Shipping Corporation has managed to protect its bottom line even as ocean freight rates have softened in recent months. But substantially higher interest costs and lower other income, including profit on sale of vessels, dented its bottom line.
Unlike other shipping companies, SCI operates more on long term contracts which helps smoothen its earnings. The company is embarking on a major fleet acquisition exercise, but margins would continue to be under threat as costs rise further.
For the quarter ended 31 March 2006, net profits declined 42.7 per cent to Rs350.13 crore from Rs611.13 crore for the previous year quarter. Total revenues increased 13.7 per cent to Rs1,089.25 crore from Rs958 crore.
Operating profits increased 15.75 per cent as compared to the previous year quarter while operating margins remained absolutely flat at 35.11 per cent.
Charter hire, bunker costs and port dues for the quarter increased 53.52 per cent during the quarter while staff costs jumped a substantial 152.48 per cent. The company managed to maintain operating margins through a 61.34 per cent reduction in repair expenses and 19.58 per cent fall in other expenses.
Substantial increase for 292 per cent in interest charges affected the bottom line during the quarter. Depreciation charges and tax provisions were almost unchanged. Decline of 23.74 per cent in other income also affected the quarterly numbers.
For the full year 2005-06, net profits of SCI declined 26.6 per cent to Rs1,042.2 crore from Rs1,419.91 crore during the previous year. Total revenues declined 1.68 per cent to Rs3,584.49 crore from Rs3,645.78 crore.
Full year operating profits increased 7.91 per cent while operating margins actually increased to 36.02 per cent from 34.71 per cent for the previous year. This is commendable as freight rates had declined during the second half of the year.
Charter hire, bunker costs and port dues for the full year increased 18.15 per cent over the previous year while staff costs went up by a marginal 3.88 per cent. The company managed to improve margins through a decline of 27.77 per cent in repair expenses and 13.22 per cent saving in other expenses.
Interest expenses went up nearly 5 times over the previous year even though depreciation charges increased only marginally. Against a tax write back of Rs272.7 crore during the previous year, SCI made a tax provision of Rs72.83 crore during 2005-06. A steep decline of 72.58 per cent in other income also contributed to the lower bottom line.
SCI would add 35 vessels to its fleet during the current financial year at a cost of Rs6,300 crore. Total fleet size of the company would go up from 82 to 125 after the expansion. The new vessels being acquired would be in line with its current fleet mix, with majority of them crude oil and product tankers.
Demand for petroleum products is rising in the country and exports of refined petroleum products have also increased. Indian refining capacity would increase substantially over the next 3 to 5 years to meet both domestic and overseas demand. Through vessel acquisitions, SCI is trying to maintain its leadership position in transport of crude oil and petroleum products.