industry.That’s because the US economy, a key determinant of the global shipping industry, is on the growth path and demand for crude oil is also showing signs of a revival.

This, in turn, should help freight rates in the key tanker segment of the shipping industry, where vessels are utilised for transporting petroleum products. Indian shipping companies have a majority of capacity utilised in the tanker segment. In addition, strong demand for crude oil from emerging markets, such as China, and a revival in other emerging economies, will help the shipping industry emerge from the slump during the year ended March 10. We had recommended this stock in our issue dated June 22, 2009 and since then the stock has gained 41.6%.

Also, this stock trades at about 1.1 times its book value for the year ended March 2009, while it has traded in a range between 0.64 times and 0.8 times between March 2005 and March 2008. However, given the anticipated upturn in the global shipping industry in the medium term, we believe that there is still upside potential in this stock.

FLEET SIZE

Shipping Corporation’s owned fleet capacity was 75 vessels with a capacity of 5.35 million dead weight tonnes (DWT) as on August 2009, a rise of 12.4% from two years earlier. Shipping Corp, like other players, in this sector has a majority of its capacity utilised for the tanker segment. At the end of March, 2010, SCI had a fleet of 76 vessels with a capacity of about 5.14 million DWT. Rival GE Shipping’s fleet capacity was 2.71 million DWT in May 10.

However, the underlying problem related to SCI’s fleet was the age profile of its vessels — at the end of August 2009, SCI has highlighted that 85% of its dry bulk fleet capacity is over 15 years old and it has handymax vessels which are even over 20 years old. As a result, quick deployment of these vessels with clients is difficult, as users typically prefer younger vessels.

Courtesy:economictimes.indiatimes.com