest segments in
terms of number of vessels
Liner
29%
Dry Bulk
44%
LPG
3%
Product
11%
Crude
13%
Exhibit 139: Global fleet Tonnage %

In terms of fleet tonnage, dry bulk vessels constitute the
largest segment followed by crude tankers and liner
vessels
Liner
17%
LPG
1%
Dry Bulk
44%
Product
6%
Crude
32%
Page 77
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
61.7
12.6
5.3
18.6
3.4
-0.9
4.7
67.1
65.5
FY09
FY10
13.2
6.9
0.9
6.9
25.9
0.9
-
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
Promoter Holding (%)
FII Holding (%)
DII Holding (%)
95
0
8
87
85 / 53
15.32
10
39.0
5.2
0.4
Price movement
6000
90
5500
80
70
5000
60
50
4500
Nov-09
NIFTY
| 62
Operating performance set to improve
Valuation summary
4000
Aug-09
Asian Oilfield Services Ltd (ASIOIL)
Feb-10
May-10
40
Aug-10
Asian Oilfield Services Ltd
Asian Oilfield Services Ltd (Asian Oilfield) was established in 1992 for
catering to the oil & gas exploration industry. The company has
expertise in seismic data acquisition, interpretation and job services,
shot hole drilling and up hole drilling projects. Oilfield services and
mineral drilling are the two operating areas for the company. ONGC, Oil
India, GAIL, Larsen & Toubro and Selan Exploration are some of its key
clients. The oilfields services business has huge potential as a result of
the rise in exploration spend by oil drilling companies for development
of oil blocks allotted under NELP. The potential for mineral drilling
services is also huge as the mining industry expands in India and the
participation of private players increases with the allotment of coal
blocks. India has the fourth largest coal reserves and third largest iron
ore reserves. There are also significant opportunities in the
development of coal bed methane (CBM) blocks and also in shale gas
exploration. Expertise in providing the above services could provide
substantial business growth for Asian Oilfield.
Overview of business and performance highlights
Asian Oilfield operates four seismic crews, which are engaged in three
seismic projects. Two of these (2D seismic projects) are being executed in
the North East and one (3D seismic project) in Gujarat. The company
reported a topline of | 18.6 crore in FY10 as against | 61.7 crore in FY09.
The company reported an EBITDA of | 3.4 crore and a net loss of | 0.9
crore in FY10. Work on two of the above projects commenced in March
2010 and its crew remained idle for most of FY10. Hence, the
performance in FY10 was quite disappointing. Currently, its crew is
deployed on three existing projects. Hence, revenue is likely to increase
significantly in FY11. The company has an order book of | 80 crore as
against revenues of | 18.6 crore in FY10, which provides good earnings
visibility. Further, the performance of the company in Q1FY11 was also
quite encouraging with a topline of | 19.9 crore. This was more than the
entire revenue of FY10.
The company has also forayed into new business areas and launched 3D
seismic services. It has also commenced new business services for the
mining sector. Asian Oilfield has won two contracts in core drilling and
also commenced work on the projects. The company intends to use its
platform of core drilling to enter the drilling business in CBM and the oil &
gas Industry. The management team has also been strengthened with the
induction of Neeraj Sethi, ex-country manager of Baker Atlas as COO. He
will be spearheading the companys new initiatives in CBM and mining
drilling. Asian Oilfield has also entered into technical collaborations with
global leading service providers. This will also enable the company to get
access to cutting edge technology.
Page 78
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
246.2
182.3
117.6
96.1
38.4
76.7
32.38
134.3
21.11
138.3
FY09
FY10
1.3
0.9
0.3
24.1
1.9
4.5
0.3
15.3
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
149
40
17
172
62 / 35
36.31
10
67.8
0.9
0.1
Price movement
6000
70
5500
60
50
5000
40
30
4500
Nov-09
NIFTY
| 41
Fringe player
Valuation summary
4000
Aug-09
Chowgule Steamship (CHOSTE)
Feb-10
May-10
20
Aug-10
Chowgule Steamships Ltd (CSL) is a fringe player in the Indian shipping

space and operates five dry bulk carriers of which three operate in the
domestic coastal trade. On account of its small size, its performance is
subject to wide fluctuations. Further, the company has scaled down its
operations with the sale of three bulk carriers in the last one year. This
will lead to a muted performance, going forward. The stock is trading at
a very steep discount but the valuation is justified on account of its
miniscule size and expected drop in future earnings on account of the
scale down of operations.
CSL is part of the | 1500 crore Chowgule group having diversified
businesses such as shipping, shipbuilding, mining, machine fabrication,
industrial gases, logistics and exports. CSLs shipping operations are
miniscule in size and it operates a fleet of five vessels of which three are
engaged in coastal transport while the other two vessels operate in
international waters. Its fleet is engaged in transportation of coal, iron ore,
grain and fertilisers.
The company reported a sharp decline in revenue from | 246.2 crore in
FY09 to | 96.1 crore in FY10. The main factor leading to the fall in revenue
was the sharp decline in dry bulk freight rates. The other factor leading to
the drop in revenue was the scale down of operations as the company
sold three vessels out of its fleet of eight vessels over the last one year.
The company posted an EBITDA of | 38.4 crore and a net profit of | 76.7
crore in FY10, which included profit on sale of vessels of | 61.56 crore.
Chowgule Steamships Ltd
Page 79
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
352.5
76.7
40.9
553.0
108.4
62.3
25.97
122.3
34.26
136.4
FY09
FY10
10.5
7.6
2.2
35.0
8.0
5.4
2.0
29.0
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
430
172
19
583
473 / 235
15.76
10
57.0
0.2
0.1
Price movement
6000
500
5500
400
5000
300
4500
200
4000
Aug-09
Nov-09
NIFTY
Feb-10
May-10
Dolphin Offshore
100
Aug-10
Dolphin Offshore (DOLOFF)

| 273
Dependent on ONGC
Dolphin Offshore Enterprises (India) Ltd (Dolphin Offshore) was
established in 1979 and offers comprehensive underwater services
including diving services to Indian and global offshore oil & gas
industry. ONGC is one of the main clients for Dolphin Offshore, which
provides regular business for the company. However, as Dolphin
Offshore was a sub contractor it was unable to bid independently for
ONGC contracts. Still, since September 2008 Dolphin Offshore has
commenced work as an independent contractor for ONGC. This would
enable the company to bid for higher ticket size orders and also lead to
higher margin as it would be independently executing the projects.
Some other prominent clients for the company are Aban Offshore, Cairn
Energy, GE Shipping, IOC, Indian Coast Guard and Indian Navy.
The main business areas for Dolphin Offshore are design engineering,
fabrication/installation, turnkey EPC projects, diving and underwater
services, marine operations and management services and rig and ship
repair services. The company offers under water construction services
including modification and redevelopment of existing offshore facilities,
diving support, SBM and SPM installation, operation and maintenance,
inspection, maintenance, repair of platforms, installation and replacement
of pipelines, underwater ship repair and maintenance, rig support and
ROV services, fabrication services, pre-engineering, pre-construction and
post installation surveys of offshore structures and pipelines.
Dolphin Offshore Shipping Ltd (DOSL), a wholly owned subsidiary of
Dolphin Offshore, owns four offshore support vessels and six harbour
tugs. The company is also expanding its fleet and has entered into a
bareboat cum demise charter for one AHTS vessel. The company has
also placed orders for two offshore support vessels, which would be
delivered in November 2010.
Dolphin Offshore reported a topline of | 553.0 crore in FY10, which was
significantly higher than | 352.5 crore in FY09. The rise in revenue was as
a result of EPC contracts being executed for ONGC as an independent
contractor. The company reported an EBITDA of | 108.4 crore and net
profit of | 62.3 crore in FY10.
Page 80
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
685.0
-34.4
46.2
645.4
95.2
70.1
16.49
451.3
25.02
474.7
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
FY09
FY10
33.8
-35.9
1.2
3.7
22.3
13.0
1.2
5.3
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
1560
6
332
1233
786 / 415
28.00
10
78.6
3.1
10.0
Price movement
6000
800
5500
700
600
5000
500
4500
400
4000
Aug-09
NIFTY
Nov-09
Feb-10
May-10
300
Aug-10
Dredging Corporation of India Ltd
Dredging Corporation (DRECOR)

| 557
Dependent on government spend

Dredging Corporation of India (DCI), established in 1976, is the largest
dredging company in India and is involved in most of the port
development projects in India. The company operates a fleet of 10
trailer suction hopper dredgers and three cutter suction dredgers. Being
a PSU company it gets priority in the development of port projects in
India. Since it has been in the business for more than three decades it
has the operational edge over other private dredging companies in
India. In fact, private companies that own dredgers also charter them
out to DCI on long-term contracts. However, the company is highly
dependent on government spending, which leads to volatility in
performance. The valuation of the company also appears stretched
considering its performance.
Port infrastructure in India is inadequate and major ports are operating at
peak capacities with six out of 12 major ports operating at more than
100% capacity. There is also a considerable bottleneck at various public
and private ports in India leading to port congestion and also leading to a
rise in turnaround time for vessels. India is aggressively expanding its
port infrastructure with the establishment of new ports. Even public ports
are expanding their capacities by entering into PPP development models
with private players. With the rise in cargo especially coal shipments to
meet the requirements of power companies the demand for imported
coal is expected to increase, thereby necessitating the setting up of port
infrastructure. This would lead to the need for capital dredging for
enhancing water depths. Also, there is a need for maintenance dredging
at all major and minor ports, which would provide regular work to DCI.
However, DCI has an ageing fleet of vessels, which would require
replacement, going ahead. DCI has signed an agreement with IHC
Dredger Netherlands to acquire two trailer suction hopper dredgers at a
total cost of | 900 crore.
DCI reported a drop in topline from | 685.0 crore in FY09 to | 645.4 crore
in FY10. This was on account of stoppage of capital dredging work at the
Sethusamudram project, which has been on hold since July 2009. In
addition, capital dredging projects at major ports slowed down. This has
resulted in a drop in dredging work for DCI. The company has posted an
EBITDA of | 95.2 crore and net profit of | 70.1 crore in FY10.
Page 81
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
177.7
15.2
5.5
133.6
13.4
7.1
9.29
57.6
11.45
65.2
FY09
FY10
4.8
3.2
0.8
15.4
3.9
3.6
0.7
17.6
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
28
21
0
48
59 / 32
6.17
10
73.5
0.0
0.0
Price movement
6000
60
5500
50
5000
40
4500
30
4000
Aug-09
Nov-09
NIFTY
Feb-10
May-10
20
Aug-10
Hariyana Ship Breakers Ltd
Hariyana Ship Breakers (HARSHI)

| 45
Riding ship breaking boom

Hariyana Ship Breakers Ltd (HSBL) is engaged in the business of ship
breaking and carries out its activities at Alang where it has successfully
demolished more than 100 ships and 10 VLCCs. The management has
significant experience in ship breaking and has successfully carried out
demolition of large sized ships in the past. Apart from ship breaking,
HSBL also manufactures sponge iron and trades in metals. Its sponge
iron plant is located close to iron ore mines in Karnataka, which provide
cost advantages to the company. Despite the improvement in the ship
breaking business, under performance in sponge iron and metal trading
is likely to negate the gains.
Weakness in freight rates and the down cycle in shipping turned out to be
a solid business opportunity for the ship breaking industry, which has
already demolished a record number of vessels. With the down cycle in
shipping expected to be protracted, the ship breaking business is likely to
report excellent business growth for another couple of years.
The international ship demolition market is based primarily in India,
Pakistan, Bangladesh and China, which demolish more than 80% of the
ships scrapped worldwide. While a large number of tankers find their way
to scrap yards in Pakistan and Bangladesh, Indian ship breaking yards
attract mostly dry and general cargo vessels. Alang, located on the
western coast of India, is the largest ship breaking yard in the world and
accounts for 90% of Indias ship breaking activity. The ship breaking
activity at Alang includes a total of 170 yards of which 50-70 are
operational and around 50,000 people are involved directly or indirectly in
the business of scrapping. Ship breaking activities, which had almost
come to a standstill prior to 2008, have gathered pace.
HSBL is well placed to capture the upswing in the ship breaking business
as it has more than 25 years of experience in ship breaking. Also, the
HSBL yard at Alang has a capacity to scrap up to 50,000 LDT of vessels.
However, the drop in the sponge iron and metal trading business is likely
to dilute the advantage from the ship breaking business.
HSBL reported drop in revenue from | 177.7 crore in FY09 to | 133.6
crore in FY10. Despite the rise in ship breaking activities, revenues
registered a decline on account of the drop in sponge iron production at
its plant in Karnataka and also reduction in metal trading. The company
reported an EBITDA of | 13.4 crore and PAT of | 7.1 crore in FY10.
Page 82
Key Financials
(| cr)
FY09
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
777.8 1195.4
66.9 136.6
37.3
84.1
FY10
16.28
117.9
36.69
153.1
FY09
FY10
33.7
19.2
4.7
13.8
15.0
9.4
3.6
24.0
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
630
40
17
653
668 / 445
11.47
5
74.9
0.1
0.0
Price movement
6000
700
5500
600
5000
500
4500
400
4000
Aug-09
Nov-09
NIFTY
Feb-10
May-10
Jindal Drilling (JINDAD)

| 549
Expensive proposition
Jindal Drilling and Industries Ltd (Jindal Drilling) has a presence in the
offshore drilling segment. The company was an operator of drilling rigs
for Noble Drilling Corporation. However, in the last couple of years, it
has acquired two new jack-up rigs and has transitioned itself from an
operator to owner of assets. The company enjoys the benefit of longterm contracts and a successful operating history with ONGC. However,
the major dependence on a single client i.e. ONGC could be a risky
proposition for the company. Further, the company is trading at a very
stiff valuation as compared to some of its peers.
The company is present in three main segments i.e. offshore drilling,
horizontal/directional drilling and mud logging services. The company
owns and operates two new built 350 jack-up rigs acquired in 2008. The
company also operates three jack-up rigs owned by Noble Drilling
Corporation. All their jacks-up rigs are deployed on long-term contracts
with ONGC.
Jindal Drilling reported a significant rise in revenue from | 777.8 crore in
FY09 to | 1195.4 crore in FY10. This was mainly on account of additional
revenues from the two new jack-up rigs, which were operational for the
entire FY10. However, due to high operational expenses, the company
managed an operating margin of just 11.4% in FY10. Jindal Drilling
reported a PAT of | 84.1 crore in FY10 as compared to | 37.3 crore in the
previous year.
300
Aug-10
Jindal Drilling & Industries Ltd
Page 83
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
61.8
22.5
4.7
584.0
66.3
-46.1
0.07
21.6
25.6
| 102
Long gestation period
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
FY09
FY10
1457.1
332.2
4.7
0.4
112.8
4.0
-
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
6791
1330
640
7481
120 / 48
665.80
10
44.8
7.4
15.3
Price movement
6000
120
5500
100
5000
80
4500
60
4000
Oct-09
Pipavav Shipyard (PIPSHI)
Jan-10
NIFTY
Apr-10
Pipavav Shipyard Ltd
40
Jul-10
Pipavav Shipyard Ltd (Pipavav Shipyard), promoted by SKIL

Infrastructure Ltd, was established in 1997. The company was listed in
2009 and raised ~ | 500 crore from the IPO. It operates one SEZ unit
spread over 95 hectares and another EOU unit spread over 104 hectares.
It is the largest shipyard in India measuring 662 metre in length and 65
metre in width and is capable of building vessels up to 4,00,000 DWT.
Pipavav Shipyard has set a benchmark for the Indian shipbuilding
industry in terms of size and scale of operations. The largest PSU yard
i.e. Cochin Shipyard and the largest private yard i.e. ABG Shipyard can
both construct vessels up to 120000 DWT while Pipavav Shipyard can
construct vessels up to 400000 DWT, which is comparable to Chinese,
Japanese or Korean shipyards. The company operates in four segments
i.e. defence shipbuilding, offshore shipbuilding, commercial shipbuilding
and heavy engineering with the main thrust on defence and offshore
construction.
Globally, shipyards are currently passing through a tough phase with
marginal addition to their order book. Indian shipyards have also failed
to bag orders of any meaningful size in the last couple of years. With
global oversupply of vessels we expect the order book of most
domestic yards, including Pipavav Shipyard, to remain muted for the
next couple of years. In light of the above, it will be a long road ahead
for Pipavav Shipyard and current valuations appears a bit stretched.
Out of the IPO proceeds of | 499 crore, | 179 crore (36%) have been
utilised for construction of facilities for shipbuilding, ship repair and
offshore business, | 244 crore (49%) for working capital, | 25 crore (5%)
towards general corporate purpose and | 51 crore (10%) towards share
issue expenses. Key orders bagged by the company are: | 2,900 crore
order from Indian navy for five OPVs and another order for construction
of 12 offshore supply vessels for ONGC. The company started
commercial operations from April 2009 and reported revenues of | 584
crore and EBITDA of | 66.3 crore with 11.4% operating margin.
Strategic partner
Punj Lloyd was inducted as a strategic partner in Pipavav Shipyard in
September 2007 and acquired 19.43% stake for | 350 crore at an average
price of | 27 per share. In March 2010, Punj Lloyd sold its entire stake to
the co-promoter SKIL Infrastructure for | 656 crore at an average price of
| 50.75 per share. Pipavav Shipyard is actively scouting for another
strategic partner, which would provide an operational edge.
Page 84
Key financials
(| cr)
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
FY10 (15 m)
268.6
75.0
47.1
424.8
239.9
203.9
13.9
94.9
60.15
151.6
FY08
FY10
10.8
5.9
1.6
14.6
2.5
1.9
1.0
39.7
SEAMEC Ltd (SEAMEC) is a leading player in the marine services

segment and specialises in vessel management, marine management,
dive support fire fighting, sub sea construction, ROV support, pipe
laying, rescue operations, logistics and mooring services. The company
operates a fleet of four offshore support vessels, which are deployed on
long-term charter with its clients. Earlier, ONGC was the main anchor
client for SEAMEC. However, over the last decade the company has
deployed its vessels mainly with international clients.
509
0
64
445
255 / 140
33.90
10
75.0
1.4
5.3
The marine services segment has immense potential. With the presence
of strong promoters i.e. Technip SA (which is a world leader in
engineering and project management for the oil & gas industry with a
workforce of 23,000 employees and operations spread over 48 countries
and five continents with revenues of ~ | 40000 crore) the company
would be able to scale up its presence in the offshore segment. Being a
debt-free company, SEAMEC would also be able to leverage its balance
sheet by acquiring new vessels. This would provide additional growth
avenues.
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
Price movement
300
6000
250
5500
200
5000
150
4500
100
4000
Aug-09
Nov-09
NIFTY
Feb-10
Seamec Ltd (PEESHI)
FY08 (12 m)
May-10
SEAMEC Ltd
50
Aug-10
| 150
Dark horse

Peerless Leasing Private Ltd was established in 1986 and its name was
changed to South East Asia Marine Engineering & Construction Ltd in
2000. Coflexip Stena Offshore Mauritius Ltd acquired a controlling stake
in South East Asia Marine Engineering and Construction Limited in 1999.
The Coflexip Group was acquired by Technip SA of France in 2001.
Hence, South East Asia Marine Engineering and Construction Ltd became
a subsidiary of Technip SA of France. The name of the company was
changed to SEAMEC Ltd in 2007 and the parent company i.e. Technip SA
holds 75% stake in the company.
The company changed its accounting year from December to March and
FY10 results are for a period of 15 months. Revenues increased to |
424.8 crore in FY10 on account of a rise in charter rate on deployment of
its vessel SEAMEC PRINCESS. The company reported an EBITDA of |
239.9 crore and net profit of | 203.9 crore.
Page 85
Key Financials
(| cr)
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
FY09
287.3
33.0
5.6
FY10
147.9
-0.2
-15.7
2.05
50.7
59.8
FY09
22.4
6.0
0.9
3.6
FY10
0.8
-
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
101
102
4
199
44 / 28
21.96
10
73.3
0.8
0.0
Price movement
6000
45
5500
40
5000
35
4500
30
4000
Aug-09
NIFTY
Nov-09
Feb-10
May-10
25
Aug-10
Shreyas Shipping & Logistics Ltd
Shreyas Shipping (SHRSHI)

| 46
Challenging times ahead

Shreyas Shipping Ltd (Shreyas Shipping), is an integrated logistics
provider, which provides container feeder, air freight and road transport
services. As a majority of the companys revenue is derived from
container feeder services, its performance is dependent on the global
container liner business. FY10 was a very challenging year for the liner
industry on account of the slowdown in US and Europe and the
resultant drop in global container trade. The liner business has shown
signs of recovery with a pick-up in volumes resulting in improved
performance for Shreyas Shipping. The liner business is more volatile
than even the dry bulk business due to the uncertainty and elasticity of
demand as it involves transport of finished goods. Being a small player
engaged in feeder operations, Shreyas Shipping has minimal bargaining
power and the current financial performance is also not encouraging.
As the global liner companies call on only select Indian ports, they have
to rely exclusively on feeder container ships for connectivity of their
containers to and from their vessels to other smaller ports in India. This
segment is the main focus area for Shreyas Shipping and the global liner
companies are the main customers.
Shreyas Shipping started with liner operations between JNPT and Kandla
port and gradually extended the services to other ports on the west coast
of India. The services have also been extended to container terminals in
Asia, which include Dubai, UAE, Colombo and Singapore. Shreyas
Shipping started with one container liner in 1995 and has gradually
acquired seven liners over the last 15 years. The company also operates
its own fleet of trucks, owns containers and provides cargo tracking
services to its clients. The company also provides additional services
such as air freight logistics, express parcel services and port agency
services to its clients.
The companys performance in FY10 was severely affected due to the
global slowdown. Its presence in the liner segment did not help either.
This resulted in the topline contracting from | 287.3 crore in FY09 to |
147.9 crore in FY10. The company posted a loss at the EBITDA level and a
net loss of | 15.7 crore in FY10.
Page 86
Key Financials
(| cr)
FY09
FY10
Net Sales
EBITDA
Net Profit
EPS
Bookvalue
72.2
7.4
-21.5
74.2
16.0
49.8
-1.83
2.8
1.69
6.2
FY09
FY10
-7.1
63.3
4.7
-131.6
7.7
29.2
2.1
54.4
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
Stock data
Market Cap. (| cr)
Debt( FY10) (| cr)
Cash (FY10) (| cr)
EV (| cr)
52 week H/L (|)
Face value |
FII Holding (%)
DII Holding (%)
38
276
1
313
18 / 8
29.47
2
2.9
0.0
73.5
Price movement
6000
21
5500
18
15
5000
12
4500
4000
Aug-09
Nov-09
NIFTY
Feb-10
May-10
6
Aug-10
Western India Shipyard Ltd
Western India Shipyard (WESIS)

| 13
Turnaround play
Western India Shipyard Ltd (WISL) has been incurring losses since 1996,
due to financial constraints i.e. lack of working capital and low capacity
utilisation level at its yard facility. The company submitted a scheme of
arrangement with secured creditors to improve performance through
financial and business restructuring. Financial restructuring entailed
infusion of funds while business restructuring involved diversification
into rig repair and ship building by entering into new alliances.
In January 2010, the scheme of arrangement between WISL and its
secured creditors and shareholders was sanctioned by the high court.
Under the arrangement, the secured loan of the company was fully
discharged and secured lenders opted for one-time settlement, which
was 42% of the secured debt, except ICICI Bank, which opted for
another option where ICICI Bank would be allotted 17.75 crore shares of
| 2 each at par in lieu of its secured dues of | 35.5 crore (i.e. 36% of its
secured debt). This has resulted in ICICI Bank emerging as the largest
shareholder with a 64.1% stake in the company.
WISL is Indias largest private composite ship and rig repair yard. It
operates a floating dry dock, which has a capacity to repair ships up to
60,000 DW. The yard is located on the western coast of India at
Mormugao Harbour, Goa and has been operational since January 1996.
The yard has repaired vessels of numerous Indian as well as foreign
companies including SCI, GE Shipping, Essar Shipping, Varun Shipping,
Aban Offshore, Dredging Corporation, ONGC, Reliance Industries, Indian
Navy and numerous other clients.
In FY10, the company reported revenues of | 74.2 crore, which was
marginally higher than FY09. WISL also posted an EBITDA of | 16.0 crore
and a PAT of | 49.8 crore, which also included an extraordinary gain of |
51.6 crore on account of interest waiver post restructuring.
Turnaround story but will take time to play out
The ship repair business in India has tremendous potential as there are
very few ship repair facilities in India and most of them are available with
PSU shipyards with miniscule presence of private shipyards. The
shipbuilding business globally is passing through a tough phase with the
drying up of new orders on account of excess supply of vessels and
depressed freight rates. However, ship repair is an evergreen industry as
irrespective of market conditions, ship repair activities continue on
account of the regular dry docking requirements for ships. Further,
stringent International Maritime Organisation (IMO) regulations mandate
that vessels have to be sent for dry docking every 2.5 years and a special
survey has to be carried out every five years. This provides regular ship
repair business. There is no dedicated ship repairs yard in India but most
of the shipbuilding yards also carry out ship repairing as an ancillary
activity. Western India Shipyard Ltd (WISL) is also the only listed ship
Page 87
repair company in India. Ship repair is also a high margin business with
~30% as compared to the shipbuilding business.
ICICI Bank has also granted fresh funding to WISL to meet its capital
expenditure on modernisation and working capital requirements. With
debt restructuring, the company has improved its financials considerably.
Further, with the induction of strategic investor i.e. ABG Shipyard the
long-term prospects of WISL has improved significantly. ABG Shipyard
has acquired the shares held by institutional investors i.e. ICICI, IDBI, BoI,
SBI and UTI. The strategic tie-up with ABG Shipyard would ensure steady
improvement of the business through a stream of vessels for repairs,
monitoring of redeliveries, vendor development and optimum use of
resources. WISL has also started to get business from its old clients such
as SCI, which enable the company to scale up its operations. There is also
a possibility that minor ship building work could also be started at WISL.
This would further the scope of operations.
Page 88
Charts and trends

Exhibit 140: Essar Shipping price movement
140
5000
120
Rs.
80
3000
60
2000
40
20
Aug-09
Index
4000
100
1000
Oct-09
Dec-09
Feb-10
Essar Shipping
Apr-10
Jun-10
Aug-10
BDI
1,400
100
1,200
80
1,000
60
800
40
600
Rs.
120
20
Aug-09
Index
400
Oct-09
Dec-09
Feb-10
Essar Shipping
Apr-10
Jun-10
Aug-10
Dirty Tanker Index
Exhibit 141: GE Shipping price movement
5000
400
350
300
Rs.
3000
250
2000
200
150
Aug-09
Index
4000
1000
Oct-09
Dec-09
Feb-10
GE Shipping
Apr-10
Jun-10
Aug-10
BDI
Page 89
1,400
350
1,200
300
1,000
250
800
200
600
Rs.
400
150
Aug-09
Index
400
Oct-09
Dec-09
Feb-10
GE Shipping
Apr-10
Jun-10
Aug-10
Dirty Tanker Index
Exhibit 142: Mercator Lines price movement
5000
90
4000
60
3000
45
2000
30
15
Aug-09
Index
Rs.
75
1000
Oct-09
Dec-09
Feb-10
Mercator Lines
Apr-10
Jun-10
Aug-10
BDI
1,400
75
1,200
60
1,000
45
800
30
600
Rs.
90
15
Aug-09
Index
400
Oct-09
Dec-09
Feb-10
Mercator Lines
Apr-10
Jun-10
Aug-10
Dirty Tanker Index
Page 90
Exhibit 143: SCI price movement
200
5000
180
160
Rs.
3000
140
2000
120
100
Aug-09
Index
4000
1000
Oct-09
Dec-09
Feb-10
Apr-10
SCI
Jun-10
Aug-10
BDI
1,400
180
1,200
160
1,000
140
800
120
600
Rs.
200
100
Aug-09
Index
400
Oct-09
Dec-09
Feb-10
SCI
Apr-10
Jun-10
Aug-10
Dirty Tanker Index
1,400
70
1,200
60
1,000
50
800
40
600
30
400
Rs.
80
Aug-09
Oct-09
Dec-09
Feb-10
Varun Shipping
Apr-10
Jun-10
Index
Exhibit 144: Varun Shipping price movement
Aug-10
Dirty Tanker Index
Page 91
Exhibit 145: Aban Offshore price movement
2000
100
1600
90
Rs.
70
800
60
400
50
0
Aug-09
$ per day
80
1200
40
Oct-09
Dec-09
Feb-10
Aban Offshore
Apr-10
Jun-10
Aug-10
Crude Oil Prices
Exhibit 146: Garware Offshore price movement
240
100
210
90
Rs.
70
150
60
120
50
90
Aug-09
$ per day
80
180
40
Oct-09
Dec-09
Feb-10
Garware Offshore
Apr-10
Jun-10
Aug-10
Crude Oil Prices
Exhibit 147: Great Offshore price movement
600
100
550
90
Rs.
70
450
60
400
50
350
Aug-09
$ per day
80
500
40
Oct-09
Dec-09
Feb-10
Great Offshore
Apr-10
Jun-10
Aug-10
Crude Oil Prices
Page 92
Exhibit 148: ABG Shipyard price movement
400
550
350
500
Rs.
400
250
350
200
300
150
250
100
Aug-09
Index
450
300
200
Oct-09
Dec-09
Feb-10
ABG Shipyard
Apr-10
Jun-10
Aug-10
Shipbuilding Index
Exhibit 149: Bharati Shipyard price movement
400
550
350
500
Rs.
400
250
350
200
300
150
250
100
Aug-09
Index
450
300
200
Oct-09
Dec-09
Feb-10
Bharati Shipyard
Apr-10
Jun-10
Aug-10
Shipbuilding Index
Page 93
Glossary
Tankers
VLCC
Very large crude carrier tanker of 200,000+ DWT
Suezmax
A vessel of 120,000 to 200,000 DWT, whose dimension enables her to pass though the Suez
Canal
Aframax
A tanker measuring between 80,000 and 120,000 in DWT terms primarily used for the
carriage of crude oil
Small Tankers
A vessel of 10,000-60,000 DWT
Bulkers
Capesize
Dry bulk carrier of 80,000-200,000 DWT
Panamax
A vessel of 60,000 to 100,000 DWT, whose dimension enables her to pass through the
Panama Canal
Handymax
Bulk carrier vessel of 40,000-60,000 DWT
Handysize
Bulk carrier vessel of 10,000-40,000 DWT
Offshore
AHTSV
Anchor handling tag supply vessel, a vessel specially designed to handle offshore oil
& gas platforms and rigs.
PSV
Platform supply vessel, a vessel specially designed for proving support services to offshore
oil & gas platforms and drilling rigs.
Drill ship
A maritime vessel that has been fitted with drilling apparatus and is able to drill in water
depths of over 2000 meters.
Jack up rig
Mobile offshore oil and gas drilling platform that is able to stand still on the sea floor, resting
on a number of sporting legs. Jack up rigs can only be placed in shallow water (Up to1000
feet).
LPG
VLGC
Very large gas carrier of 70,000+ CBM
MGC
Medium gas carrier with a capacity of 20,000-50,000 CBM
LGC
Large gas carrier of 50,000-70,000 CBM
Miscellaneous
DWT
Dead Weight Tonne
LDT
Light Displacement Tonne
Page 94
RATING RATIONALE
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as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey
Head Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai 400 093
research@icicidirect.com
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Shipping Sector Report: Selective Plays in Shipping and Offshore

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Sector Report

September 29, 2010

Key Financials ( | crore)

3,680 868 199.7

3,742 14164 17670

PE EV/EBITDA P/BV ROCE RONW

Shipping Industry Report

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