>India Shipping: Global Growth Recovery to Drive Demand; OW GESCO

Investment conclusion: We assume coverage of the India Shipping industry with an In-Line view. We expect
demand to remain strong in both tanker and bulker segments, given our expectation of 4% global GDP
growth in C2010 vs. 1.1% contraction in C2009. Bulker demand will be led by continued growth in Asia, while
recovery in OECD nations and increased demand from Asian countries will propel oil demand, in our view.
Delivery of new fleet is a concern, but we believe the impact will be moderated by delays and scrapping of old
vessels. This gives us comfort that freight rates and asset prices will strengthen from current levels.

Demand recovery should propel asset prices higher. Baltic indices have risen 60-100% from the lows of C09,
but are below historical averages. In our view, as global growth gains ground led by recovery in OECD countries, charter rates will rise (gains here have been modest). Such improved profitability and better earnings visibility are likely to drive asset prices higher.

New supply remains a concern, however. Current order book scheduled to be delivered in C2010 is 15% and 27% of the existing fleet (tonnage) in the tanker and bulker segments, respectively. We believe that effective growth in global capacity will be modest due to delays and scrapping. This should support utilization, resulting in recovery in spot / charter rates in C2010.

We assume coverage of GE Shipping (GESCO) with an OW rating and upside of 18% to our price target of Rs345. Apart from recovery in profitability and asset prices, GESCO should benefit from scaling up of its offshore business, demand for which is likely to improve as global exploration activity picks up. We rate Shipping Corporation of India (SCI) EW, given near-term stock performance and modest upside of 6% from our price target of Rs162.

Key risks: Slower recovery than expected and an influx of new capacity.

To read the full report: INDIA SHIPPING