Saturday, May 31, 2014

Western India Shipyard Ltd: Few Points
Western India Shipyard Ltd came out with Q4FY14 results in this month. Sales declined 44.00% to Rs.5.46 crore in the quarter ended March 2014 as against Rs.9.75 crore during the previous quarter ended March 2013. But the total income of the company was marginally higher in the March, 2014 quarter as compared to December, 2014 Quarter (Rs.5.29 Cr); showing gradual improvements in the company's fundamentals.  

Net Loss of Western India Shipyard mounted to Rs 12.12 crore in the quarter ended March 2014 as against net loss of Rs.9.64 crore during the previous quarter ended March 2013. However, if we observe carefully the March, 2014 results we will find that  much of the loss was due to three components basically: 
  • Hire Charges---Machinery (Rs.5.13 Cr Vs Rs..98 lakhs)
  • Bad debts (Rs.4.25 Cr Vs NIL)
  • Interest and other costs (Rs.1.05 Vs Rs.10.06 lakhs)
If we take these factors into consideration, then we would find that the Q4FY14 results of the company are much better than it looks apparently and hence the market is giving a thumbs up to the share price. 

Now coming to the statistics again: On a full year basis, net loss reported to be Rs.26.90 crore in the year ended March 2014 as against net loss of Rs.9.82 crore during the previous year ended March 2013. Sales declined 46.14% to Rs 38.78 crore in the year ended March 2014 as against Rs.72.00 crore during the previous year ended March 2013.

It must be remembered that FY13 and FY14 saw restrictions by the State & Central Government and the Apex Court on mining operations in Goa. This affected the Iron Ore Mining Industry in Goa which came to a complete halt and affected the transport operations of barges and transhippers. There was also a reduction in vessels seeking ship repairs at Mormugao due to recession in shipping and outbound cargo. The number of vessels visiting the Port therefore decreased during the year. 

However, in a recent judgement, the honourbale Supreme Court of India allowed mining in the state with several riders, leaving it for the Goa state government to resume mining. While lifting the mining ban, the Supreme Court had observed that mining concessions became leases of leasees in Goa on November 22, 1987 and with the 20-year maximum renewal period had also come to an end on November 22, 2007.

The experts have already started to raise huge and cry to expedite the processes for resuming mining in the state as several lakhs of youth are jobless after closure of the industry almost two years ago. Moreover, there was also severe recession in the Shipping Industry with fleet owners deferring the ship-repair business, which put pressures on the company's bottomline. But the global shipping sector is expected to move up from July-August, 2014. 

The Global Shipbuilding and Ship repair Industry is growing at a compounded annual growth rate (CAGR) of about 24% and is likely to reach Rs. 14 lakh crore by 2015 owing to rising global sea borne trade. Against this, the Indian Shipbuilding and Ship repair industry is growing at a CAGR of about 8% and is likely to reach Rs.9,200 crore from the current level of just over Rs.7,310 crore [Source: ASSOCHAM Study Report].

The Central Government has in FY13 encouraged about 35 registered Ship-repair Units with incentives and concessions like exemptions from customs and central excise duty in view of the huge potential of the Ship-repair Industry which offer ship-repair and maintenance services to Indian and foreign vessels and oil rigs along the east and west coast of India. With the new government in place in India, we could look forward for similar moves in FY15. 

The Indian Shipping Industry continues to be the world's most efficient and cheapest means of transportation along 7517 km of coastline with about 200 ports spread over the east and west coast of India. About 95% of  India's trade by volume and 70% by value are transported by sea. The Baltic Dry Index (BDI) which is a leading indicator of global shipping economic activity shows the nominal rise in the daily weighted average of prices for shipping bulk dry cargo such as iron ore, coal and grain for smaller size vessels namely, Handymax, Supramax & Panamax. During the year, the BDI fell by about 22% to 910 points as on 31.03.2013 showing a recession in the Shipping Industry. 

Conclusion: Bad debts as discussed earlier represents an account of Settlement made with ONC as per Arbitration Award. This issue will not be there in Q1FY15. The management is hopeful of better results in FY15, because of a turnaround in the shipping sector and also, the new government could bring in some rationalisation in the mining sector. The share price of the company is expected to double from the current price of Rs.2.40. 
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