Shipping Corporation of India (SCI), India's largest company in the sector, is getting on with divestment, with a follow-on public offer hitting the market on November 30. S Hajara, chairman, discusses growth plans with Ruchika Chitravanshi. Edited excerpts:
Given the current controversies pulling down the stock market, do you think by Tuesday these short-term issues will have an impact on SCI’s follow-on issue?
I am not a stock market specialist but I'd say it is an extremely good buy for the retail and institutional investor. I believe in SCI's strengths. I have also listened to stock market specialists and the impression I got was that unless there is some big scam or some extreme situation like a war, the fundamentals of the markets haven't changed.
How much does the company plan to raise from the follow-on issue and where is the remaining funding for expansion going to come from?
The FPO is meant for equity contribution. We will be raising debt as well. Debt is always required by any shipping company for its expansion
What is your current debt to equity ratio? After the issue, will you raising further debt?
As of June 30, we had Rs 2,211 crore cash and cash equivalents on our balance sheet, with a debt to equity ratio of 0.45 and a current ratio of 2.97. In the next couple of years, it might increase to roughly 1:1. We plan to raise Rs 2,092.8 crore in debt. The estimated total cost is Rs 2,757 crore for part-funding of the equity portion for the acquisition of certain vessels by our company
Does SCI plan to buy stake in a shipyard? How far has your discussion with Bharati Shipyard progressed?
Talks are at a nascent stage. We have received the expression of interest not just from Bharati Shipyard but three others, including ABG and Pipavav. There is no time line in front of us to take this decision.
Where do you plan to expand through acquisitions and joint ventures?
We are always on a lookout for good joint ventures. Nothing has fructified. We would like to join hand with global markets and potential customers who have captive cargo.
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What is the status of your JV with ONGC?
We had signed a memorandum of understanding.
The joint venture talks are going on. Nothing has been finalised.
One of your joint ventures, Irano Hind Shipping Company, is under UN sanctions. Do you plan to exit the venture?
It is a separate legal entity. It does not have an impact on Shipping Corporation at all. We do not plan to exit the venture.
How many vessels are you planning to replace in the coming financial year, apart from adding new vessels?
The total figure that we have put up is for new ships as well as substitutes. We have 78, with a total 5.5 million tonnage. In the next couple of years, half a million of tonnage will be scrapped.
What are the challenges therein in the absence of an active second-hand vessels market?
In the past few years, we have not succeeded in buying a second-hand vessel. Not many people quoted. The last one we had bought was a re-sale vessel where the original buyer had defaulted. We are now looking at refining the process of buying second-hand vessels. We will try to make the process faster.
How has appreciation in the rupee affected your revenue?
It has had less impact. Shipping companies are naturally hedged, as our revenues are dollar-denominated.
What growth are you expecting in the container segment?
We have ordered three container vessels. The container scenario is looking good, as India has become an important manufacturing hub. The segment will see growth. Currently, 23 per cent of our revenue comes from the container business.
With crude oil prices rising substantially, how much have the bunker rates risen and what impact has it had on your bottom line?
Bunker cost is on account of the owner. Any increase in crude oil prices has direct impact on bunker. No shipping liner can give an estimate of what the impact is like. Freight rates are decided by demand and supply and to some extent, charter rates get adjusted to increased cost.