>VARUN SHIPPING (ICICI DIRECT)

Company Background
Varun Shipping (VSCL) is the largest Indian player in the LPG carrier segment with a fleet of 11 LPG carriers. The company has a fleet strength of 21 vessels comprising three double hull crude carriers and seven offshore vessels (five high-end modern AHTS and two low-end AHTS) other than the 11 LPG carriers. Currently, VSCL has a presence across three shipping segments, namely LPG, crude oil, and offshore.

Investment Rationale
Major presence in niche and less volatile medium gas carrier (MGC) segment VSCL is the largest medium-size gas carrier (MGC) owner in India having 10 MGC carriers with a capacity of 239,437 dead weight tonnage (dwt). VSCL has a 16% worldwide market share in the MGC fleet. MGC day rates are comparatively less volatile than the large and very large gas carriers as MGCs are used for specific regional routes on which the deployment of larger vessels is technically unfeasible. Moreover, MGCs can alternatively be used for ammonia transportation, which is usually traded in smaller quantities and is suitable to be transported by MGCs. A total of 11% of the world’s total ammonia production is transported by sea. Variability in VSCL’s revenues is likely to be less owing to lower volatility in MGC day rates.

Enhancing presence in lucrative offshore segment
VSCL has enhanced its positioning in the offshore segment by acquiring a fifth high-end anchor handling towing and supply vessel (AHTS). Acquisition of these vessels forms a part of VSCL’s capital expansion programme of US$400 million, initially announced in January 2008.

VSCL currently owns seven AHTS vessels, out of which two old low-end vessels are on charter with ONGC, while two high-end ones are on long-term contract with Reliance Industries. VSCL’s revenues from the offshore segment have risen substantially form Rs 23.91 crore in FY07 to Rs 165.56 crore in FY08.

The revenue mix is changing in favour of the high–margin offshore segment. Revenues from the offshore segment are expected to increase from 22% in FY08 to 29.6% in FY10E, while revenue contribution from the LPG segment is expected to come down from 62.4% in FY08 to 52.1% in FY10E.

To see full report: VARUN SHIPPING