The Hindu Business Line : Dredging Corporation: Book Profits

Investors can use the recent appreciation in the stock of Dredging Corporation of India (DCI) to book profits on part of their holdings. The stock has appreciated 50 per cent since October 2007. At 16 times its trailing twelve-month earnings, DCI trades at a significant premium to its historical multiples, which were in the 7-9 band.

Improved prospects for capital dredging work on the back of higher private participation in ports appear to have influenced the re-rating enjoyed by the stock. However, the slow pace of capacity addition suggests the company may not be able to fully capitalise on the opportunities in the immediate future.

There is also the possibility of international players ramping up their presence and tapping the domestic opportunity.

DCI is currently handling Phase I of Sethusamudram Shipping Canal Project (SSCP), which it expects to complete by mid-FY 2008.

The company has employed two of its dredgers and two more have been chartered. Phase II of the SSCP project is extremely critical as it involves intensive capital dredging, from which revenue contribution is expected to be significant. Phase II of SSCP, however, requires court approval before work can start.

While delays in the same could slow down revenue flows, it could also buy time for the company to improve its dredging capacity.

DCI has made a move to add capacities albeit not at a rapid pace. It is likely to take delivery of a cutter suction dredger by the last quarter of 2007-08.

It may, however, have to look for more dredgers on a charter basis as a tender for fresh purchases is reported to have expired . Charter hire has already led to significant increase in the company’s other expenditure in the last quarter.

Compared to the virtual monopoly enjoyed by the company a couple of years ago, DCI is now increasingly facing competition from foreign companies.

For instance, in 2006, it was edged out of the race for JNPT’s dredging project by four overseas contenders and did not make it to the shortlist.

DCI may have to sharpen its edge to compete with the financially and technologically sophisticated competitors.

With increasing activities in ports and emergence of private ports, dredging activity in India may see significant growth.

From being a market focused mainly on maintenance dredging, the country may now see a stream of capital dredging projects.

Higher earnings growth for the company would hinge on its ability to ramp up capacity in capital dredging.

Vidya Bala

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