ShippingSectorReport-29 Sep 2010

Sector Report
September 29, 2010

Rating Matrix
FY12E CMP TP Rating Upside Shipping Industry Report
Essar Shipping 112 112 Reduce 0%
GE Shipping 307 356 Buy 16%
Mercator Lines 55 63 Buy 15% Selective play…
SCI 162 162 Reduce 0%
Varun 42 36 Sell -14% Global Scenario
Global steel production has grown at 2.7% CAGR in the last five years
Aban Offshore 860 947 Buy 10% while demand for coal has grown at 3.5% CAGR over the same period.
Garware Offshore 121 139 Buy 15% Strong demand for iron ore was mainly driven by China, which has a
Great Offshore 385 444 Buy 15% 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
ABG Shipyard 244 241 Reduce -1% resulting in demand for dry bulk carriers. Crude oil demand has grown
Bharati Shipyard 223 258 Buy 16% 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%
Key Financials ( | crore) and 23.5% share, respectively. As a recovery in Europe and US remain
FY12E Rev. PAT MCap.
sluggish, demand for crude and product carriers will be modest.
EPS Debt EV
Essar Shipping 4,227 328 5.3 6,959 7508 14186
GE Shipping 3,687 692 45.4 4,675 5370 8302 However, supply of vessels in both the dry bulk and tanker segment is
Mercator Lines 2,577 200 8.3 1,297 3017 3359
expected to outpace demand growth by a large margin and remains a
SCI 4,005 250 5.9 6,861 2694 7083
serious concern for the industry. The present global order book is
Varun 750 -56 - 630 2741 3335
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.
Aban Offshore 3,680 868 199.7 3,742 14164 17670
Garware Offshore 231 42 17.7 288 503 780
Dry bulk freight rates are expected to remain range bound. Import of
Great Offshore 1,508 286 76.8 1,433 2343 3676
iron ore by China is likely to fluctuate on account of
destocking/restocking of inventory resulting in volatility in freight rates.
ABG Shipyard 2,613 242 47.4 1,242 2131 3312
Bharati Shipyard 1,143 179 64.9 615 2323 2722
Tanker and product carrier freight rates are likely to remain subdued on
Valuation Summary account of sluggish demand for crude oil and refined products
FY12E PE EV/EBITDA P/BV ROCE RONW combined with large supply of new vessels. Although scrapping of
Essar Shipping 25.5 10.8 0.8 5.4 3.7 single hull crude and product carriers will reduce tonnage, the impact
GE Shipping 6.8 5.8 0.7 8.7 10.4 will be insignificant.
Mercator Lines 6.6 2.7 0.5 8.3 7.7
SCI 20.3 11.5 1.0 2.3 2.0 Offshore companies are better placed as crude oil prices have sustained
Varun - 8.6 0.9 3.8 - above $60/barrel in the last 15 months. This is expected to lead to
increased spend on exploration/drilling activities leading to higher
Aban Offshore 4.4 5.9 1.2 13.2 26.2 utilisation levels along with appreciation in vessel day rates.
Garware Offshore 6.8 7.7 0.9 7.7 12.8
Great Offshore 5.0 4.1 0.9 12.8 18.0 Shipbuilding has been worst hit with weakness in freight rates.
Shipyards globally have reported shrinkage in their order book size. The
ABG Shipyard 5.1 5.6 0.8 15.1 15.9 main reason is drying up of new orders while execution of the existing
Bharati Shipyard 3.4 9.8 0.5 8.1 15.1 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
Analyst’s name and remain muted for the next few years as capacity utilisation drops.
Bharat Chhoda
bharat.chhoda@icicisecurities.com Domestic Scenario
Jehangir Master The outlook and performance of the domestic shipping industry is
jehangir.master@icicisecurities.com
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.
ICICIdirect.com | Equity Research

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 long-
term 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 Page No

Industry Outlook 5
Demand Dynamics 6
Supply Dynamics 8
Freight outlook 9
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 30
GE Shipping 34
Mercator Lines 39
SCI 43
Varun Shipping 47
Offshore
Aban Offshore 50
Garware Offshore 55
Great Offshore 59
Shipbuilding
ABG Shipyard 63
Bharati Shipyard 67
Forthcoming Issues
Essar Shipping – Demerger of business 71
Greatship - IPO 75
SCI - FPO 76
Annexure:
Global Fleet Status 77
Snapshot of companies not under coverage
Asian Oilfield Services 78
Chowgule Steamship 79
Dolphin Offshore 80
Dredging Corporation 81
Haryana Ship Breakers 82
Jindal Drilling 83
Pipavav Shipyard 84
Seamec 85
Shreyas Shipping 86
Western India Shipyard 87
Charts and Trend 89
Glossary 94
Rating Rationale 95

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
approximately 62.8%, 43.1% and 51.4% of the existing dry bulk, crude
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
Global steel production has grown at a CAGR of 2.7%

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

50.0% 45.1%
45.0%
The dominance of China has a significant impact on dry
40.0%
bulk freight rates
35.0%
As supply of vessels is inelastic, production and 30.0% 24.4%
inventory levels in China would impact the movements 25.0%
in BDI over the next few years 20.0%
15.0% 12.1%
10.0% 7.6%
5.0% 3.3%
5.0% 2.6%
0.0%
China European CIS India North Brazil ROW
Union America
Exhibit 3: China’s monthly steel production
60
Steel production in China has been steadily rising over
the last 1.5 years after dipping in H2CY08 55
Steel production was boosted by the stimulus package 50

doled out by the Chinese government, which led to a
mln tonnes
sharp rise in infrastructure spend

45
This led to a rise in import of iron ore leading to a surge
in demand for dry bulk vessels 40
35
30
Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10

Page 6
Exhibit 4: China’s monthly iron ore inventory
85
80
China has maintained a fairly stable inventory level over
75
the last one year with inventory level of ~ 70 million
tonnes
mln tonnes
70
The inventory level can drop if it slows down its steel
65
production
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 60
rates
50
The rally in BDI last year can be attributed entirely to
imports of iron ore by China
mln tonnes
40
30
20
10
0
Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
Australia Brazil India South Africa Total
Exhibit 6: Coal demand growth
Global coal demand has grown at a CAGR of 3.5%

over the last five years
3184 3286 3278
3500 3039
2764 2904
3000 2595
2349 2403
2500
mln tonnes
2000
1500
1000
500
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Coal Demand

Page 7
Exhibit 7: Crude oil demand
Crude oil demand has reported a CAGR growth of 0.2% 6100

over the last five years 5977 5968
6000 5922
5883 5891
5900 5832
5800
mln tonnes
5689
5700 5617
5582
5600
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
35.0% 33.1%
US and Europe are the major consumers of crude oil and US and Europe are
refined products. Due to the sluggish growth in the US 30.0% 26.4% key demand drivers
and Europe the demand has also remained very tepid 23.5%
25.0%
20.0%
15.0%
10.4%
10.0%
3.8% 2.7%
5.0%
0.0%
North America Europe and China India Brazil ROW
Eurasia
Supply Dynamics
Industry supply snapshot
Exhibit 9: Global fleet order book

Present Fleet Order book as %
Vessels DWT ('000) of DWT
New build vessels, which are expected to join the global Dry Bulk 6915 449688 62.8
shipping fleet over the next couple of years, are likely to Crude Oil 2117 326587 43.1
keep freight rates muted Product Carriers 1508 51706 51.4
LPG 516 13298 25.9
Containers 4623 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
in the next six months to 663 in December 2008
11700
Index
Since then, BDI has remained range bound between 2000
8900
and 4500 levels
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 Feb-10 Aug-10
BDI BCI BPI
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
Crude tanker rates are likely to remain suppressed over the 150,500
next couple of years 125,500
100,500
US$/day
75,500
50,500
25,500
500
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10
VLCC Suezmax 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
LPG freight rates are likely to be subdued on account of new 21,000

vessel supply
20,000
$/day
19,000
18,000
17,000
Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10
Liner business
The liner business has recovered as container shipments have picked up
Any drop in container volumes to the US and Europe could in the US and Europe. The new build container order book is 39.1% of the
lead to a steep correction in freight rates on account of present container fleet, which is again a matter of concern. Any
supply overhang 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
With the recovery in crude oil prices, offshore 140
drilling/exploration is expected to pick up pace 120
100
$/barrel
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
The BP rig explosion and the resultant oil spill led to a
in April 2010
sharp fall in utilisation levels of drill ships, which are used 90
for deep water drilling
% utilisation
With strength in crude oil prices, offshore utilisation 80

levels and day rates are expected to gain strength
70
60
Nov-09 Feb-10 May-10 Aug-10
Drillship Semisub 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 60

stable with ~46 MT of cargo handled on an average per 51.3 52.0
49.1
month 50 45.4 45.4 46.7 48.2 45.7 46.6 47.8 44.8
43.5
Million tonnes
42.5
40
30
20
Nov '09
June '09
Oct '09
Feb'10
Apr' 10
July '09
Aug '09
Sept '09
Jan'10
Dec '09
Mar '10
June '10
May '10
Higher utilisation due to capacity constraints
Exhibit 16: Utilisation levels at major ports over the years

Capacity Traffic Utilisation %
Six out of the 12 major ports in India are operating at
more than 100% capacity utilisation while the remaining FY02 345 288 83%
six are also operating at close to their peak capacity with FY03 365 314 86%
average utilisation levels at 96% 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%
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 1 New Mangalore 3.14 2.98
the last eight years 2 JNPT 1.67 1.98
3 Ennore 1.89 2.01
As the ports are operating at close to peak capacity, it 4 Cochin 2.19 2.03
leads to port congestion. This results in a high turnaround 5 Tuticorin 3.67 3.39
time at major ports in India 6 Visakhapatnam 3.65 4.73
7 Chennai 3.4 4.17
8 Kolkata 3.89 4.33
9 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
800
Index
600
400
200
0
Nov-06 Aug-07 May-08 Feb-09 Nov-09 Aug-10
Exhibit 19: New building orders
Dry Bulk Tankers Containers LPG/LNG Others Total

There has been a steady stream of new build orders
over the last few months Jan-10 42 12 0 6 8 68
Feb-10 35 18 0 4 18 75
Mar-10 71 29 5 3 13 121
Apr-10 32 16 0 1 0 49
May-10 63 20 0 2 3 88
Jun-10 75 32 1 0 14 122
Jul-10 70 51 15 8 15 159
Exhibit 20: Vessel value (US$ million)
Asset Class Current (USD Mn) 1 M Change (%) 3 M Change(%) 1Yr. Change(%)
New build asset prices of tankers as well as dry bulk
carriers have recovered from their lows Tankers DWT NB 5Yr. NB 5Yr. NB 5Yr. NB 5Yr.
VLCC/ULCC 300,000 112.0 89.0 1.8 3.5 14.3 11.3 1.8 15.6
The second-hand market has also become active with SUEZMAX 150,000 72.9 61.8 4.1 4.7 5.7 4.7 2.0 1.6
the recovery in freight rates AFRAMAX 105,000 58.6 47.0 1.0 0.0 14.9 11.9 16.0 16.6
PANAMX 70,000 48.0 39.0 6.7 2.6 9.1 14.7 6.2 4.0
MR TANKERS 47,000 37.5 28.0 -1.3 0.0 10.3 7.7 -1.3 -0.7
Bulk DWT
CAPESIZE 170,000 69.5 57.0 -0.7 3.6 -4.8 -6.6 6.9 12.9
PANAMAX 74,000 43.5 38.0 1.2 0.0 -1.6 -2.6 11.5 11.8
SUPRAMAX 52,000 34.0 29.7 -2.9 0.7 -2.6 2.4 6.3 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, India China Bangladesh Pakistan All Others Total Units
China and Pakistan Jan-10 56 11 12 4 2 85
Feb-10 35 7 10 5 10 67
Mar-10 45 29 37 17 39 167
Apr-10 57 13 14 16 44 144
May-10 57 13 8 16 44 138
Jun-10 15 24 3 5 20 67
Jul-10 36 20 5 10 33 104
Aug-10 32 14 2 8 19 75
Total 333 131 91 81 211 847
Exhibit 22: Demolition statistics by vessel type
Demolition activities registered a sharp increase Dry Bulk Tankers Containers Others Total
particularly for dry bulk (up from nine to 29) and Jan-10 13 38 25 9 85
tanker segment (up from three to 21) with 82 vessels
being scrapped in July 2010 as against 66 in the Feb-10 24 10 14 19 67
previous month Mar-10 37 57 47 26 167
Apr-10 49 52 11 36 148
May-10 46 45 11 36 138
Jun-10 9 3 15 39 66
Jul-10 29 21 11 21 82
Exhibit 23: Demolition by DWT & scrap prices
Stable scrap prices have encouraged demolition of DWT LDT Scrap rate $/LDT
vessels 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 The global economy, especially of developed countries, has managed to
with India and China leading it. However, if the global
recovery falters then it could lead to a drop in shipping
emerge out of the recession on account of some extraordinary measures
volumes, thereby adversely affecting the prospects of initiated by the US and Europe to infuse liquidity by resorting to
shipping companies 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 Supply overhang is serious and the single biggest concern for the
large and such large additions will pose the biggest industry over the next two years. At present, the global order book is
challenge and hurdle towards a recovery in freight rates approximately 62.8%, 43.1% and 51.4% of the existing dry bulk, crude
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

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

Any decline in scrapping of vessels would delay the exit Scrapping of vessels continued unabated throughout 2009 as depressed
of older vessels. This would lead to excess supply of freight rates and high scrap metal prices forced many ship-owners to
vessels in the market leading to a softening of freight
rates 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

Despite the vast order book prevailing with major
shipyards, there was a considerable slippage in slowed down and there were significant slippages in new deliveries in
deliveries, which managed to keep the supply of vessels CY09. With improvement in liquidity, the amount of slippages is expected
under check. If the slippages continue in CY11 as well it to reduce, going forward. This could lead to pressure on freight rates as
would lend support to freight rates. Conversely, a additional vessels join the existing fleet.
reduction in slippages could exert pressure on freight
rates

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 %
Indian
In terms of fleet tonnage, India has just 1% share
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 Great Offshore 48
SCI will continue to have the largest fleet of 84 vessels Garware Offshore 13
among domestic companies. This will consist of 25 crude Aban Offshore 19
tankers, 20 dry bulk carriers and 15 product carriers
Varun 20
GE Shipping will be narrowing the gap with SCI with a SCI 84
fleet of 75 vessels. This will constitute of 19 product
carriers, 15 crude tankers and 13 dry bulk carriers. Its Mercator Lines 30
offshore fleet would consist of 15 offshore support GE Shipping 75
vessels, 10 AHTS vessels and two jack-up rigs
Essar Shipping 39
Among offshore companies, Great Offshore would have
0 10 20 30 40 50 60 70 80 90
the largest fleet of 48 vessels consisting of 16 AHTS
vessels, 13 offshore support vessels, 12 harbour tugs,
Vessels (FY12E)
four jack-up rigs and three construction barges
Source: Company, ICICIdirect.com Research
Exhibit 27: Capex plans (| Crore)
Bharati Shipyard 258

SCI, Essar and GE Shipping have the most aggressive 220
capex plans
ABG Shipyard 241
250
SCI has already committed capex spend to acquire 31
new vessels over the next two years. It will help the 476
Great Offshore 420
company to replace its ageing fleet. The orders have
already been placed and construction of new vessels is
Garware Offshore 0
under way at various yards in India and abroad 258
Aban Offshore 0
Essar Shipping is also incurring significant capex to build 0
capacities for its various operating segments. The
company is acquiring two jack-up rigs. It would be Varun 0
0
expanding its port capacity at Vadinar and Hazira in
addition to setting up new ports at Salaya and Paradip 1628
SCI 4,195
GE Shipping would be incurring the capex to mainly
Mercator Lines 0
expand its offshore fleet of vessels along with expansion 0
of dry bulk and tanker fleet
GE Shipping 1482
1,675
Essar Shipping 1,675

3,368
0 500 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

Order book pending 2560
execution) which is 4.5 times its FY10 revenue while
execution (FY10) 8160
Bharati Shipyard’s order book (pending execution) is 1.9
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 0 3000 6000 9000 12000
the earnings are likely to be subdued for a few years
ABG Shipyard Bharati Shipyard
Exhibit 29: Revenue and PAT (| Crore)
Essar Shipping’s revenues are likely to be highest among Bharati Shipyard 179
1,143
all domestic shipping companies by FY12, closely
followed by SCI ABG Shipyard 242
2,613
However, in terms of profitability Aban Offshore and GE 286

Great Offshore
Shipping are expected to be the two most profitable 1,508
companies among domestic shipping companies
Garware Offshore 42
231
Aban Offshore 868

3,680
-56
Varun 750
337
SCI 4,195
200
Mercator Lines 2,577
GE Shipping 692
3,687
273
Essar Shipping 4,227
(500) - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Rev. (FY12E) PAT (FY12E)

Page 18
Exhibit 30: Market cap/debt/enterprise value (| Crore)
Aban Offshore is the most leveraged company with debt 2736

Bharati Shipyard 2323
of | 14,210 crore. The debt was accumulated post the 629
acquisition of Sinvest. Currently, the company has no
3312
other capex plans. Over the next two years, the debt level ABG Shipyard 2131
is likely to moderate to | 10810 crore by FY12 1,242
3755
Essar Shipping and GE Shipping would also have Great Offshore 2343
significantly high debt levels on account of their capex 1,512
plans
809
Garware Offshore 503
317
17607
Aban Offshore 14210
3,779
3365
Varun 2741
660
7125
SCI 2694
6,903
3193
Mercator Lines 3017
1,132
8195
GE Shipping 5370
4,569
13917
Essar Shipping 7508
7,390
0 4,000 8,000 12,000 16,000 20,000
MCap.(FY10) Debt (FY10) 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 15.1
Bharati Shipyard
best return ratios 8.1
15.9
ABG Shipyard
15.1
18.0
Great Offshore
12.8
12.8
Garware Offshore
7.7
26.3
Aban Offshore
12.9
0.0
Varun
3.8
2.0
SCI
2.3
7.7
Mercator Lines
8.3
10.4
GE Shipping
8.7
3.7
Essar Shipping
6.0
0.0 5.0 10.0 15.0 20.0 25.0 30.0
ROCE (FY12E) RONW (FY12E)

Page 20
Exhibit 32: Valuation ratios
On a valuation basis, among shipping companies, 0.5

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

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

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

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
Weighted Average Final
No. 2 spot, respectively
Ranking Ranking
Essar Shipping 6.4 8
Mercator Lines and GE Shipping have a presence in the G.E Shipping 3.9 2
tanker, dry bulk and offshore segment. Mercator Lines in Mercator Lines 3.4 1
addition also operates four dredgers, would be SCI 7.4 9
commissioning a floating production unit in Q4FY11 and Varun Shipping 8.9 10
is also carries out coal mining, handling and trading. Aban Offshore 6.1 6
Garware Offshore 6.3 7
Due to the diversified revenue streams, both companies Great Offshore 4.1 4
are better placed to tide over the volatility in any single ABG Shipyard 4.0 3
Bharati Shipyard 5.0 5
business segment
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 Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ESSSHI CMP (|) 113 FY10 2999.4 1.5 74.2 13.5 1.1 3.7
Target (|) 112 FY11E 3222.0 2.5 44.5 13.4 2.3 4.3
MCap 6958.5 % Upside -1 FY12E 4227.4 5.3 25.5 10.8 3.7 5.4
G.E Shipping Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code GESHIP CMP (|) 307 FY10 2856.5 33.7 9.1 8.7 9.0 4.8
Target (|) 356 FY11E 3194.7 36.7 8.4 7.4 9.1 6.5
MCap 4666.4 % Upside 16 FY12E 3687.5 45.4 6.8 5.8 10.4 8.7
Mercator Lines Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code MERLIN CMP (|) 55 FY10 1808.7 2.2 24.9 5.2 2.3 5.3
Target (|) 63 FY11E 2163.5 3.4 16.3 4.2 3.4 6.1
MCap 1298.0 % Upside 15 FY12E 2576.9 8.3 6.6 2.7 7.7 8.3
SCI Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code SCI CMP (|) 162 FY10 3463.1 8.9 18.2 13.4 3.5 1.6
Target (|) 162 FY11E 3771.8 10.5 15.4 13.6 3.3 2.1
MCap 6860.7 % Upside 0 FY12E 4004.9 8.0 20.3 11.5 2.0 2.3
Varun Shipping Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code VARSHI CMP (|) 42 FY10 666.2 0.8 50.2 13.9 1.5 0.1
Target (|) 36 FY11E 636.7 - - 12.8 - -
MCap 630.0 % Upside -14 FY12E 749.7 - - 8.6 - 3.8
Aban Offshore Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ABALLO CMP (|) 860 FY10 3358.7 71.5 12.0 8.4 14.3 10.0
Target (|) 947 FY11E 3553.0 87.9 11.7 6.8 13.1 11.9
MCap 3250.8 % Upside 10 FY12E 3679.8 199.7 4.4 5.9 26.2 13.2
Garware Offshore Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code GARSHI CMP (|) 121 FY10 212.4 17.3 7.0 7.2 15.4 9.6
Target (|) 139 FY11E 207.8 12.4 9.8 9.3 10.1 6.4
MCap 288.0 % Upside 15 FY12E 230.7 17.7 6.8 7.7 12.8 7.7
Great Offshore Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code GREOFF CMP (|) 385 FY10 1165.6 54.0 7.1 6.8 18.1 11.6
Target (|) 444 FY11E 1246.7 59.0 6.5 6.0 16.7 10.7
MCap 1428.4 % Upside 15 FY12E 1507.6 76.8 5.0 4.1 18.0 12.8
ABG Shipyard Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code BHASHI CMP (|) 244 FY10 1812.4 42.8 5.7 7.0 19.6 13.6
Target (|) 241 FY11E 2299.2 45.1 5.8 6.0 16.4 15.3
MCap 673.4 % Upside -1 FY12E 2613.3 47.4 5.1 5.6 15.9 15.1
Bharati Shipyard Sales (| Crore) EPS (|) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code BHASHI CMP (|) 223 FY10 1348.1 50.1 4.4 8.6 16.6 9.9
Target (|) 258 FY11E 1421.0 70.2 3.2 8.3 19.1 10.2
MCap 615.5 % Upside 16 FY12E 1143.3 64.9 3.4 9.8 15.1 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 build-
up 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 Shipping’s 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 economy’s
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
Target
:
:
Reduce
| 112 Essar Shipping (ESSSHI)
Target Period : 12 months
Potential Upside : -1% | 113
Key Financials WHAT’S CHANGED…

(| cr) FY09 FY10 FY11E FY12E
Net Sales 2574.2 2999.4 3222.0 4227.4
PRICE TARGET .............................................................................................. Unchanged
EBITDA 834.5 1048.7 1259.8 1656.8 EPS (FY11E) .................................................................................................. Unchanged
Net Profit 77.2 93.8 167.3 328.5
EPS (FY12E) .................................................................................................. Unchanged
Valuation summary RATING.......................................................................................................... Unchanged
PE (x)
FY09
3.1
FY10 FY11E FY12E
74.2 44.5 25.5
Diversified play…
Target PE (x) 89.0 73.3 44.0 25.2 Essar Shipping Ports and Logistics Ltd (Essar Shipping) offers a play on
EV to EBITDA (x) 16.3 13.5 13.4 10.8 the Indian shipping, logistics and ports business. In the last few years,
Price to book (x) 0.9 0.8 0.8 0.8 the company has not only consolidated its position in its traditional
RoNW (%) 1.0 1.1 2.3 3.7 shipping and logistics business but also ramped up its presence in the
RoCE (%) 3.1 3.7 4.3 5.4 ports and terminal business with the Vadinar (46 MTPA wet cargo) port
terminal and Hazira (30 MTPA dry cargo) port. Over the next three
Stock data years, the company has chalked out plans to further increase its port
Market Cap. (| cr) 6959 capacity to 158 MTPA with the establishment of new ports and
Debt( FY10E) (| cr) 7508 expansion of existing port operations.
Cash (FY10E) (| cr) 281
EV (| cr) 14186
52 week H/L (| cr) 136 / 54 Essar Shipping is also scaling up its presence in the offshore space and
Equity capital (| cr) 615.8 will receive delivery of two jack-up rigs by FY12. The company currently
Face value | 10 operates one semi submersible rig and 12 onshore rigs. It is also
MF Holding (%) 0.2 acquiring 12 dry bulk vessels over the next two years to add to its fleet
FII Holding (%) 8.3 of 19 dry bulk vessels. In the last couple of years, Essar Shipping has
been rapidly expanding its scope of operations across segments and
Price movement has committed to substantial capex. The benefits from this would be
visible over the next couple of years.
6000 150
5500
120 Changing revenue mix to drive growth
5000
4500 90
Revenue from the port business is expected to grow by 82% in FY11 to |
4000
753 crore and by 68% in FY12 to | 1268 crore making it the second
3500
60 largest segment for the company. The operating margin is expected to
3000 30
expand from 35% in FY10 to 39% in FY12 as the share from the ports and
Aug-09 Nov-09 Feb-10 May-10
terminals business (high margin business) increases. PAT is also
expected to rise from | 93.8 crore in FY10 to | 328.5 crore in FY12.
NIFTY Essar Shipping (RHS)
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 676.1 671.2 800.6 851.6 795.1
EBITDA 275.6 236.4 267.2 269.6 240.8
EBITDA Margin (%) 40.8 35.2 33.4 31.7 30.3
Depreciation 116.6 107.1 116.7 106.6 116.8
Interest 135.1 128.6 128.8 144.9 158.2
Reported PAT 6.1 2.3 21.9 63.5 39.5
EPS (`) 0.1 0.0 0.4 1.0 0.6

Page 30
Exhibit 38: Revenue expected to steadily rise
We expect the company to report a steady rise in

4500 4227.4
revenue over the next two years as additional port
capacity gets commissioned 4000
3500 3222.0
2999.4
3000 2574.2
2500
| cr
1842.4
2000
1500
1000
500
0
FY08 FY09 FY10 FY11E FY12E
Revenue
Exhibit 39: Operating margin expected to inch up gradually
The operating margin is also likely to improve as the 1800 1656.8 45

company ramps up its port business, which offers higher 1600
40
margin compared to Essar Shipping’s traditional shipping 1400 1259.8 39 39
business 1200 1048.735 35
1000 834.5 32
| cr
30
%
800
600 25
382.0
400 21
20
200
0 15
EBITDA OPM
Exhibit 40: PAT, net profit margin to improve

The bottomline is also expected to grow significantly over 277.4
300 273.3 16
the next two years 15 14
250
12
200
156.4 10
| cr
150 8
%
93.8 6 6
100 77.2 5
3 4
50 3
2
0 0
PAT NPM

Page 31
Exhibit 41: Current fleet profile
The current fleet consists of 40 vessels, which include 19 20 19

bulk carriers, two VLCCs, six tugs, one semi submersible 18
rig and 12 onshore rigs 16
14 12
No of vessels
12
10
8 6
6
4 2
2 1
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
margin business compared to its traditional shipping and
35
logistics business
%
30
25
20
15
ESPLL MLL GE Shipping
Exhibit 43: Debt-equity ratio analysis

The company is appropriately leveraged as its debt-equity 11196
12000 1.4
ratio has hovered close to 1.0 in the last three years. We 10146
10000 8629 8777 9041
expect the debt-equity ratio to inch up higher to 1.1 levels 7927 1.2
1.2 7508 1.2
over the next two years as it expands its offshore oilfield 8000 6739 1.2
presence with the acquisition of two jack-up rigs. It will
| cr
6000 1.0
also aggressively expand its ports and terminal business 4170
3468
4000 0.9 0.9
with the establishment of new port at Salaya in Gujarat 0.8
and two berths in Orissa (CQ3 and Coal) 2000
0 0.6
FY 08 FY 09 FY 10 FY 11E FY 12E
Debt Equity D/E Ratio

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 3
Paradip Coal Berth 3
Total Value 68
Total SOTP Valuation 112
Exhibit 45: Valuation

Sales Sales EPS EPS PE EV/EBITDA RoNW RoCE
(| cr) Growth (%) (|) Growth (%) (x) (x) (%) (%)
FY10 2999.4 16.6 1.5 23.2 74.2 13.5 1.1 3.7
FY11E 3222.0 7.4 2.5 66.8 44.5 13.4 2.3 4.3
FY12E 4227.4 31.2 5.3 110.0 25.5 10.8 3.7 5.4

Page 33
Rating matrix
Rating
Target
:
:
Buy
| 356 GE Shipping (GESHIP)
Potential Upside : 16 % | 307
WHAT’S CHANGED…
Key Financials PRICE TARGET ............................................................. Changed from Rs 334 to Rs 356
(| cr) FY09 FY10 FY11E FY12E EPS (FY11E) .................................................................................................. Unchanged
Net Sales 3800.8 2856.5 3194.7 3687.5
EBITDA 1662.1 959.5 1158.1 1475.0
Net Profit 1407.6 512.8 558.5 691.9 RATING.......................................................................................................... Unchanged
Valuation summary Subsidiary IPO to lead to value unlocking…

FY09 FY10 FY11E FY12E Great Eastern Shipping Ltd (GE Shipping) is one of the largest shipping
PE (x) 3.3 9.1 8.4 6.8 companies in India operating a fleet of 62 shipping and offshore vessels.
Target PE (x) 3.6 9.9 9.1 7.4 The company has the best financials in the shipping space. It’s under
EV to EBITDA(x) 4.0 8.7 7.4 5.8
leveraged balance sheet would enable it to acquire additional shipping
Price to book (x) 0.9 0.8 0.8 0.7
assets in the second-hand market. Due to the challenging business
RoNW (%) 26.9 9.0 9.1 10.4
environment, the operating performance of the company could remain
RoCE (%) 12.7 4.8 6.5 8.7
volatile in the near term. However, the company would benefit
immensely as the shipping cycle turns around in the next couple of
Stock data
years. Greatship Ltd, a subsidiary company of GE Shipping, has filed its
Market Cap. (| cr) 4675
DRHP and is expected to get listed in Q3FY11. The offshore business of
Debt( FY10E) (| cr) 5370
Cash (FY10E) (| cr) 1743
GE Shipping is housed under its subsidiary Greatship Ltd. Its listing will
EV (| cr) 8302
lead to value unlocking for the parent company i.e. GE Shipping.
52 week H/L (| cr) 345 / 227
Equity capital (| cr) 152.3 Consistent performer in volatile industry
Face value | 10
The company is ramping up its fleet (especially in the offshore segment),
MF Holding (%) 12.7
which will be scaled up to 27 vessels and the total fleet size would rise to
FII Holding (%) 12.6
74 vessels in FY12. Scaling up of the fleet along with improvement in
Price movement
tanker freight rates is likely to result in an improvement in the operating
6000 350 performance. We expect the topline to report a steady rise over the next
5500
5000 300
two years on account of new vessel additions accompanied by a
4500 marginal rise in tanker freight rates. GE Shipping is likely to report an
4000 250 operating margin expansion along with a rise in bottomline.
3500
3000 200
Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
Valuation
NIFTY Great Eastern Shipping Company Ltd
We have valued GE on multiple valuation parameters and recommend
BUY with a price target of | 356.

Net Sales 720.8 662.7 706.3 766.7 644.3
EBITDA 256.7 168.4 199.3 335.1 261.4
EBITDA Margin (%) 35.6 25.4 28.2 43.7 40.6
Depreciation 96.1 107.8 109.3 111.3 104.7
Interest 44.6 70.7 50.5 46.4 93.1
Reported PAT 154.2 108.5 94.4 155.7 171.8
EPS (`) 10.1 7.1 6.2 10.2 11.3

Page 34
Exhibit 47: Revenue to gain traction
3800.8 3687.5
4000
3500 3130.8 3194.7
2856.5
3000
2500
| cr
2000
1500
1000
500
0
Revenue
Exhibit 48: Operating margin expected to steadily improve

1800 1662.1 50
1600 1475.0 45
1385.6
1400 44 40 40
44 1158.1
1200 36 35
959.5 30
1000 34
| cr
25
%
800
20
600 15
400 10
200 5
0 0
EBITDA OPM
Exhibit 49: PAT expected to rise significantly in FY12
1600 1453.6 1407.6 50

1400 46
40
1200 37
1000 30
691.9
| cr
800
%
512.8 18 558.5
600 17 20
19
400
10
200
0 0
PAT 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
freight rates rose by 2.2% over the same period 35000 29322
30000
23963 24484
25000 20444
TCE $/day
17920
20000 15485
15000
10000
5000
0
Crude Product Dry Bulk
Q4FY10 Q1FY11
Exhibit 52: Present fleet and fleet size post expansion

20 19 19
18
16 15 15
14 13
12
No. of vessels
12 11
10
10
8 8
8
6
4
2 2
2 1 1
0
Crude Product LPG Dry Bulk Rig AHTS OSV
FY10 FY12E

Page 36
Exhibit 53: NAV
350
339
340
330
317
320
310 303 303
300
290
280
Q2FY10 Q3FY10 Q4FY10 Q1FY11
NAV
Exhibit 54: Coordination between NAV and market price
700
632
600
557
500
400 405
335 356 339
300 282 280 296
231
200 200 202
154 167
139
100 84
67 67
24 33
0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
NAV 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 (|)
PE multiple (x) 14.5 6.00 273
Price to book value (x) 1.3 1.00 438
Average target price (|) 356
Current market price (|) 307
Upside (%) 15.8

(| Cr) Growth (%) (|) Growth (%) (x) (x) (%) (%)
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
Rating
Target
:
:
Buy
| 63 Mercator Lines (MERLIN)

Net Sales 2210.5 1808.7 2163.5 2576.9 PRICE TARGET ................................................................. Changed from Rs 56 to Rs 63
Net Profit 376.5 53.3 81.5 200.5 EPS (FY12E) .................................................................................................. Unchanged
Valuation summary
RATING.......................................................................................................... Unchanged
PE (x)
FY09 FY10
3.4 24.9
FY11E
16.3
FY12E
6.6
Re-rating candidate…
Target PE (x) 3.5 25.3 16.6 6.7 In the last few years, Mercator Lines (MLL) has not only reported a
EV to EBITDA(x) 3.5 5.2 4.2 2.7 steady growth in its core business but has also diversified into related
Price to book (x) 0.6 0.6 0.5 0.5 areas. This has not only enabled MLL to scale up its business
RoNW (%) 16.5 2.3 3.4 7.7 significantly but has also reduced the exposure to the volatile shipping
RoCE (%) 12.6 5.3 6.1 8.3 business. MLL operates dry bulk carriers, crude and product carriers,
offshore jack-up rig and dredgers. The company also owns and operates
Stock data coal mines in Indonesia. In addition, it also carries out significant
Market Cap. (| cr) 1297 quantity of coal trading. MLL is also entering into new business areas
Debt( FY10E) (| cr) 3017 such as floating production cum storage unit, which would get
Cash (FY10E) (| cr) 956 operational in FY11. It is well placed to ride the volatility of the shipping
EV (| cr) 3358 business on account of inherent advantages such as diversified revenue
52 week H/L (| cr) 72 / 42 stream, presence across segments, long-term charter contracts,
Equity capital (| cr) 24.1 comfortable debt-equity ratio and strong management capability. MLL
Face value | 1 would be the most likely outperformer among shipping stocks in case of
MF Holding (%) 3.9 an upturn in the shipping cycle. The stock is trading at half its FY10 BV
FII Holding (%) 17.3 of | 97 and is a likely re-rating candidate.
Price movement
Diversified operations to insulate MLL from volatile shipping business
6000 80 FY11 is likely to be a very volatile year for the company as earnings are
5500 60 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
5000 40
insulate the company from volatile freight rates. However, its tanker fleet
4500 20
is deployed on medium-term contracts ranging from 6-12 months. This
4000 0
can drag down the performance as crude and product carrier rates have
Oct-09 Jan-10 Apr-10 Jul-10
been extremely subdued. However, the company is ramping up its coal
trading and mining activities, which would result in an improvement in
NIFTY Mercator Lines Ltd (RHS)
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 447.3 406.6 472.8 482.0 599.3
EBITDA 223.9 140.1 141.2 139.7 198.2
EBITDA Margin (%) 50.1 34.5 29.9 29.0 33.1
Depreciation 88.3 92.5 84.9 75.2 76.0
Interest 56.3 48.4 48.7 52.4 48.8
Reported PAT 44.5 -1.8 1.0 9.6 61.7
EPS (`) 1.9 - 0.0 0.4 2.6

Page 39
Exhibit 58: Revenue to report steady growth
3000
2576.9
2500 2210.5 2163.5
2000 1808.7
1476.9
| cr
1500
1000
500
0
Revenue
Exhibit 59: Operating margin to soften, going ahead, as share of coal trading increases
1000 949.3 50
900 801.3 45
800 41 40
43 644.9 671.3
700 609.4 35
36 31
600 30
31
| cr
500 25
%
400 20
300 15
200 10
100 5
0 0
EBITDA OPM
Exhibit 60: PAT expected to improve sharply
400 376.5 25
350 327.7
22
20
300
17
250 15
200.5
| cr
200
%
150 10
81.5 8
100
53.3 5
3 4
50
0 0
PAT NPM

Page 40
The current fleet has 31 vessels, which include 15 dry 16 15

bulk carriers, 11 crude/product tankers, four dredgers and 14
12 11
one jack-up rig
10
8
6 4
4
2 1
0
Tankers Dry Bulk Dredgers Offshore
Exhibit 62: Operating days and TCE - Dry bulk division
35000
29258 30001
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
5000 1097 1251
TCE of the dry bulk division increased from $29,258 per
day in Q1FY10 to $30,001 per day in Q1FY11 0
Operating Days TCE
Q1FY10 Q1FY11
Exhibit 63: Shareholding pattern change

45.0 39.7
38.0 38.0
40.0 35.0
35.0
30.0
25.0
18.4 17.3
%
Due to volatility in freight rates, FIIs and DIIs pared their 20.0
holding in the stock in Q1FY11, which was one of the 15.0
8.6
factors leading to the correction in the stock price 10.0 5.0
5.0
0.0
Promoters FII DII Others
Mar-10 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.

PE multiple (x) 8.0 6.0 50
Upside (%) 15

(| cr) Growth (%) (|) Growth (%) (x) (x) (%) (%)
FY10 1808.7 -18.2 2.2 -86.3 24.9 5.2 2.3 5.3
FY11E 2163.5 19.6 3.4 53.0 16.3 4.2 3.4 6.1
FY12E 2576.9 19.1 8.3 145.9 6.6 2.7 7.7 8.3

Page 42
Rating matrix
Rating
Target
:
:
Reduce
| 162 Shipping Corporation of India (SCI)
Potential Upside : 0% | 162

Net Sales 4166.6 3463.1 3771.8 4004.9
PRICE TARGET .............................................................................................. Unchanged
Valuation summary RATING.......................................................................................................... Unchanged
PE (x)
FY09
7.3
FY10
18.2
FY11E FY12E
15.4 20.3
Disinvestment play…
Target PE (x) 7.5 18.7 15.8 20.8 SCI is trading at a significant premium to its domestic peers. The
EV to EBITDA (x) 6.1 13.4 13.6 11.5 premium valuation is justified on account of it being the largest
Price to book (x) 1.1 1.1 1.0 1.0 shipping company in India and a Navratna PSU. In addition, the
RoNW (%) 10.8 3.5 3.3 2.0 company has insignificant debt, which will enable it to leverage its
RoCE (%) 8.8 1.6 2.1 2.3 balance sheet and borrow in the international market at competitive
interest rates. In addition, the follow on public offer (FPO) of SCI has
Stock data revived investor interest in the stock.
Debt( FY10E) (| cr) 2694 The average age of SCI’s fleet is 18.1 years, which is twice the age of
Cash (FY10E) (| cr) 2472 Indian shipping companies. In order to replace its ageing fleet, SCI has
EV (| cr) 7083 committed to incur capex of ~| 8000 crore over the next two years.
52 week H/L (| cr) 182 / 122 Despite the improvement in topline and operating margin, higher
Equity capital (| cr) 423.0 depreciation and interest costs is likely to exert pressure on the
Face value | 10 bottomline. A rise in the equity base on fresh issue of shares is further
MF Holding (%) 0.2 expected to dilute the earnings.
FII Holding (%) 2.0
Price movement
Capex to fuel topline growth
5600
5400
200
SCI has reported an improvement in performance over the last two
5200
5000
150
quarters with the rise in freight rates across vessel categories. The liner
4800
4600
100
business of the company, which has been posting losses for the last
4400
4200
50 many quarters also turned around and posted profits in Q1FY11. We
4000 0 expect the topline to increase at a steady pace over the next two years
Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10
combined with expansion of operating margins to 22.1% in FY12. The
NIFTY Shipping Corporation of India Ltd 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 882.8 844.9 845.4 889.4 906.5
EBITDA 151.5 106.3 87.9 174.9 222.9
EBITDA Margin (%) 17.2 12.6 10.4 19.7 24.6
Depreciation 86.5 95.7 98.9 99.0 101.3
Interest 14.6 15.0 12.2 10.7 12.3
Reported PAT 119.9 33.7 87.4 135.9 191.5
EPS (`) 2.8 0.8 2.1 3.2 4.5

Page 43
Exhibit 67: EBITDA margin to improve, going ahead
920 906.5
900 889.4
882.8
880
| cr
860
844.9 845.4
840
820
800
Revenue
Exhibit 68: EBITDA margin to improve, going ahead
250 222.9 30
25
200 25
174.9
151.5 20 20
150 17
106.3 13
| cr
15
%
87.9
100 10
10
50 5
0 0
EBITDA OPM
Exhibit 69: PAT likely to decline on higher interest and depreciation costs
250 25
191.5 21
200 20
150 135.9 15
119.9 14 15
| cr
100 87.4 10
10
50 33.7 5
4
0 0
PAT NPM

Page 44
Exhibit 70: Current fleet

35
30
The current fleet is 80 vessels, which consists of 30 30
crude tankers and 19 dry bulk carriers
25
No. of vessels
19
20
15 12
10
10 7
5 2
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
25
to increase marginally as 20 vessels are expected to get
20
scrapped over the next two years 20
No. of vessels
15 16
However, tonnage is likely to increase as new vessels 15

would have a higher DWT 10
6
5 2
0
Crude Product Dry Bulk Offshore Container LPG
Exhibit 72: Age profile of fleet

Vessel Type No.of vessels Average Age
Crude Tankers 29 0
Dry Bulk 19 0
Product Tankers 13 0
SCI has one of the oldest fleets among Indian shipping Offshore Vessels 10 250
companies with an average age of 18.1 years Liners 7 0
LPG 2 0
Total vessels 80
Average age 18.1

Page 45
The average age of SCI’s 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.

PE multiple (x) 8.0 - -
Price to book value (x) 1.3 1.0 162.0
Average target price (|) 162.0
Current market price (|) 162.0
Upside (%) 0.0

FY10 3463.1 -16.9 8.9 -59.9 18.2 13.4 3.5 1.6
FY11E 3771.8 8.9 10.5 18.1 15.4 13.6 3.3 2.1
FY12E 4004.9 6.2 8.0 -24.2 20.3 11.5 2.0 2.3

Page 46
Rating matrix
Rating
Target
:
:
Sell
| 36 Varun Shipping (VARSHI)
Potential Upside : -14% | 42
WHAT’S CHANGED…
Key Financials PRICE TARGET .............................................................................................. Unchanged
Net Sales 914.7 666.2 636.7 749.7
EBITDA 476.0 240.0 241.1 330.2
Net Profit 122.8 12.6 -52.8 -56.4 RATING.......................................................................................................... Unchanged
Valuation summary Under pressure…

FY09 FY10 FY11E FY12E Varun Shipping Company Ltd (Varun Shipping) has a dominant
PE (x) 5.1 50.2 - -
presence in the Indian LPG space and operates 10 LPG carriers. The
Target PE (x) 4.4 43.0 - -
company also expanded its presence in the offshore segment with the
EV to EBITDA (x) 7.1 13.9 12.8 8.6
acquisition of high-end AHTS vessels. However, the economic downturn
Price to book (x) 0.8 0.8 0.8 0.9
and correction in freight rates had a cascading effect on the operational
RoNW (%) 15.1 1.5 - -
performance of the company, which has been under pressure for the
RoCE (%) 5.6 0.1 0.1 3.8
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
Stock data
AHTS vessel rates it could enable the company to emerge from the
Debt( FY10E) (| cr) 2741
crisis earlier than expected.
Cash (FY10E) (| cr) 34
EV (| cr) 3337 Long road to recovery
52 week H/L (| cr) 64 / 40 Due to oversupply of LPG carriers combined with subdued demand, LPG
Equity capital (| cr) 150.0 freight rates are expected to remain sluggish. As LPG constitutes 50% of
Face value | 10 Varun Shipping’s fleet, the performance is expected to be subdued. We
MF Holding (%) 0.01 expect crude tanker rates to increase marginally while AHTS rates are
FII Holding (%) 13.73 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
Price movement
36% on account of a rise in high-end AHTS vessel rates.
6000 70
5500 60
However, the company is also highly leveraged and significant interest
5000 outgo is likely to strain the performance. Due to high depreciation and
50
4500 interest costs, Varun Shipping is likely to report a net loss from operations
40
4000 in FY11.
3500 30
3000
Aug-09 Nov-09 Feb-10 May-10
20
Aug-10
Valuation
We have valued Varun Shipping at 0.80x FY12E P/BV to arrive at a price
NIFTY Varun Shipping (RHS) target of | 36. We maintain our SELL recommendation on the stock.

Net Sales 175.7 157.3 172.0 161.2 132.2
EBITDA 72.3 70.6 48.3 48.9 17.0
EBITDA Margin (%) 41.1 44.9 28.0 30.3 12.8
Depreciation 66.1 63.0 61.9 45.4 51.4
Interest 43.0 52.2 55.1 43.0 53.6
Reported PAT 1.9 13.0 -1.4 -1.0 23.6
EPS (`) 0.1 0.9 - - 1.6

Page 47
Exhibit 76: Revenue likely to show improvement only in FY12

1000 914.7
850.8
749.7
800
666.2 636.7
600
| cr
400
200
0
Revenue
Exhibit 77: Operating margin expected to improve in FY12

600 70
493.1 58 476.0
500 60
52 50
400 330.2
44 40
| cr
300 240.0 241.1 38
%
36 30
200
20
100 10
0 0
EBITDA EBITDA %
Exhibit 78: Expected to post losses for next two years

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

Page 48
The current fleet consists of 20 vessels, which includes 12

10
10 LPG carriers, seven AHTS vessels and three crude
10
tankers
8 7
4 3
0
LPG AHTS Crude
LPG AHTS Crude
Exhibit 80: Dividend history
60 14
The company has a consistent dividend payment record 50 50
and has been a high dividend yield stock 50 45 12 12
45
9 10
40 9
8
30 8
6
| cr
30 7
%
6
20 16
4
8
10 2 2
0 0
FY04 FY05 FY06 FY07 FY08 FY09 FY10
Dividend % (LHS) Dividend yield (RHS)

50 43.1 42.2
There has been a drop in the promoter and FII holding in 40 35.1 36.3
the company in the last quarter 30
%
20 14.7 13.7
7.1 7.8
10
0
Mar-10 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.

Price to book value (x) 0.9 0.8 36.0
Average target price (|) 36.0
Current market price (|) 42.0
Upside (%) -14.3

FY10 666.2 -27.2 0.8 -90.2 50.2 13.9 1.5 0.1
FY11E 636.7 -4.4 -3.5 - - 12.8 - -
FY12E 749.7 17.8 -3.8 - - 8.6 - 3.8

Page 50
Rating matrix
Rating
Target
:
:
Buy
| 947 Aban Offshore (ABALLO)
WHAT’S CHANGED…
Key Financials PRICE TARGET .............................................................................................. Unchanged
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 RATING................................................................................... Changed from Add to Buy
Valuation summary
FY09 FY10 FY11E FY12E Banking on exploration spend…
PE (x) 6.0 12.0 11.7 4.4
6.6 13.2 12.9 4.8
Aban Offshore Ltd (Aban) ranks among the top 16 offshore drilling
Target PE (x)
11.1 8.4 6.8 5.9
companies in the world with a significant presence in the high-end
EV to EBITDA (x)
offshore drilling market. The company operates a fleet of 15 jack-up
Price to book (x) 1.9 1.7 1.5 1.2
rigs, three drill ships and one floating production unit. The global
RoNW (%) 31.0 14.3 13.1 26.2
economic crisis and resultant decline in crude oil prices led to a drop in
RoCE (%) 6.4 10.0 11.9 13.2
exploration and drilling activities globally, which resulted in a drop in
utilisation levels for Aban’s fleet. High leverage post acquisition of
Stock data
Sinvest and sinking of Aban Pearl further led to a dip in performance.
Debt( FY10E) (| cr) 14164
Cash (FY10E) (| cr) 236 In the last few months, Aban secured long-term contracts for
EV (| cr) 17670
deployment of its idle vessels leading to higher utilisation levels and
52 week H/L (| cr) 1680 / 637
improvement in operating performance. Also, crude oil prices have
Equity capital (| cr) 8.7
consistently sustained above $60/barrel for the last 15 months. This
would lead to increased spend towards offshore exploration and
Face value | 2
MF Holding (%) 14.5
drilling.
FII Holding (%) 9.6
Price movement Operating performance to gain traction
6000 1900 Currently, only two vessels out of its fleet of 19 are idle and under
5500 1700
1500
marketing while out of the remaining 14 assets are already deployed
5000
4500
1300 while three have secured contracts for deployment. This provides stable
1100
4000 900 earnings visibility over the next two years. Aban has also provided for
3500
3000
700
500
the loss of Aban Pearl and also for Petrojack bankruptcy. This means that
Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 the recent setbacks have been factored in the stock price. High debt
NIFTY Aban Offshore Ltd
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 110.8 71.4 89.4 39.8 -143.9
EPS (`) 29.3 18.9 20.6 9.1 -

Page 51
Exhibit 85: Revenue expected to gradually rise

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

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

900 851.2 25
23
800
700 20
600 540.7
18 15
500
| cr
400 311.1 319.8

9 9 10
300
200 6
123.0 5
100
0 0
PAT PAT %

Page 52
Exhibit 88: Current fleet

16 15
The current fleet includes 15 jack-up rigs, three drill ships
12
No. of vessels
and one floating production unit
8
3
4
1
0
Jack-up Rigs Drillship FPU
Fleet Profile
Exhibit 89: Rig wise deployment data

No. Fleet Vessel Type Depth " Location Age
I Jack Up Rigs
1 Aban 2 Jack up Shallow 350 - 28
2 Aban 3 Jack up Shallow 350 India 35
Total 14 out of its 19 assets are deployed on long-term 3 Aban 4 Jack up Shallow 350 India 26
contracts across the globe. Further, three other assets 4 Aban 5 Jack up Shallow 350 India 27
have secured long-term contracts and the deployment is 5 Aban 6 Jack up Shallow 350 Middle East 34
likely to commence operations in Q3FY11 6 Aban 7 Jack up Shallow 350 - 36
II Jack Up Rigs-KFLES Superb class
1 Deep Driller 2 Jack up Shallow 350 Middle East 2
2 Deep Driller 3 Jack up Shallow 350 Malaysia 2
5 Deep Driller 8 Jack up Shallow 350 Brunei 1
III Jack Up Rig-BMC Pacific 375 Class
1 Deep Driller 1 Jack up Shallow 350 India 2
3 Deep Driller 7 Jack up Shallow 350 Mexico 1
4 Aban 8 Jack up Shallow 350 Middle East 1
IV Drillship
1 Aban Ice Drillship Deep water 2000 India 50
2 Aban Abraham Drillship Deep water 6600 - 33
3 Deep Venture Drillship Deep water 4200 - 28
V FPU
1 Tahara 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
RONW % ROCE %

Page 53
Exhibit 91: Steady improvement in debt-equity ratio

17000 16645 20
Debt-equity levels will moderate, going forward 16000
16
15000 15
14164
14000 13043
| cr
10
%
13000 10
6 11687
12000 5 5
11000 10215 3
10000 0
Debt 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.

PE multiple (x) 9.3 6.0 1,142
Upside (%) 10.1

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
Rating
Target
:
:
Buy
| 139 Garware Offshore (GARSHI)

Net Sales 163.2 212.4 207.8 230.7 PRICE TARGET .............................................................................................. Unchanged
RATING................................................................................... Changed from Add to Buy
Valuation summary
FY09 FY10 FY11E FY12E Consolidation mode…
PE (x) 7.0 7.0 9.8 6.8
Target PE (x) 8.1 8.0 11.3 7.9 Garware Offshore Ltd (Garware Offshore) currently operates a fleet of
EV to EBITDA (x) 9.7 7.2 9.3 7.7
12 vessels, which consists of seven AHTS vessels, four PSVs and one
Price to book (x) 1.2 1.1 1.0 0.9 construction barge. The fleet is a combination of small and mid-sized
RoNW (%) 17.6 15.4 10.1 12.8 vessels, which provide stable revenues for the company. Garware
RoCE (%) 8.2 9.6 6.4 7.7 Offshore acquired two vessels in Q2FY10. The company has on order
one platform support vessel, which is under construction and is
Stock data expected to join the fleet by the end of FY11. It has a reasonably good
Market Cap. (| cr) 288 revenue visibility as 71% of its fleet is deployed on long-term charter
Debt( FY10E) (| cr) 503 contract, which ensures higher utilisation level for its fleet.
Cash (FY10E) (| cr) 11
EV (| cr) 780 Operating performance to recover after a dip in FY11
52 week H/L (| cr) 230 / 123 Except one platform support vessel, which is expected to join by the end
Equity capital (| cr) 23.8 of FY11, it is through with its fleet expansion programme. This would
Face value | 10 imply that topline and bottomline growth for the next couple of years
MF Holding (%) 0.1 would be muted. Further, the company is also slightly more leveraged
FII Holding (%) 0.2 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
Price movement
is expected to recover significantly in FY12.
6000 250
5500 220
Valuation
5000 We have valued Garware Offshore on multiple valuation parameters and
190
4500 recommend BUY on the stock with a price target of | 139.
160
4000
3500 130
3000 100 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Net Sales 57.1 54.2 63.8 37.3 48.5
EBITDA 32.0 22.7 26.5 27.0 19.5
NIFTY Garware Offshore Services (RHS) EBITDA Margin (%) 56.0 41.9 41.5 72.2 40.1
Depreciation 7.7 8.5 9.2 9.1 8.1
Interest 8.9 7.9 7.9 6.3 5.9
Reported PAT 15.5 6.4 13.1 18.5 5.5
EPS (`) 6.5 2.7 5.5 7.8 2.3

Page 55
Exhibit 95: Revenue likely to rise marginally
250 230.7
212.4 207.8
200
163.2
150
113.7
| cr
100
50
0
Revenue
Exhibit 96: Operating margin likely to be stable over the next two years
140 59 60
116.8
120 108.1 58
103.1
57 95.9 56
100
54
80
64.2
| cr
52
%
60 51 51
50 50
40
48
20 46
0 44
EBITDA OPM
Exhibit 97: PAT expected to improve in FY12 after dipping in FY11
50 40
42.5 41.1 41.2 42.1
37
40 33
29.4
30 26
25
| cr
19
20 19
18
14
10 12
0 5
PAT NPM

Page 56
The current fleet consists of 12 vessels, which includes 8 7

seven AHTS vessels, four PSVs and one construction 7
barge 6
No. of vessels
5 4
4
3
2 1
1
0
AHTS PSV Barge
Exhibit 99: Long-term charter contracts proportion
Spot
Currently, 71% of the fleet is deployed on long-term
29%
charter contract, which provides stable revenue visibility
Contract
71%

70.0
There has been no change in the shareholding pattern in 62.4 62.4
the last quarter 60.0
50.0
40.0
30.7 30.6
%
30.0
20.0
10.0 6.8 6.8

0.2 0.2
0.0
Mar-10 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

Average target price (|) - - 139
Upside (%) 14.9

FY10 212.4 30.1 17.3 0.4 7.0 7.2 15.4 9.6
FY11E 207.8 -2.2 12.4 -28.6 9.8 9.3 10.1 6.4
FY12E 230.7 11.0 17.7 43.1 6.8 7.7 12.8 7.7

Page 58
Rating matrix
Rating
Target
:
:
Buy
| 444 Great Offshore (GREOFF)

Net Sales 1081.1 1165.6 1246.7 1507.6 PRICE TARGET ............................................................. Changed from Rs 476 to Rs 444
Valuation summary
FY09 FY10 FY11E FY12E Steady play…
PE (x) 5.2 7.1 6.5 5.0
Great Offshore Ltd (GOL) is the most consistent player among Indian
Target PE (x) 6.4 8.8 8.1 6.2
6.7 6.8 6.0 4.1
offshore shipping companies with a steady rise in revenue, stable
EV to EBITDA (x)
margins and steady return ratios. The company also has a sizeable
Price to book (x) 1.9 1.3 1.1 0.9
presence in the Indian offshore space with a diversified fleet of 46
RoNW (%) 36.9 18.1 16.7 18.0
RoCE (%) 13.1 11.6 10.7 12.8
vessels consisting of 28 offshore support vessels, 12 harbour tugs, three
construction barges and three drilling rigs. The company has a
Stock data successful operating track record and long-term contracts with
domestic and foreign oil exploration and drilling companies.
Debt( FY10E) (| cr) 2343
Cash (FY10E) (| cr) 100 Stable performance to continue
EV (| cr) 3676 We expect revenues to grow by 21% in FY12E as utilisation levels of its
52 week H/L (| cr) 584 / 245 drilling rigs increases. Three of its drilling rigs (Badrinath, Kedarnath and
Equity capital (| cr) 37.2 Amarnath have secured long-term contracts and will be operating at
Face value | 10 100% utilisation levels in FY12. The company has a slightly higher debt
MF Holding (%) 1.4 equity ratio of 2.1 but this is not a concern as the ratio is expected to
FII Holding (%) 8.2 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
Price movement operations are expected to rise significantly over the same period.
6000 600
Valuation
5500 525
We have valued Great Offshore on multiple valuation parameters and
5000 450 recommend BUY with a price target of | 444.
4500 375
4000 300
Aug-09 Dec-09 Apr-10 Aug-10
Net Sales 229.3 228.7 241.9 278.5 239.3
NIFTY Great Offshore (RHS)
EBITDA 79.5 97.1 116.1 140.3 99.8
EBITDA Margin (%) 34.7 42.5 48.0 50.4 41.7
Depreciation 29.8 31.7 34.4 36.3 44.0
Interest 25.1 30.5 26.5 26.1 31.1
Reported PAT 22.2 31.4 49.5 73.1 26.7
EPS (`) 6.0 8.4 13.3 19.6 7.2

Page 59
Exhibit 104: Revenue likely to report significant traction in FY12
1600 1507.6
1400 1246.7
1165.6
1200 1081.1
1000
745.9
| cr
800
600
400
200
0
Revenue
Exhibit 105: Operating margin, going ahead, likely to be lower but stable
800 49
677.0
700
47
600 542.6 47 560.4
483.0 45 45 45
500 45
| cr
400 43
%
312.4
42
300
41
200
39
100
0 37
EBITDA OPM
Exhibit 106: Likely to improve significantly in FY12
350 27 30
275.5 285.8
300 25 25
250 219.8
201.6 201.0 20
17 18 19
200
| cr
15
%
150
10
100
50 5
0 0
PAT NPM

Page 60
The current fleet consists of 46 vessels, which include 28 30 28

offshore support vessels, 12 harbour tugs, three
25
construction barges and three jack-up rigs
20
No. of vessels
15 12
10
5 3 3
0
OSV Harbour Tugs Barge Rigs
Exhibit 108: Return ratios

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

100.0 89.7
90.0
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 49.7
development as the company has a promoter group in
50.0
%
place and is also a part of the management team 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 20.0
6.9 8.2
the last quarter 10.0 3.4 3.3
0.0
0.0
Mar-10 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


Upside (%) 15.3

FY10 1165.6 8.5 54.0 -27.4 7.1 6.8 18.1 11.6
FY11E 1246.7 7.0 59.0 9.3 6.5 6.0 16.7 10.7
FY12E 1507.6 20.9 76.8 30.1 5.0 4.1 18.0 12.8

Page 62
Rating matrix
Rating
Target
:
:
Reduce
| 241 ABG Shipyard (ABGSHI)
Potential Upside : -1 %
| 244

(| cr) FY09 FY10 FY11E FY12E PRICE TARGET .............................................................................................. Unchanged
Net Sales 1413.0 1812.4 2299.2 2613.3
Valuation summary
FY09 FY10 FY11E FY12E Banking on order book…
PE (x) 7.3 5.7 5.8 5.1
Target PE (x) 7.2 5.6 5.8 5.1
ABG Shipyard Ltd (ABG) has performed extremely well in the last one
EV to EBITDA (x) 8.9 7.0 6.0 5.6 year with 28.3% revenue growth and 27.4% PAT growth. With the
Price to book (x) 1.4 1.1 1.0 0.8 ramp-up in yard capacities at Dahej and Surat, ABG has increased the
RoNW (%) 18.6 19.6 16.4 15.9 pace of order execution in the last one year. This has helped the
RoCE (%) 11.4 13.6 15.3 15.1 company to book higher revenues in FY10. ABG is expected to maintain
its growth pace over the next two years as incremental capacity gets
Stock data added and order execution gains pace.
Debt( FY10E) (| cr) 2131 The order book pending execution is almost 4x FY10 sales. This
Cash (FY10E) (| cr) 61 provides comfort and would also ensure revenue growth over the next
EV (| cr) 3312 two years on the back of stable order execution. However, globally
52 week H/L (| cr) 346 / 168 oversupply of vessels has resulted in a drying up of new build orders for
Equity capital (| cr) 50.9 shipyards globally. ABG has also received marginal orders in the last 1.5
Face value | 10 years. This reduces the earnings visibility for the company over the
MF Holding (%) 0.9 long-term as revenues are expected to peak in FY12. However, post that
FII Holding (%) 10.8 a steady decline is expected in both topline and bottomline.
Price movement
Operating performance expected to be stable
6000 400 ABG Shipyard has a sizeable order book and its execution would ensure
5500 steady revenue growth over next two years. We expect revenues to rise
5000 300
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
4500
26% in FY10 to 21% in FY12 on account of a rise in raw material costs.
4000 200
The company has almost completed its capex spend at the Dahej and
3500 Surat yards. As debt repayments get under way, we expect the debt-
3000 100 equity ratio to improve from 1.9 to 1.3 over the next two years.
Aug-09 Nov-09 Feb-10 May-10 Aug-10
NIFTY ABG Shipyard (RHS)

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 393.1 401.6 492.8 520.2 449.5
EBITDA 107.1 109.0 144.3 111.2 124.4
EBITDA Margin (%) 27.2 27.2 29.3 21.4 27.7
Depreciation 4.6 4.7 17.3 12.2 13.7
Interest 33.7 42.5 38.1 36.3 42.1
Reported PAT 47.0 45.9 82.3 52.9 38.4
EPS (`) 9.2 9.0 16.2 10.4 7.5

Page 63
Exhibit 113: Likely to report stable revenue growth

3000
2613.3
2500 2299.2
2000 1812.4
1413.0
| cr
1500
966.8
1000
500
0
Revenue
Exhibit 114: Operating margin likely to dip, going ahead

600 563.9 558.5 35
472.5
500
30 30
400 331.6
291.7 26
| cr
300 25
%
25
23
200 21
20
100
0 15
EBITDA EBITDA %
Exhibit 115: PAT expected to rise despite drop in net profit margin
300 20
241.5
250 218.1
17 213.1
200 171.2 15
160.7
| cr
150
%
12 12
100 10
9 9
50
0 5
PAT PAT %

Page 64
Exhibit 116: Order book break-up
Dry bulk vessels constitute the largest portion of the order

Others
book for the company i.e. 48% followed by offshore Defence Offshore -
4%
support vessels, which constitute 26% of the order book 5% 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
Offshore - RIGS
48%
17%
Exhibit 117: Debt-equity ratio

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

60.0 57.1 57.1
There has been a drop in the FII and DII holding in the 50.0
company in the last quarter
40.0
30.0
%
17.3 16.8 15.2

20.0 12.8 10.8 12.8
10.0
0.0
Mar-10 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 long-
term 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

Upside (%) (1.2)

FY10 1812.4 28.3 42.8 27.5 5.7 7.0 19.6 13.6
FY11E 2299.2 26.9 45.1 5.4 5.8 6.0 16.4 15.3
FY12E 2613.3 13.7 47.4 5.1 5.1 5.6 15.9 15.1

Page 66
Rating matrix
Rating : Buy Bharati Shipyard (BHASHI)
Target : | 258
Target Period : 12 months | 223
Potential Upside : 15 %
WHAT’S CHANGED…
Key Financials
(| cr) FY09 FY10 FY11E FY12E PRICE TARGET .............................................................................................. Unchanged
Net Sales 1019.9 1348.1 1421.0 1143.3 EPS (FY11E) .................................................................................................. Unchanged
EBITDA 256.8 315.4 333.9 257.2
Net Profit 133.5 138.2 193.5 178.9
Valuation summary
FY09 FY10 FY11E FY12E
Banking on Great Offshore…
PE (x) 4.6 4.4 3.2 3.4 The global oversupply of vessel means that new build orders would be
Target PE (x) 5.3 5.1 3.7 4.0 marginal over the next couple of years, which reduces earnings visibility
EV to EBITDA (x) 5.4 8.6 8.3 9.8 for the company from its core shipbuilding business. However, the
Price to book (x) 0.9 0.7 0.6 0.5 acquisition of Great Offshore would immensely help Bharati Shipyard in
RoNW (%) 19.0 16.6 19.1 15.1 the future as it would provide new building orders as Great Offshore
RoCE (%) 14.7 9.9 10.2 8.1 undertakes expansion of its fleet. Great Offshore has a significant
presence in the Indian offshore shipping space and its earnings are
Stock data expected to rise over the next couple of years. Bharati Shipyard has
Market Cap. (| cr) 615 acquired equity as well as management control in Great Offshore. This
Debt( FY10E) (| cr) 2323 would also provide synergies to Bharati Shipyard as the operations of
Cash (FY10E) (| cr) 216 both companies are likely to get integrated, going forward.
EV (| cr) 2722
52 week H/L (| cr) 353 / 142 Operating performance to dip post FY11
Equity capital (| cr) 27.6 Bharati Shipyard has failed to bag new build orders of significant size in
Face value | 10
the last 1.5 years. This has resulted in the total order book shrinking to |
MF Holding (%) 0.4
4998 crore while the order book pending execution has dropped sharply
FII Holding (%) 2.8
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
Price movement
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
5600 400
5400
correct in FY12. However, on account of inclusion of profit from Great
350
5200 Offshore, the bottomline would drop marginally in FY12.
5000 300
4800
4600
250
Valuation
200
4400 We have valued Bharati Shipyard at 0.60x FY12E P/BV to arrive at our
4200 150
price target of | 258. We maintain our BUY recommendation on the stock.
4000 100
NIFTY Bharati Shipyard (RHS)
Net Sales 329.4 333.2 336.3 349.2 362.6
EBITDA 81.2 76.4 76.3 79.8 92.7
EBITDA Margin (%) 24.7 22.9 22.7 22.8 25.6
Depreciation 3.5 3.6 4.0 4.4 4.9
Interest 24.1 23.6 23.1 24.0 54.7
Reported PAT 37.2 32.7 32.9 35.6 22.1
EPS (`) 13.5 11.8 11.9 12.9 7.7

Page 67
Exhibit 122: Revenue likely to peak in FY11

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

400 28
333.9
350 27 315.4
300 256.8 257.2 26
250 25
189.1
| cr
200 23 24 24
150 23
100 22
50
0 20
EBITDA EBITDA %
Exhibit 124: Share of profit from Great Offshore to aid rise in net profit
250 35
193.5
200 178.9 30 31
30
150 133.5 138.2 27
26
107.6
| cr
26
%
100 23
20
50 19
0 15
PAT 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. 5066 5066 4987 5076 4998
In Q1FY11, the total order book has come down to Rs 5000
4998 crore while the order book pending execution has 4000
come down to Rs 1920 crore 3106
2794
2560
| cr
3000 2472
1920
2000
1000
0
Total Order Book Order Book Pending Execution
Exhibit 126: Debt-equity ratio

The acquisition of Great Offshore has resulted in a rise in 2500 2323.4 2237.9 3.0
2.8
debt levels for Bharati Shipyard, which has seen its debt 1957.9
2000 2.5
rise to Rs 2323 crore in FY10. This has also led to a 2.2
ballooning of the debt-equity ratio to 2.8 times from 1.4 1500 2.0
| cr
1003.4 1.7
times in the previous year
1000 1.5
1.4
431.7
500 1.0
0.7
0 0.5
Debt Debt-Equity

50.0
43.5
45.0 41.8
FIIs and DIIs have pared their holding in Bharati Shipyard 39.0 39.1
even as promoters have increased their holding in the 40.0
company 35.0
30.0
25.0
%
20.0 15.6
15.0 11.9
10.0 6.4
5.0 2.8
0.0
Mar-10 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.

Upside (%) 15.7

FY10 1348.1 32.3 50.1 -2.3 4.4 8.6 16.6 9.9
FY11E 1421.0 5.4 70.2 40.0 3.2 8.3 19.1 10.2
FY12E 1143.3 -19.5 64.9 -7.5 3.4 9.8 15.1 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 18
Hazira Bulk Terminal 33
Salaya Bulk Terminal 11
Paradip CQ3 Berth 3
Paradip Coal Berth 3
Total Value 68
Business DCF/|
Sea and Surface Transport Business 23
Oilfield Services Business 21
Total Value 44

Page 71
The current fleet consists of 40 vessels, which includes 20 19

19 bulk carriers, two VLCCs, six tugs, one semi 18
submersible rig and 12 onshore rigs 16
14 12
No of vessels
12
10
8 6
6
4 2
2 1
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
736 1268
| cr
2000 413 753

515 669
549
1000
1336 1147 1364
0
FY10 FY11E FY12E
Sea Transportation Business Oilfield Services Business

Port & Terminal Services Business Surface Transport Business
Exhibit 132: Debt-equity ratio analysis
The company is appropriately leveraged as its debt-equity 12000 11196 1.4

10146
ratio has hovered close to 1.0 in the last three years. We 10000 8777 9041
8629 1.2
expect the debt-equity ratio to inch up higher to 1.1 levels 1.2 7927 7508 1.2
8000 6739 1.2
over the next two years as it expands its offshore oilfield
| cr
presence with the acquisition of two jack-up rigs. Also, it 6000 1.0
4170
3468
will aggressively expand its ports and terminal business 4000 0.9 0.9
with the establishment of new port at Salaya in Gujarat 0.8
2000
and two berths in Orissa (CQ3 and Coal)
0 0.6
FY 08 FY 09 FY 10 FY 11E FY 12E
Debt Equity D/E Ratio

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

Project Details Salaya Bulk Terminal
Capacity 20 mtpa
Cargo Coal and pet coke
Clients Essar Power
Project Status Under construction
Present capacity NIL
Sep-11 20 mtpa
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
Financial Status Financial closure achieved
Project Status Under construction
Oct-11 16 mtpa
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
Oct-12 14 mtpa
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 SCI’s 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
Liner
vessels 17%
LPG
1%
Product Dry Bulk
6% 44%
Crude
32%

Page 77
Key Financials
(| cr)
Net Sales
FY09
61.7
FY10
18.6 Asian Oilfield Services Ltd (ASIOIL)
EBITDA 12.6 3.4
Net Profit 5.3 -0.9 | 62
EPS 4.7 -
Bookvalue 67.1 65.5
Valuation summary Operating performance set to improve…

FY09 FY10
Asian Oilfield Services Ltd (Asian Oilfield) was established in 1992 for
PE (x) 13.2 -
catering to the oil & gas exploration industry. The company has
EV to EBITDA (x) 6.9 25.9
Price to book (x) 0.9 0.9
expertise in seismic data acquisition, interpretation and job services,
RoNW (%) 6.9 -
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
Stock data
the rise in exploration spend by oil drilling companies for development
Market Cap. (| cr) 95 of oil blocks allotted under NELP. The potential for mineral drilling
Debt( FY10) (| cr) 0 services is also huge as the mining industry expands in India and the
Cash (FY10) (| cr) 8
participation of private players increases with the allotment of coal
EV (| cr) 87
blocks. India has the fourth largest coal reserves and third largest iron
52 week H/L (|) 85 / 53
ore reserves. There are also significant opportunities in the
development of coal bed methane (CBM) blocks and also in shale gas
Face value | 10
exploration. Expertise in providing the above services could provide
Promoter Holding (%) 39.0
substantial business growth for Asian Oilfield.
FII Holding (%) 5.2
DII Holding (%) 0.4
Overview of business and performance highlights
Price movement Asian Oilfield operates four seismic crews, which are engaged in three
seismic projects. Two of these (2D seismic projects) are being executed in
6000 90 the North East and one (3D seismic project) in Gujarat. The company
5500 80 reported a topline of | 18.6 crore in FY10 as against | 61.7 crore in FY09.
70 The company reported an EBITDA of | 3.4 crore and a net loss of | 0.9
5000
60 crore in FY10. Work on two of the above projects commenced in March
4500 50 2010 and its crew remained idle for most of FY10. Hence, the
4000 40 performance in FY10 was quite disappointing. Currently, its crew is
Aug-09 Nov-09 Feb-10 May-10 Aug-10 deployed on three existing projects. Hence, revenue is likely to increase
significantly in FY11. The company has an order book of | 80 crore as
NIFTY Asian Oilfield Services Ltd 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 company’s 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)
Net Sales
FY09
246.2
FY10
96.1 Chowgule Steamship (CHOSTE)
EBITDA 182.3 38.4
Net Profit 117.6 76.7 | 41
EPS 32.38 21.11
Bookvalue 134.3 138.3
Valuation summary Fringe player…

FY09 FY10
Chowgule Steamships Ltd (CSL) is a fringe player in the Indian shipping
PE (x) 1.3 1.9
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
RoNW (%) 24.1 15.3
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
Stock data
miniscule size and expected drop in future earnings on account of the
Market Cap. (| cr) 149 scale down of operations.
Debt( FY10) (| cr) 40
Cash (FY10) (| cr) 17
EV (| cr) 172
52 week H/L (|) 62 / 35 CSL is part of the | 1500 crore Chowgule group having diversified
Equity capital (| cr) 36.31 businesses such as shipping, shipbuilding, mining, machine fabrication,
Face value | 10 industrial gases, logistics and exports. CSL’s shipping operations are
Promoter Holding (%) 67.8 miniscule in size and it operates a fleet of five vessels of which three are
FII Holding (%) 0.9 engaged in coastal transport while the other two vessels operate in
DII Holding (%) 0.1 international waters. Its fleet is engaged in transportation of coal, iron ore,
grain and fertilisers.
Price movement
The company reported a sharp decline in revenue from | 246.2 crore in
6000 70 FY09 to | 96.1 crore in FY10. The main factor leading to the fall in revenue
5500 60 was the sharp decline in dry bulk freight rates. The other factor leading to
50 the drop in revenue was the scale down of operations as the company
5000
40 sold three vessels out of its fleet of eight vessels over the last one year.
4500 30 The company posted an EBITDA of | 38.4 crore and a net profit of | 76.7
4000 20 crore in FY10, which included profit on sale of vessels of | 61.56 crore.
NIFTY Chowgule Steamships Ltd

Page 79
Key Financials
(| cr)
Net Sales
FY09
352.5
FY10
553.0 Dolphin Offshore (DOLOFF)
EBITDA 76.7 108.4
Net Profit 40.9 62.3 | 273
EPS 25.97 34.26
Dependent on ONGC…
Valuation summary Dolphin Offshore Enterprises (India) Ltd (Dolphin Offshore) was
FY09 FY10
established in 1979 and offers comprehensive underwater services
PE (x) 10.5 8.0 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
RoNW (%) 35.0 29.0
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
Stock data enable the company to bid for higher ticket size orders and also lead to
Market Cap. (| cr) 430 higher margin as it would be independently executing the projects.
Debt( FY10) (| cr) 172 Some other prominent clients for the company are Aban Offshore, Cairn
Cash (FY10) (| cr) 19 Energy, GE Shipping, IOC, Indian Coast Guard and Indian Navy.
EV (| cr) 583
52 week H/L (|) 473 / 235
Face value | 10 The main business areas for Dolphin Offshore are design engineering,
Promoter Holding (%) 57.0 fabrication/installation, turnkey EPC projects, diving and underwater
FII Holding (%) 0.2 services, marine operations and management services and rig and ship
DII Holding (%) 0.1 repair services. The company offers under water construction services
including modification and redevelopment of existing offshore facilities,
Price movement diving support, SBM and SPM installation, operation and maintenance,
inspection, maintenance, repair of platforms, installation and replacement
6000 500 of pipelines, underwater ship repair and maintenance, rig support and
ROV services, fabrication services, pre-engineering, pre-construction and
5500 400 post installation surveys of offshore structures and pipelines.
5000 300
Dolphin Offshore Shipping Ltd (DOSL), a wholly owned subsidiary of
4500 200 Dolphin Offshore, owns four offshore support vessels and six harbour
tugs. The company is also expanding its fleet and has entered into a
4000 100 bareboat cum demise charter for one AHTS vessel. The company has
Aug-09 Nov-09 Feb-10 May-10 Aug-10 also placed orders for two offshore support vessels, which would be
delivered in November 2010.
NIFTY Dolphin Offshore
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)
Net Sales
FY09
685.0
FY10
645.4 Dredging Corporation (DRECOR)
EBITDA -34.4 95.2
Net Profit 46.2 70.1 | 557
EPS 16.49 25.02
Dependent on government spend…
Valuation summary Dredging Corporation of India (DCI), established in 1976, is the largest
FY09 FY10
dredging company in India and is involved in most of the port
PE (x) 33.8 22.3 development projects in India. The company operates a fleet of 10
EV to EBITDA (x) -35.9 13.0
trailer suction hopper dredgers and three cutter suction dredgers. Being
a PSU company it gets priority in the development of port projects in
RoNW (%) 3.7 5.3
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
Stock data out to DCI on long-term contracts. However, the company is highly
Market Cap. (| cr) 1560 dependent on government spending, which leads to volatility in
Debt( FY10) (| cr) 6 performance. The valuation of the company also appears stretched
Cash (FY10) (| cr) 332 considering its performance.
EV (| cr) 1233
52 week H/L (|) 786 / 415
Face value | 10 Port infrastructure in India is inadequate and major ports are operating at
Promoter Holding (%) 78.6 peak capacities with six out of 12 major ports operating at more than
FII Holding (%) 3.1 100% capacity. There is also a considerable bottleneck at various public
DII Holding (%) 10.0 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
Price movement port infrastructure with the establishment of new ports. Even public ports
are expanding their capacities by entering into PPP development models
6000 800 with private players. With the rise in cargo especially coal shipments to
700 meet the requirements of power companies the demand for imported
5500
600
coal is expected to increase, thereby necessitating the setting up of port
5000 infrastructure. This would lead to the need for capital dredging for
500
enhancing water depths. Also, there is a need for maintenance dredging
4500 400 at all major and minor ports, which would provide regular work to DCI.
4000 300
Aug-09 Nov-09 Feb-10 May-10 Aug-10 However, DCI has an ageing fleet of vessels, which would require
replacement, going ahead. DCI has signed an agreement with IHC
NIFTY Dredging Corporation of India Ltd 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)
Net Sales
FY09
177.7
FY10
133.6 Hariyana Ship Breakers (HARSHI)
EBITDA 15.2 13.4
Net Profit 5.5 7.1 | 45
EPS 9.29 11.45
Bookvalue 57.6 65.2
Riding ship breaking boom…
Valuation summary Hariyana Ship Breakers Ltd (HSBL) is engaged in the business of ship
FY09 FY10
breaking and carries out its activities at Alang where it has successfully
PE (x) 4.8 3.9 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,
RoNW (%) 15.4 17.6
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
Stock data breaking business, under performance in sponge iron and metal trading
Market Cap. (| cr) 28 is likely to negate the gains.
Debt( FY10) (| cr) 21
Cash (FY10) (| cr) 0
EV (| cr) 48
52 week H/L (|) 59 / 32 Weakness in freight rates and the down cycle in shipping turned out to be
Equity capital (| cr) 6.17 a solid business opportunity for the ship breaking industry, which has
Face value | 10 already demolished a record number of vessels. With the down cycle in
Promoter Holding (%) 73.5 shipping expected to be protracted, the ship breaking business is likely to
FII Holding (%) 0.0 report excellent business growth for another couple of years.
DII Holding (%) 0.0
The international ship demolition market is based primarily in India,
Price movement Pakistan, Bangladesh and China, which demolish more than 80% of the
ships scrapped worldwide. While a large number of tankers find their way
6000 60 to scrap yards in Pakistan and Bangladesh, Indian ship breaking yards
attract mostly dry and general cargo vessels. Alang, located on the
5500 50
western coast of India, is the largest ship breaking yard in the world and
5000 40 accounts for 90% of India’s ship breaking activity. The ship breaking
activity at Alang includes a total of 170 yards of which 50-70 are
4500 30
operational and around 50,000 people are involved directly or indirectly in
4000 20 the business of scrapping. Ship breaking activities, which had almost
Aug-09 Nov-09 Feb-10 May-10 Aug-10 come to a standstill prior to 2008, have gathered pace.
NIFTY Hariyana Ship Breakers Ltd 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)
Net Sales
FY09 FY10
777.8 1195.4 Jindal Drilling (JINDAD)
EBITDA 66.9 136.6
Net Profit 37.3 84.1 | 549
EPS 16.28 36.69
Expensive proposition…
Valuation summary Jindal Drilling and Industries Ltd (Jindal Drilling) has a presence in the
FY09 FY10
offshore drilling segment. The company was an operator of drilling rigs
PE (x) 33.7 15.0 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 long-
RoNW (%) 13.8 24.0
term 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
Stock data stiff valuation as compared to some of its peers.
Debt( FY10) (| cr) 40
Cash (FY10) (| cr) 17
EV (| cr) 653 The company is present in three main segments i.e. offshore drilling,
52 week H/L (|) 668 / 445 horizontal/directional drilling and mud logging services. The company
Equity capital (| cr) 11.47 owns and operates two new built 350” jack-up rigs acquired in 2008. The
Face value | 5 company also operates three jack-up rigs owned by Noble Drilling
Promoter Holding (%) 74.9 Corporation. All their jacks-up rigs are deployed on long-term contracts
FII Holding (%) 0.1 with ONGC.
DII Holding (%) 0.0
Jindal Drilling reported a significant rise in revenue from | 777.8 crore in
Price movement 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
6000 700 entire FY10. However, due to high operational expenses, the company
managed an operating margin of just 11.4% in FY10. Jindal Drilling
5500 600
reported a PAT of | 84.1 crore in FY10 as compared to | 37.3 crore in the
5000 500 previous year.
4500 400
4000 300
NIFTY Jindal Drilling & Industries Ltd

Page 83
Key Financials
(| cr)
Net Sales
FY09
61.8
FY10
584.0 Pipavav Shipyard (PIPSHI)
EBITDA 22.5 66.3
Net Profit 4.7 -46.1 | 102
EPS 0.07 -
Bookvalue 21.6 25.6
Valuation summary Long gestation period…

FY09 FY10
Pipavav Shipyard Ltd (Pipavav Shipyard), promoted by SKIL
PE (x) 1457.1 -
Infrastructure Ltd, was established in 1997. The company was listed in
EV to EBITDA (x) 332.2 112.8
2009 and raised ~ | 500 crore from the IPO. It operates one SEZ unit
RoNW (%) 0.4 -
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
Stock data
industry in terms of size and scale of operations. The largest PSU yard
Market Cap. (| cr) 6791 i.e. Cochin Shipyard and the largest private yard i.e. ABG Shipyard can
Debt( FY10) (| cr) 1330 both construct vessels up to 120000 DWT while Pipavav Shipyard can
Cash (FY10) (| cr) 640
construct vessels up to 400000 DWT, which is comparable to Chinese,
EV (| cr) 7481
Japanese or Korean shipyards. The company operates in four segments
52 week H/L (|) 120 / 48
i.e. defence shipbuilding, offshore shipbuilding, commercial shipbuilding
and heavy engineering with the main thrust on defence and offshore
Face value | 10
construction.
FII Holding (%) 7.4
DII Holding (%) 15.3 Globally, shipyards are currently passing through a tough phase with
marginal addition to their order book. Indian shipyards have also failed
Price movement 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
6000 120 domestic yards, including Pipavav Shipyard, to remain muted for the
5500 100 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.
5000 80
4500 60
4000 40
Out of the IPO proceeds of | 499 crore, | 179 crore (36%) have been
Oct-09 Jan-10 Apr-10 Jul-10
utilised for construction of facilities for shipbuilding, ship repair and
offshore business, | 244 crore (49%) for working capital, | 25 crore (5%)
NIFTY Pipavav Shipyard Ltd
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
FY08 (12 m)
268.6
FY10 (15 m)
424.8 Seamec Ltd (PEESHI)
EBITDA 75.0 239.9
Net Profit 47.1 203.9 | 150
EPS 13.9 60.15
Dark horse…
Valuation summary SEAMEC Ltd (SEAMEC) is a leading player in the marine services
FY08 FY10
segment and specialises in vessel management, marine management,
PE (x) 10.8 2.5 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
RoNW (%) 14.6 39.7
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.
Stock data
The marine services segment has immense potential. With the presence
Debt( FY10) (| cr) 0
of strong promoters i.e. Technip SA (which is a world leader in
Cash (FY10) (| cr) 64
engineering and project management for the oil & gas industry with a
EV (| cr) 445
workforce of 23,000 employees and operations spread over 48 countries
52 week H/L (|) 255 / 140
and five continents with revenues of ~ | 40000 crore) the company
Face value | 10
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
FII Holding (%) 1.4
sheet by acquiring new vessels. This would provide additional growth
DII Holding (%) 5.3 avenues.
Price movement Overview of business and performance highlights

Peerless Leasing Private Ltd was established in 1986 and its name was
6000 300
changed to South East Asia Marine Engineering & Construction Ltd in
5500
250 2000. Coflexip Stena Offshore Mauritius Ltd acquired a controlling stake
200 in South East Asia Marine Engineering and Construction Limited in 1999.
5000 The Coflexip Group was acquired by Technip SA of France in 2001.
150
Hence, South East Asia Marine Engineering and Construction Ltd became
4500
100 a subsidiary of Technip SA of France. The name of the company was
4000 50 changed to SEAMEC Ltd in 2007 and the parent company i.e. Technip SA
Aug-09 Nov-09 Feb-10 May-10 Aug-10 holds 75% stake in the company.
NIFTY SEAMEC Ltd 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
FY09
287.3
FY10
147.9
Shreyas Shipping (SHRSHI)
EBITDA 33.0 -0.2
Net Profit 5.6 -15.7
| 46
EPS 2.05 -
Bookvalue 50.7 59.8
Challenging times ahead…
Valuation summary
FY09 FY10 Shreyas Shipping Ltd (Shreyas Shipping), is an integrated logistics
PE (x) 22.4 - provider, which provides container feeder, air freight and road transport
EV to EBITDA (x) 6.0 - services. As a majority of the company’s revenue is derived from
Price to book (x) 0.9 0.8 container feeder services, its performance is dependent on the global
RoNW (%) 3.6 - 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
Stock data signs of recovery with a pick-up in volumes resulting in improved
performance for Shreyas Shipping. The liner business is more volatile
Debt( FY10) (| cr) 102
than even the dry bulk business due to the uncertainty and elasticity of
Cash (FY10) (| cr) 4 demand as it involves transport of finished goods. Being a small player
EV (| cr) 199 engaged in feeder operations, Shreyas Shipping has minimal bargaining
52 week H/L (|) 44 / 28 power and the current financial performance is also not encouraging.
Face value | 10 Overview of business and performance highlights
Promoter Holding (%) 73.3 As the global liner companies call on only select Indian ports, they have
FII Holding (%) 0.8
to rely exclusively on feeder container ships for connectivity of their
DII Holding (%) 0.0
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
Price movement
companies are the main customers.
6000 45
Shreyas Shipping started with liner operations between JNPT and Kandla
5500 40 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
5000 35 Asia, which include Dubai, UAE, Colombo and Singapore. Shreyas
Shipping started with one container liner in 1995 and has gradually
4500 30
acquired seven liners over the last 15 years. The company also operates
4000 25 its own fleet of trucks, owns containers and provides cargo tracking
Aug-09 Nov-09 Feb-10 May-10 Aug-10 services to its clients. The company also provides additional services
such as air freight logistics, express parcel services and port agency
NIFTY Shreyas Shipping & Logistics Ltd services to its clients.
The company’s 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)
Net Sales
FY09
72.2
FY10
74.2 Western India Shipyard (WESIS)
EBITDA 7.4 16.0
Net Profit -21.5 49.8 | 13
EPS -1.83 1.69
Bookvalue 2.8 6.2
Turnaround play…
Valuation summary Western India Shipyard Ltd (WISL) has been incurring losses since 1996,
FY09 FY10
due to financial constraints i.e. lack of working capital and low capacity
PE (x) -7.1 7.7 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
RoNW (%) -131.6 54.4
infusion of funds while business restructuring involved diversification
into rig repair and ship building by entering into new alliances.
Stock data In January 2010, the scheme of arrangement between WISL and its
Market Cap. (| cr) 38 secured creditors and shareholders was sanctioned by the high court.
Debt( FY10) (| cr) 276 Under the arrangement, the secured loan of the company was fully
Cash (FY10) (| cr) 1 discharged and secured lenders opted for one-time settlement, which
EV (| cr) 313 was 42% of the secured debt, except ICICI Bank, which opted for
52 week H/L (|) 18 / 8 another option where ICICI Bank would be allotted 17.75 crore shares of
Equity capital (| cr) 29.47 | 2 each at par in lieu of its secured dues of | 35.5 crore (i.e. 36% of its
Face value | 2 secured debt). This has resulted in ICICI Bank emerging as the largest
Promoter Holding (%) 2.9 shareholder with a 64.1% stake in the company.
FII Holding (%) 0.0
DII Holding (%) 73.5
Price movement WISL is India’s largest private composite ship and rig repair yard. It
operates a floating dry dock, which has a capacity to repair ships up to
6000 21 60,000 DW. The yard is located on the western coast of India at
18 Mormugao Harbour, Goa and has been operational since January 1996.
5500
The yard has repaired vessels of numerous Indian as well as foreign
15
5000 companies including SCI, GE Shipping, Essar Shipping, Varun Shipping,
12 Aban Offshore, Dredging Corporation, ONGC, Reliance Industries, Indian
4500 9 Navy and numerous other clients.
4000 6
Aug-09 Nov-09 Feb-10 May-10 Aug-10 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
NIFTY Western India Shipyard Ltd 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
4000
100
Index
80 3000
Rs.
60
2000
40
20 1000
Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
Essar Shipping BDI
120 1,400
100 1,200
80 1,000
Index
Rs.
60 800
40 600
20 400
Essar Shipping Dirty Tanker Index
Exhibit 141: GE Shipping price movement
400 5000
350
4000
300
Index
3000
Rs.
250
2000
200
150 1000
GE Shipping BDI

Page 89
400 1,400
350 1,200
300 1,000
Index
Rs.
250 800
200 600
150 400
GE Shipping Dirty Tanker Index
Exhibit 142: Mercator Lines price movement
90 5000
75
4000
60
Index
Rs.
3000
45
2000
30
15 1000
Mercator Lines BDI
90 1,400
75 1,200
60 1,000
Index
Rs.
45 800
30 600
15 400
Mercator Lines Dirty Tanker Index

Page 90
Exhibit 143: SCI price movement
200 5000
180
4000
160
Index
3000
Rs.
140
2000
120
100 1000
SCI BDI
200 1,400
180 1,200
160 1,000
Index
Rs.
140 800
120 600
100 400
SCI Dirty Tanker Index
Exhibit 144: Varun Shipping price movement
80 1,400
70 1,200
60 1,000
Index
Rs.
50 800
40 600
30 400
Varun Shipping Dirty Tanker Index

Page 91
Exhibit 145: Aban Offshore price movement
2000 100
1600 90
80
1200
$ per day
70
Rs.
800
60
400 50
0 40
Aban Offshore Crude Oil Prices
Exhibit 146: Garware Offshore price movement
240 100
210 90
80
180
$ per day
70
Rs.
150
60
120 50
90 40
Garware Offshore Crude Oil Prices
Exhibit 147: Great Offshore price movement
600 100
550 90
80
500
$ per day
70
Rs.
450
60
400 50
350 40
Great Offshore Crude Oil Prices

Page 92
Exhibit 148: ABG Shipyard price movement
400 550
350 500
450
300
400
Index
250
Rs.
350
200
300
150 250
100 200
ABG Shipyard Shipbuilding Index
Exhibit 149: Bharati Shipyard price movement
400 550
350 500
450
300
400
Index
250
Rs.
350
200
300
150 250
100 200
Bharati Shipyard 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
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, 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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Sector Report

September 29, 2010

ICICIdirect.com | Equity Research

We recommend investments in select stocks to maximise returns:

ICICIdirect.com | Equity Research

ICICIdirect.com | Equity Research

Table of Content Page No

Risk & Concerns 15

Indian Shipping Industry – Key parameters 16

Coverage Universe Valuation 24

Companies under coverage

Charts and Trend 89

ICICIdirect.com | Equity Research

Crude oil demand is mainly driven by developed economies with the US

Supply overhang to make recovery long and painful

Freight rates likely to remain muted across segments

ICICIdirect.com | Equity Research

Exhibit 1: Global steel production

Global steel production has grown at a CAGR of 2.7%

Source: Bloomberg, ICICIdirect.com Research

Exhibit 2: China’s share in world steel production – July 2010

China commands 45.1% share in global steel production China's domination

Source: Bloomberg, ICICIdirect.com Research

Exhibit 3: China’s monthly steel production

Steel production was boosted by the stimulus package 50

sharp rise in infrastructure spend

Source: Bloomberg, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 4: China’s monthly iron ore inventory

Source: Bloomberg, ICICIdirect.com Research

Exhibit 5: China iron ore import trend analysis

Australia Brazil India South Africa Total

Source: Bloomberg, ICICIdirect.com Research

Exhibit 6: Coal demand growth

Global coal demand has grown at a CAGR of 3.5%

Source: Bloomberg, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 7: Crude oil demand

Crude oil demand has reported a CAGR growth of 0.2% 6100

Source: Bloomberg, ICICIdirect.com Research

Source: Bloomberg, ICICIdirect.com Research

Exhibit 9: Global fleet order book

ICICIdirect.com | Equity Research

Freight outlook - Long road to recovery

Dry bulk carriers

Exhibit 10: Dry bulk freight rates

BDI BCI BPI

Source: Bloomberg, ICICIdirect.com Research

Crude and product carriers

Exhibit 11: Tanker freight rates

VLCC Suezmax Aframax

Source: Bloomberg, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 12: LPG freight rates

LPG freight rates are likely to be subdued on account of new 21,000

Source: Bloomberg, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 13: Crude oil prices

Source: Bloomberg, ICICIdirect.com Research

Exhibit 14: Offshore rig utilisation levels

With strength in crude oil prices, offshore utilisation 80

Drillship Semisub Jack up

Source: Bloomberg, ICICIdirect.com Research