Dredging, coal mining to boost Mercator

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

29 Aug 2008

Mercator Lines’ foray into dredging and coal mining business coupled with demand for vessels, its transformation into complete logistics solution provider and contract renewals at higher rates will provide a boost to the earnings growth of the company.

To minimize earnings volatility, it has employed 70% of its shipping fleet in long-term fixed charter rates, while another 30% of the fleet is deployed in spot markets to cash in on high spot rates.
Analysts believe that carrier freight rates will firm up by 10-15% on the back of increasing demand for oil, coal and iron ore from non-OECD (Organisation for Economic Co-operation and Development) nations, which is India and China. This will benefit companies like Mercator Lines in the form of higher day rates for existing and newer contracts.
The company has also forayed into dredging and coal mining business.
It owns four dredgers, which are employed with Dredging Corporation of India. Due to higher-margin nature, dredging and coal mining businesses will also boost earnings.
Mercator has acquired two coal mines in Indonesia and Mozambique, which will provide revenue generation through sales of coal in domestic and international markets, and trans-shipment of the coal through its own ships. Also these businesses will de-risk the company’s earnings from the cyclicality related to shipping freight revenues.
Mercator is also set to gain from the demand for vessels. An estimated 5 mbpd of refining capacities coming up in India and the huge demand seen in power and steel capacities will benefit Mercator Lines considering the company is a bulk carrier of iron ore, steel, coal, cement and agriculture products.
The company has reported a net profit of Rs 75.90 crore and sales of Rs 492.9 crore for the June quarter. An increase in other income on the back of forex gains and treasury income boosted the company’s net profit.
Analysts expect an improvement in earnings going forward, with new vessels getting deployed at higher charter rates at the same costs.
However, any downturn in commodity cycle with addition of new vessels will impact freight rates, which in turn could impact earnings of the company.

Source: Financial Express