Mercator Lines has been able to outperform its peers due to its focus on the niche segment of lighterage
Shipping companies were in troubled waters this year, with declining freight tariff impacting both topline growth and profitability.
The Rs 56 crore Mumbai-based Mercator Lines, however, has been an exception. The company managed to buck the trend by posting an impressive topline growth of 73 per cent to Rs 56.98 crore, while net profit soared by 130 per cent to Rs 7.54 crore during the fiscal ended March 2002.
The gap between Mercator's performance and that of other shipping companies was bigger during the first quarter of this year. While most of the private players reported a sharp decline in revenues (as much as 20-30 per cent) as freight rates had peaked out in the corresponding period last year, Mercator's net sales grew marginally by two per cent to Rs 12.22 crore. What's more, the company's operating margin jumped by 665 basis points to 30.7 per cent compared to a steep decline in profitability witnessed by other players.
Net profit at Rs 1.64 crore, however, was lower than Rs 2.22 crore reported in the first quarter of the financial year 2002. This was largely due to the one-time income in form of interest subsidy of Rs 0.86 crore from Inland Water Authority of India. Excluding this one-time income, net profit has actually grown by 20.6 per cent during the quarter.
A NICHE PLAYER
Mercator has been able to outperform the industry largely due to its strategy to focus on the niche segment of lighterage. For the uninitiated, lighterage involves downloading of cargo in high seas from large ships that are either unable to come to the ports due to congestion or prefer to save time by unloading in the midstream. Mercator transports such cargo to the ports through a fleet of five self-propelled barges -- ferry ships with facility of temperature control, pumping, etc. The company handles bulk liquid products such as petroleum products, edible oil and speciality chemicals, and has over 65 per cent of market share in these products.
In addition to the stable lighterage business, the company has six mini tankers in its shipping division. Mercator has consciously followed a policy of buying second-hand vessels. "The policy to acquire older vessels leads to low capital outlay and enable us to remain profitable in lean period as the interest and depreciation costs are also much lower," says H K Mittal, chairman and managing director, Mercator Lines.
VALUATION
At the current market price of Rs 24, Mercator is trading at a discount of 1.75 times to its FY02 earnings of Rs 13.7 per share. Despite its better performance, the valuation is much lower than those of other domestic peers, which, on an average, are being traded at a discount of around 3 times their FY02 earnings.
Analysts feel that one of the reasons for the company's lower valuation is that the stock has failed to attract institutional investors due to its relatively small equity base of Rs 5 crore. The company have acquired three more ships in the fourth quarter of last fiscal, and is further planning to acquiring second-hand crude oil tankers with about 50,000 tonne capacity.
The management has projected a topline growth of 50 per cent this year. Besides, the promoters' scaling up of holding nt to 48 per cent during the past one year through preferential issue is also a positive indicator.
