The Hindu Business Line : Essar Shipping moves in a narrow range

IS Essar Shipping overvalued? Some market analysts and players think the stock is undervalued and the price does not seem to reflect the fundamentals it carries.

The counter has recently been moving between Rs 40 and Rs 46, which is its 52-week high. Today, it closed at Rs 40.81, marginally down from its previous close of Rs 41. However, the trading quantity in the counter is robust. Today, its trading volumes on the BSE were 8.08 lakh shares against the two-week average of 10.33 lakh shares.

According to Mr Gul Tekchandani, a market strategist, the stock is undervalued considering its fundamentals and book value. During 2004-05, the consolidated earnings, operating profit and net profit of the company showed substantial growth. Of the subsidiaries, International Ltd, Energy Transportation International Ltd and Energy I Ltd posted PAT of Rs 192.97 crore, Rs 193.80 crore and Rs 144.02 crore respectively.

Another subsidiary, Vadinar Oil Terminal, has already had assets worth Rs 2,199 crore ahead of its project commissioning, scheduled for fourth quarter of 2006-07.

Two subsidiaries - Essar Sisco Ship Management Ltd and Energy II Ltd - had reported net losses of Rs 4 lakh and 1 lakh respectively.

The consolidated earnings of the company in 2004-05 were Rs 1,105 crore, up from Rs 742.47 crore in the previous fiscal. The operating profit was at Rs 678.21 crore (Rs 333.64 crore) and the net profit Rs 425.69 crore (Rs 155.78 crore).

According to Mr Nandish Shah of Anagram Stockbroking, for the quarter ended June 30, 2005, the company reported 16 per cent year-on-year growth in revenues and the net profit grew by 263 per cent on the back of profit made from sale of five vessels and substantial reduction in interest cost and depreciation.

Essar Shipping derives 65 per cent of its revenue from energy transportation. Considering the current firm freight rates for oil tankers and stagnant dry bulk rates, the company's tilt towards energy should be of help for maintaining revenue and profit growth, Mr Shah said.

Its operating margin (on a TCE basis) was recorded at 71.16 per cent during 04-05 (among the best in the country's shipping companies), against 59.86 per cent in the previous fiscal.

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