PROJECT REPORT

On

SHIPPING CORPORATION OF INDIA

Submitted to: Submitted by:

Vivek Saxena Areeba wazahat
Kirandeep Kaur
Pranjali Agrawal
Priyanka Mittal
Vaibhav Agrawal
Vipin Arora
 COMPANY PROFILE
Shipping Corporation of India Ltd was incorporated on March 24, 1950 as
Eastern Shipping Corporation Ltd. Western Shipping Corporation Ltd was
amalgamated with the company with effect from October 2, 1961 and the
name of the company was changed from Eastern Shipping Corporation Ltd
to The Shipping Corporation of India Ltd on October 21, 1961. Shipping
Corporation of India Ltd is one of India's largest shipping companies in
terms of Indian flagged tonnage. The company is a company owned by the
Government of India based in Mumbai that operates and manages vessels
that services both national and international lines. The company owns and
operates around one-third of the Indian tonnage, and has operating
interests in practically all areas of the shipping business; servicing both
national and international trades. The company operates in three
segments:

 Liner and passenger services.

 Bulk carriers and tankers.
 Technical and offshore services.
 Shareholding Pattern

Objects of the Shipping Corporation of India FPO

The issue comprises a fresh issue by the company and an offer for sale by the
selling shareholder. The object of the offer for sale is to carry out the
disinvestment of 42,345,365 equity shares of Rs. 10 each by the selling
shareholder.

 Part funding the equity portion for the acquisition of certain vessels by the
company
 General corporate purposes

It has already expressed interest in picking up 10-15 per cent in leading shipbuilders in
the country.
Retail investors and employees of the largest domestic shipping liner would get 5 per
cent discount on the issue price in the FPO, while the employees will also get a quota of
0.5 per cent of share sale.

The company had appointed SBI Caps, IDFC Capital and ICICI Securities as the Book
Running Lead Managers for the issue in August.

COST OF CAPITAL ANALYSIS:-

1). Cost of equity:-

(β) 0.94
R(f) 0.08
R(m) 11.7%
R(e) =R(f)+β{R(m)-R(f)}
R(e) =0.08+0.94(11.7-8)
=11.48%

2). Cost of Debt:-

Interest 5253
Total secured Loans = 269683
R(d) = (I/loan funds)*100
= (5253/ 269683)*100
= 1.92%

3). Weighted average cost of capital:-

W(e)=(633700/903386)

= 0.70

W(d)=(269683/903386)

= 0.30

WACC= W(e)*R(e)+W(d)*R(d)

=(11.48*0.70)+(1.92*0.30)

= 8.612%
 CAPITAL STRUCTURE AND LEVERAGE ANALYSIS
1). Capital Analysis:-

Debt equity ratio= (0.30/0.70)

= 0.43

2). Leverage Analysis:-

Sales (earnings) 346312

Variable Cost 298772
Contribution 47540
PBIT 528.43
PBT 475.9

a. Operating leverage = (cont/PBIT)

= (47540/528.43)
= 0.9

The company is highly leveraged. The company can further increase its PBIT by
increasing its sales.

b. Financial Leverage = (PBIT/PBT)

= (528.43/475.9)
= 1.1

The financial leverage is high for the company.

c. Combined Leverage = (cont/PBT)

= (475.40/475.9)
= 1(approx)

This company operates at optimal leverage position.

VALUATION OF SHARES:-
 Year Dividend Growth Growth Percent
2005-06 8.5 - -
2006-07 8.5 0 0
2007-08 8.5 0 0
2008-09 6.5 -2 -23.53
2009-10 5 -1.5 -23.07

Growth rate of dividend = (-9.32%)

0.1148, g = -9.32%

Value of share :-{D1/(r-g)}

= {4.53/(0.1148+0.0932)}

= 21.77 Rs.

The intrinsic value of the equity share comes out to be 21.77 while in the stock
market the share is being traded at around 144 Rs which shows the goodwill of
the company in the market and investor’s positive attitude towards the company.

Working Capital Requirements

Working capital requirement is quite high for a shipping industry .As such adequate
cash flows are required for funding working capital in SCI because the shipping market
is cyclical in nature and freight rates generally tend to be volatile. The other reasons for
high working capital are that they are structurally exposed to fuel price risks. Shipping
companies may also be exposed to foreign currency risks on the revenue side.

Dividend Policy
The dividend payout ratio has increased a lot. It has almost doubled in one year. It has
increased from 29 to 56% but it is due to the bonus shares amounting to 14, 11, 51,215
issued by the company during the financial year. But the dividend per share has
declined from 6.5 to 5 Rs. This is due to the earning has been declining for the company
and the company has kept aside money in reserves. It is following Liberal Dividend
Policy.