>MERCATOR LINES: Valuation compelling…

MLL reported considerable improvement in operating performance in Q1FY11 with dry bulk division performing reasonably well. The company has also ramped up its coal business (mining as well as trading) which would increasingly contribute to the topline for the company. Freight rates are expected to be volatile over the next one year which could lead to fluctuations in the operating performance of the company going ahead. But MLL is well placed to ride the volatility of shipping business on account of inherent advantages such as diversified revenue stream, presence across segments, long term charter contracts, comfortable debt equity ratio and strong
management capability.

MLL posts very strong performance in Q1FY11
MLL reported 24.3% q-o-q rise in revenue at Rs 599.3 crores. The rise in topline was led by a surge in revenue from coal trading and coal mining which constituted 38.2% i.e. Rs 599.3 crores of the total revenue for the quarter. Singapore subsidiary which handles dry bulk business of the
company reported revenue of Rs 179.4 crores with improvement in operating days to 1251 days and TCE to $ 30001 per day. EBITDA margin improved to 33.1% from 29.0% in the immediately preceding quarter. The company posted net profit of Rs 61.7 crores in Q1FY11 which was higher than the profit made by the company in entire FY10.

Valuation
MLL is trading at a significant discount to its global peers and almost at 0.5 x times its FY10 book value which provides an appropriate entry point for long-term investors. We have valued MLL on P/BV and P/E multiple basis to arrive at a price target of Rs 56 and recommend BUY rating on the stock.

To read the full report: MERCATOR LINES