Shipping stocks surge on high freight hopes

Most shipping stocks have surged over the past month on expectations of higher freight rates.

Moreover, the demerger of GE Shipping's offshore business is expected to increase the valuation of the business, which could rub off to its peers. The block deal in Essar Shipping shows the buying interest in the sector.

Major gainers among shipping stocks over the past month have been Shreyas Shipping (up 39.56 per cent), Garware Offshore (up 34 per cent), Essar Shipping (up 20.62 per cent), Mercator Lines (up 20.49 per cent), Varun Shipping (up 12.46 per cent) and GE Shipping (up 9.97 per cent).

Mitesh Shah, assistant vice-president - PCG sales, Brics, said, "The shipping sector has been seeing momentum for some time now. The record date for GE Shipping's demerger announcement is pending. The demerged offshore business, when relisted, is expected to command good valuations. This could get reflected in the valuations of other companies engaged in the offshore business. Thus, buying interest is likely to continue in the shipping sector."

While some dealers attribute the rise in shipping stocks on Wednesday to the block deal in Essar Shipping, others see the upswing continuing much beyond. Globally, shipyards are full till FY09.

Thus, the shipping tonnage is not rising in line with the rising demand for movement of goods. Market watchers opine that this would lead to a rise in freight rates and also in the asset values of vessels.

Worldover, offshore companies command valuations much higher than their Indian counterparts. Thus, the demerged offshore business of GE Shipping is likely to see value unlocking upon relisting. Shah added that like Reliance, even the shipping companies could see higher valuations after demerger.

Analysts point out that other factors have also been driving the shipping stocks. Shreyas Shipping bagged a big Reliance order. Essar Shipping recently acquired a double hull double bottom very large crude carrier.

The company has plans to acquire more vessels. GE Shipping also took delivery of a double hull vessel, recently. In the West, new legislations have been in favour of double hull vessels for reasons of environmental safety.