>VARUN SHIPPING LIMITED (KREDENT FINANCE)

………………. Sailing in Bad Times

Company Background:
VSL is an integrated hydrocarbon shipping company, commenced operations in 1973 and currently is the operator of largest LPG fleet under Indian flag. The company is a global player in energy transportation and offshore exploration and production (E&P) support services.

Investment Rationale:
· VSL currently owned LPG carrier fleet of 11 vessels, which is the largest in India in terms of both fleet size and cargo carrying capacity of 319,682 dead weight tons (dwt). The company has a major 86.0 percent of the total LPG tonnage (on dwt basis) under Indian Flag

· The company has delivered value to its shareholders in the form of paying dividends. The company has impressive track records of paying continuous dividends since past 24 years, and at current market price dividend yield’s stands over 8.0 percent

· For the financial year FY09, major portion of revenue has clocked from repeat customers, contributing 80.94 percent to total revenue earned by the company, showing faith of the clients
towards the VSL business model

· VSL has increased its asset base and business operations in the offshore segment to capitalize the rapidly developing oil and gas exploration and production industry. VSL revenue contribution from offshore segment has increased significantly from 3.55 percent in FY07 to 20.0 percent in FY09

Key Risks:
· It is predominantly in LPG carriers business which accounts 57.72 percent of overall revenues in FY09. Hence any amendments in government policy, new regulatory compliance would affect the company adversely

· VSL debt-to-equity ratio is very high as compared to its peer players, while the interest coverage ratio has also fallen over years to mere 1.86 times in FY09, which remains a cause of
concern

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