China has massively over-invested in its industrial infrastructure in the last decade, as negative real interest rates have fueled extreme mal-investment in some industries. Steel, shipbuilding, aluminum, solar panels and wind turbines are some of the industries where companies globally have become sick. China created massive capacities in these industries due to low rates and […]
India’s Shipping Industry has constantly declined despite the Indian economy growing by almost 8-10% in the past 5 years .Indian Flag Vessel marketshare has reduced to under 10% in 2010 from 37%.It is because the Shipping Industry suffers from a lack of good companies . The largest company is the state owned SCI which has been tardy in expanding capacity to take advantage.Recently SCI has given orders to increase fleet capacity by more than 50%.Government policies have also been not too favorable despite shipping being a very strategic industry from the point of view of defense.Note in times of war the country’s merchant fleet forms one of the most important weapons in the arsenal needed for logistics and transporation of war materials and personnel.
Note Shipping is a cyclical industry and currently the industry is facing rough weather as the global shipping industry is facing a supply glut.However that’s no reason for Indian shipping industry to face a trough as its marketshare remains quite low.Unlike other sectors like autos,steel,oil and gas,the shipping industry has failed to compete and as a result has become a minnow in its own backyard.
South Korea is one of the biggest shipbuilders with major companies like Daewoo,Hyundai Heavy and Samsung.However its being beaten down by the low cost Chinese companies which are using cheaper capital and lower labor costs to press their advantage.South Korean Shipbuilders have been trying to diversify into offshore wind energy in order to safeguard their revenues.However they face tough competition in this renewable energy sector as well from incumbent wind turbine compaeis as well as Chinese WTG companies like Sinovel,Goldwind and others.Now the South Korean government is helping them with a 300 billion won research fund.This fund will be used to do R&D into building of “Green Ships” which are becoming the new growth segment.
Shipping Corporation of India (SCI),the government owned carrier is coming out with a Follow on Public Offering (FPO) of 84,690,730 Equity Shares to divest 18% of its equity which will be equally shared by the company and the government.At the current price the company will raise around Rs 600 crores for the company with another Rs 600 crore going to the government. SCI is India’s largest shipping line by tonnage deriving most of its revenues from oil/gas transport.SCI like other shipping companies has faced a very bad 2009 due to the sharp contraction in world trade and dropping in shipping rates.However results have started to improve with the improvement in the world economy and it is returning to its normalized sales and profits.The valuation of the company is not expensive according to normalized profits however note that shipping sector in general does not enjoy high p/e due to the cyclical and capex intensive nature of the business.The pricing of SCI has not been decided as of now,in the secondary market it trades at Rs 156 which is near its 52 week low in anticipation of the share dilution due to the FPO.Here is a list of the pros and cons.
Korean Shipbuilders are facing the twin problems of increased competition from Chinese companies as well as a global glut in Ship Supply.They are looking to diversify away from the ship building industry into newer faster areas of growth.Wind Energy has been growing at above 20% CAGR over the last several years and makes a good area to invest in.Daewoo Shipping has bought a small firm in the USA DeWind to acquire Wind Turbine Technology while Hyundai has already made plans to open Wind Farms.With same skills required in Offshore Wind Farms and Shipbuilding,Daewoo Shipping has set a target of $800 million from Wind Energy by