Result Update

June 4, 2012
Rating matrix
Rating Target Target Period Potential Upside : : : : Sell | 44 12 months -12%

Shipping Corporation of India (SCI)

| 50
WHATS CHANGED
FY13E FY14E

Key Financials
(| cr) Net Sales EBITDA Net Profit EPS (|) FY11 FY12E 3543.4 4033.4 3944.0 4151.8 709.8 189.2 323.6 410.9 567.4 -428.2 -316.9 -213.7 12.2 -9.2 -6.8 -4.6

PRICE TARGET. ...Changed from | 57 to | 44 EPS (FY13E) ........................................................................... Changed from | -3.4 to | -6.8 EPS (FY13E)...Introduced at | -4.6 RATING...Unchanged

Valuation summary
FY11 FY12E FY13E FY14E PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) 4.1 3.6 6.9 0.3 7.9 2.1 34.3 0.3 -6.4 -3.4 19.9 0.4 -5.1 -2.6 15.0 0.4 -3.6 -2.0

Expected to remain in troubled waters

Shipping Corporation (SCI) reported a disappointing set of numbers with both revenue and profit below our estimates. Revenues for Q4FY12 degrew 9% to 1038.3 crore (I-direct estimate of | 1091.7 crore). SCI reported a loss at the EBITDA level of | 145 crore against a profit of | 118 crore in Q3FY12. Higher interest expense (up 11% QoQ to | 114 crore) and depreciation (up 3% QoQ to | 163 crore) further aggravated the stress on the profitability. In spite of an extraordinary income of | 67 crore, the company reported a loss of | 355 crore in Q4FY12 against a profit of | 74.1 crore in Q3FY12. Over the last two years, SCIs operating performance has been burdened owing to the bunker cost to sales ratio increasing from 22% in Q1FY11 to 44% in Q4FY12. SCIs fleet has an average age higher than its peers and is likely to get lower freight rates for its vessels. Also, operating expenses have been higher owing to increasing bunker (fuel) price, which has doubled over the last year. The dual impact of lower freight rates and higher bunker cost is likely to weigh on operating profitability. Though we expect the operating margin to improve from FY12E levels, the operating margin would still be below historic levels and EBITDA generation would be inadequate to cover the fixed costs. Higher depreciation expense owing to its new vessel induction schedule would add to the stress on profitability and lead to the company continuing to report loss at the net profit level in FY13E and FY14E. Bulk and container segments report loss Both major segments in which SCI operates i.e. bulk and container saw further deterioration in profitability in Q4FY12. The container segment reported an EBIT loss of | 224 crore (Q3FY12: loss of | 24 crore) while the bulk segment also reported a loss of | 56 crore (Q3FY12: profit of | 137.7 crore). The offshore segment reported an EBIT of | 40 crore in Q4FY12 against | 23 crore in Q3FY12.

Stock data
Market Cap. (| cr) Debt( FY12E) (| cr) Cash (FY12E) (| cr) EV (| cr) 52 week H/L (| cr) Equity capital (| cr) Face value (|) DII Holding (%) FII Holding (%) 2376 5600 1442 6534 113 / 46 465.8 10 19.4 2.0

Price movement
6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Jun-11 Sep-11 Dec-11 Mar-12 Nifty (L.H.S) Price (R.H.S) 120 100 80 60 40 20 Jun-12

Analysts name
Bharat Chhoda bharat.chhoda@icicisecurities.com Soumojeet Kr Banerjee soumojeet.banerjee@icicisecurities.com

Valuation
We expect pressure on the operating margin to continue owing to a weak freight scenario. We have valued the stock at 0.35x FY14E book value to arrive at a price target of | 44 and recommend a SELL rating.
Exhibit 1: Financial Performance
(| cr) Net Sales EBITDA EBITDA Margin (%) Depreciation Interest Reported PAT EPS (|) Q4FY12 1038.3 -145.0 -14.0 163.2 114.0 -355.9 -7.6 Q4FY12E 1091.7 108.0 9.9 139.7 113.1 -60.3 -1.3 Q4FY11 865.1 100.7 11.6 133.0 20.4 -6.2 -0.1 Q3FY12 1147.5 118.0 10.3 158.0 102.8 74.1 1.6 YoY Gr. (%) 20.0 -244.0 22.7 458.9 QoQ Gr.(%) -9.5 -222.9 3.3 10.9 PL PL

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Topline performance trend

A weak freight rate scenario in the bulk segment and curtailed operations in the liner segment are expected to keep revenues flattish over the next two years

In the container segment, SCI operates five owned vessels and four hired vessels. The company is restructuring its liner operations and has already merged two European /Mediterranean region services from April and is also planning to do the same with services to China. The company is planning to return two ships to its owners by the end of Q2FY13. This will help the company to reduce exposure to the liner segment (which has been incurring losses for the owners globally) and cut costs and reduce the losses

4500 4000 3500 3000 2500 2000 1500 1000 500 0

4033.4

3944.0

4151.8

865.1

1147.5

1038.3

Q4FY11

Q3FY12

Q4FY12

FY12E Revenue

FY13E

FY14E

Source: Company, ICICIdirect.com Research

Exhibit 3: Segmental analysis

Q4FY12
Both bulk and liner segments reported losses at the EBIT level. The loss of the liner segment increased from | 24.1 crore in Q3FY12 to |224.6 crore in Q4FY12. The bulk segment, which had reported a profit of | 137.7 crore in Q3FY12, also reported an EBIT loss of | 56.2 crore in Q4FY12

Q3 FY12 Q4FY11 376.8 888.7 57.1 277.9 556.6 38.5

YoY(Ch %) -13.2 40.9 106.4

QoQ(Ch %)

FY12

FY11 1,141.3 2,483.8 196.1

YoY(Ch %) 2.9 16.8 18.6

Revenue Liner Segment Bulk Segment Others EBIT Liner Segment Bulk Segment Others EBIT Margin Liner Segment Bulk Segment Others

241.1 784.1 79.5

-36.0 1,174.4 -11.8 2,900.7 39.3 232.6

(224.6) (56.2) 40.2

(24.1) 137.7 23.0

(18.3) 3.4 24.3

PL 65.2

PL 74.4

(311.7) 67.9 100.4

62.5 398.0 120.0

PL -82.9 -16.4

(93.2) (7.2) 50.5

(6.4) 15.5 40.4

(6.6) 0.6 63.1

PL -1261 bps

PL 1016 bps

(26.5) 2.3 43.2

5.5 16.0 61.2

PL -1368 bps -1808 bps

Source: Company, ICICIdirect.com Research

Exhibit 4: EBITDA performance trend

Though we expect the operating margin to improve from FY12E, the operating margin would still be below historic levels and EBITDA generation would be inadequate to cover fixed costs

500 400 300 | cr 200 100 0 -100 -200 Q4FY11 Q3FY12 Q4FY12 -145.0 EBITDA OPM -14 FY12E FY13E 100.7 118.0 5 189.2 323.6 410.9 12 10 8

10

15 10 5 0 -5 -10 %

FY14E

-15 -20

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Exhibit 5: PAT performance trend

100
Inadequate EBITDA generation and higher depreciation expense owing to its new vessel induction schedule would add to the stress on profitability and lead to the company

74.1 6

10 5 Q4FY12 FY12E -11 -213.7 -316.9 -34 -428.2 NPM FY13E -8 FY14E -5.15 0 -5 -10 -15 -20 -25 -30 -35 -40 %

0 -100 | cr -200 -300 -400 -500

-6.2 -1 Q4FY11

Q3FY12

continuing to report a loss at the net profit level in FY13E and FY14E

-355.9

PAT

Source: Company, ICICIdirect.com Research

During Q4FY12, SCI sold four vessels, which included two dry bulk carriers, one chemical tanker and one anchor handling tug cum supply vessel (AHTS). On the other hand, the company took delivery of two dry bulk carriers and one AHTSV SCIs total fleet stands at 75 vessels, comprising 24 crude carriers, 15 product carriers, 11 dry bulk carriers, eight Liners (seven containers and one passenger), 14 offshore vessels, one chemical tanker and two gas carriers SCI has 26 vessels on order, comprising nine AHTS, nine dry bulk carriers, two VLCCs, four container ships and two platform supply vessels (PSV)

Exhibit 6: Current fleet profile

25 20 15 10 5 0

20 15 11 7 1 Crude Chemical Product 2 4 1 Passenger VLCC Dry bulk Liners OSV 14

Source: Company, ICICIdirect.com Research

Exhibit 7: Revenue expected to improve marginally in FY14E

4400 4200 4000 | cr 3800 3600 3400 3200 3000 FY10 FY11 Revenue FY12E FY13E FY14E 3463.1 3543.4 4151.8 4033.4 3944.0

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Gas

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Exhibit 8: Operating margin to recover in FY13E & FY14E

800 700 600 500 | cr 400 300 200 100 0 FY10 FY11 EBITDA FY12E EBITDA % FY13E FY14E 189.2 5 533.6 15 323.6 8 5 0 20 410.9 10 709.8 25 20 15 10 %

Source: Company, ICICIdirect.com Research

Exhibit 9: PAT expected to be negative in FY13E & FY14E

800 600 400 | cr 200 0 -200 -400 -600 PAT -428.2 PAT % FY10 FY11 FY12E -11 -316.9 FY13E -8 FY14E 376.9 11 567.4 16 20 15 10 5 0 -5.15 -5 -10 -15 % -213.7
250 200 150 100 50 0 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 SCI - CMP 0.2 X 0.4 X 0.6 X 0.8 X 1.0 X

Source: Company, ICICIdirect.com Research

Exhibit 10: Price/book value trend

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

SCI currently owns a fleet of 75 vessels, which is expected to be increased to 100 by FY14 through phased induction of new vessels. The current expansion of the fleet undertaken by SCI does not bode well for the company in the current weak freight rates scenario. This would make the breakeven of vessels take longer as these assets were ordered during 2007-08 during peak freight rate cycle at significantly higher prices. Lower EBITDA generation and higher depreciation costs are expected to negatively impact the profitability. At the CMP of | 50, the stock is trading at 0.4x FY14E book value of | 126. We have valued the stock at 0.35x FY14E book value to arrive at a price target of | 44 and recommend a SELL rating. Existing investors can exit the stock.
Exhibit 11: Valuation parameter
Valuation based on Price to book value (x) Average target price (|) Current market price (|) Upside (%) Global average 0.9 Target multiple 0.40 Target price (|) 57.0 57.0 77.0 -26.0

Source: ICICIdirect.com Research

Exhibit 12: Valuation

Sales (| cr) 4033.4 3944.0 4151.8 Sales Growth (%) 13.8 -2.2 5.3 EPS (|) -9.2 -6.8 -4.6 EPS Growth (%) PL PE (x) EV/EBITDA (x) 34.3 19.9 15.0 RoNW (%) -6.4 -5.1 -3.6 RoCE (%) -3.4 -2.6 -2.0

FY12E FY13E FY14E

Source: Company, ICICIdirect.com Research

Exhibit 13: Revised estimates

(| cr) Sales EBITDA Net Profit EPS Old FY13E 4310.3 422.8 -144.0 -3.1 FY14E New FY13E 3944.0 323.6 -316.9 -6.8 FY14E 4151.8 410.9 -213.7 -4.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial summary
Profit and loss statement
(Year-end March) Total operating Income Growth (%) Direct Operating Expenses Vessel Operating Expenses Hire of chartered ships Administration expenses Other expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Others Total Tax PAT Growth (%) EPS (|) FY11 3,543.4 2.3 1,414.6 853.4 340.1 225.6 1.0 2,833.7 709.8 33.0 465.1 64.4 250.7 430.9 225.7 89.3 567.4 50.5 12.2 FY12E 4,033.4 13.8 2,097.4 906.1 423.5 417.2 2.0 3,844.2 189.2 -73.3 608.7 387.3 191.6 -615.2 275.2 88.2 -428.2 -175.5 -9.2 FY13E 3,944.0 -2.2 2,050.9 938.5 315.5 315.5 3.0 3,620.4 323.6 71.0 641.0 288.3 209.8 -395.9 150.0 71.0 -316.9 -26.0 -6.8 (| Crore) FY14E 4,151.8 5.3 2,117.4 1,000.7 290.6 332.1 3.0 3,740.9 410.9 27.0 657.0 276.5 241.9 -280.7 150.0 83.0 -213.7 -32.6 -4.6

Cash flow statement

(Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash FY11 567.4 465.1 56.7 -71.4 -222.0 795.7 -126.0 -3,062.0 136.0 -3,052.1 566.0 2,018.3 -409.7 0.0 -54.6 2,120.0 -249.7 2,406.5 2,156.7 FY12E -428.2 608.7 28.8 575.1 0.0 784.3 100.3 -723.9 0.0 -623.6 0.0 898.1 -214.1 0.0 0.0 684.0 787.2 2,156.7 1,442.4 FY13E -316.9 641.0 -7.3 76.5 0.0 393.3 0.0 -350.0 0.0 -350.0 0.0 306.2 -77.3 0.0 0.0 228.8 364.0 1,442.4 1,799.0 (| Crore) FY14E -213.7 657.0 62.7 22.7 0.0 528.6 0.0 0.0 0.0 0.0 0.0 452.1 -77.3 0.0 -109.0 265.8 746.5 1,799.0 2,554.5

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets Creditors Other liab & Provisions Total Current Liabilities Net Current Assets Others Assets Application of Funds FY11 465.8 6,702.3 7,168.1 4,715.2 0.0 0.0 11,883.3 FY12E 465.8 6,268.5 6,734.3 5,613.2 0.0 0.0 12,347.6 FY13E 465.8 5,739.3 6,205.1 5,919.4 0.0 0.0 12,124.5 (| Crore) FY14E 465.8 5,416.6 5,882.4 6,371.5 0.0 0.0 12,253.9

Key ratios
(Year-end March) FY11 Per share data (|) EPS 12.2 Cash EPS 22.2 BV 153.9 DPS 5.5 Cash Per Share 46.3 Operating Ratios (%) EBITDA Margin 20.0 PBT / Total Operating income 12.2 PAT Margin 16.0 Inventory days 15.1 Debtor days 39.2 Creditor days 70.7 Return Ratios (%) RoE 7.9 RoCE 2.1 RoIC 6.0 Valuation Ratios (x) P/E 4.1 EV / EBITDA 6.9 EV / Net Sales 1.4 Market Cap / Sales 0.7 Price to Book Value 0.3 Solvency Ratios Debt/EBITDA 6.6 Debt / Equity 0.7 Current Ratio 3.2 Quick Ratio 4.9 Source: Company, ICICIdirect.com Research FY12E -9.2 3.9 144.6 2.0 31.0 4.7 -15.3 -10.6 16.1 71.1 54.6 -6.4 -3.4 -4.0 34.3 1.6 0.6 0.3 29.7 0.8 1.7 4.4 FY13E -6.8 7.0 133.2 2.0 38.6 8.2 -10.0 -8.0 15.0 70.0 60.0 -5.1 -2.6 -3.1 19.9 1.6 0.6 0.4 18.3 1.0 1.8 4.7 FY14E -4.6 9.5 126.3 2.0 54.8 9.9 -6.8 -5.1 15.0 70.0 60.0 -3.6 -2.0 -2.2 15.0 1.5 0.6 0.4 15.5 1.1 2.3 5.6

11,841.3 4,472.1 7,369.2 1,790.4 9,159.6 292.7 146.5 380.7 164.2 691.8 2,156.7 3,539.9 686.3 422.6 1,108.9 2,431.0 0.0 11,883.3

13,993.6 5,080.8 8,912.8 362.0 9,274.7 192.4 177.5 785.9 190.4 258.2 1,442.4 2,854.4 603.8 1,080.2 1,684.0 1,170.4 1,710.0 12,347.6

14,493.6 5,721.8 8,771.8 212.0 8,983.8 192.4 162.1 756.4 216.1 270.1 1,799.0 3,203.7 648.3 1,112.1 1,760.4 1,443.3 1,505.0 12,124.5

14,705.6 6,378.8 8,326.8 0.0 8,326.8 192.4 170.6 796.2 227.5 273.0 2,554.5 4,021.8 682.5 1,100.6 1,783.1 2,238.7 1,496.0 12,253.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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ICICIdirect.com coverage universe (Shipping)

Essar Ports Idirect Code MCap G.E Shipping Idirect Code MCap Mercator Lines Idirect Code MCap SCI Idirect Code MCap Aban Offshore Idirect Code MCap Global Offshore Idirect Code MCap ABG Shipyard Idirect Code MCap Pipavav Shipyard Idirect Code Sales (| Crore) 1103.7 1392.6 EPS (|) 2.9 5.8 PE (x) 17.2 9.9 EV/EBITDA (x) 9.1 8.2 RoNW (%) 7.1 10.9 RoCE (%) 9.9 12.0

ESSSHI 3707 GESHIP 3648 MERLIN 417 SCI 2329 ABALLO 1527 GARSHI 164 ABGSHI 1914 PIPSHI

CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside CMP (|) Target (|) % Upside

89 107 20 240 246 2 17 18 6 50 44 -12 351 387 10 69 105 52 376 427 14 80 87 9

FY12E FY13E

FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY11 FY12E FY13E FY11 FY12E FY13E

2889.6 3248.7 3389.4 3699.9 4822.1 5420.2 4033.4 3944.0 4151.8 3162.9 3365.6 3289.7 198.1 197.1 272.2 2472.5 2753.3 2995.1 1746.6 2350.2 2607.6

20.8 26.1 28.6 0.8 1.3 2.3 -9.2 -6.8 -4.6 74.4 99.3 79.7 6.7 7.0 15.9 36.5 48.3 53.9 0.7 2.3 2.2

7.7 6.7 8.8 20.2 12.8 7.2 4.8 4.6 4.5 10.9 10.4 4.5 11.4 12.3 9.8 73.6 28.1

7.4 7.0 5.8 5.6 4.4 4.0 34.3 19.9 15.0 8.1 7.3 7.0 8.4 7.6 6.9 7.9 7.3 6.0 43.6 20.9 13.8

4.4 5.8 6.4 0.8 1.3 2.3 -6.4 -5.1 -3.6 11.4 12.1 11.0 5.5 5.5 10.6 15.3 12.7 14.0 2.5 4.1 9.6

4.3 4.7 5.1 3.3 4.8 5.4 -3.4 -2.6 -2.0 8.1 9.0 9.0 5.3 5.6 6.9 12.7 13.9 16.0 4.3 8.0 12.9

MCap 5326 Source: ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Global Valuation (Shipping)

Company Tankers Frontline Ltd* Overseas Shipholding Group* Teekay Corp.* GE Shipping# SCI# Country Norway USA USA India India P/BV (x) P/E (x) EV/EBITDA (x) ROE (%) CY11E CY12E CY13E CY11E CY12E CY13E CY11E CY12E CY13E CY11E CY12E CY13E 1.2 0.2 1.8 0.6 0.3 3.2 0.2 1.3 0.6 0.3 2.4 0.3 1.3 0.6 0.4 NA 8.2 4.1 12.1 70.0 9.6 10.3 64.7 15.5 8.8 6.9 13.1 24.3 12.0 7.4 34.3 11.8 13.7 10.6 7.0 19.9 -30.6 -12.4 -7.6 7.8 7.9 -25.8 -11.4 -3.8 5.3 -6.4 -31.0 -6.8 -0.1 6.1 -5.1

Exhibit 14: Recommendation History

140 120 100 80 60 40 20 0 Jun-11 Jul-11 Sep-11 Oct-11 Price Dec-11 Jan-12 Mar-12 Apr-12 Jun-12

Target Price

Source: ICICIdirect.com Research

Exhibit 15: Recent Releases

Date Event 8-Apr-11 Q4FY11 Result preview 6-Jun-11 Q4FY11 Result update 19-Aug-11 Q1FY12 Result preview 5-Oct-11 Q2FY12 Result preview 16-Nov-11 Q2FY12 Result update 6-Jan-12 Q3FY12 Result preview 21-Feb-12 Q3FY12 Result update Source: ICICIdirect.com Research CMP 118 106 82 70 62 52 77 Target Price 124 97 80 80 59 59 57 Rating HOLD HOLD HOLD BUY HOLD BUY SELL

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold 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: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Bharat Chhoda MBA, Soumojeet Kr Banerjee, MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Bharat Chhoda MBA, Soumojeet Kr Banerjee, MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. 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