Mercator Lines

The share will only rise once the BDI recovers or if their earnings can remain visible for the next few quarters. It is currently trading at PE 6.5 based on 2010 EPS. I cannot predict the share price this month, 6 months of in a year time. But I can predict that the demand for coal and iron ore will increase from 1H 2010 onwards. When that happens, freight rates will naturally increase and hence Mercator's earnings. I also betting on the success of the Mercator's Supply Chain Model = Mines (owned by Mercator India) - Sea Transportation (MLS) - Port - Land Transportation (Mercator India) - Client.

NOL on the other hand is doing container shipping. 2 different industries. Cannot compare between them.

sureesh40 ( Date: 21-Dec-2009 09:41) Posted:

With all the good plans for the company's future why isn't the stock price going up.

it's all time high was 77 cents. Any chance when the next super bull run comes within 5 years, this stock price will go up to $1. Or do you have to keep it really long in order to for the stock price to grow. There are very few shipping stocks to choose from.

MLS - lack of coverage by int'l brokerage. Compare to NOL, Goldman Sachs target price = $2.20.

sureesh40 ( Date: 21-Dec-2009 09:41) Posted:

With all the good plans for the company's future why isn't the stock price going up.

it's all time high was 77 cents. Any chance when the next super bull run comes within 5 years, this stock price will go up to $1. Or do you have to keep it really long in order to for the stock price to grow. There are very few shipping stocks to choose from.

‘Our port infrastructure is backward compared to even Brazil and China’

,	Monday, June 22, 2009, 14:11 Hrs [IST]

Mercator Lines Ltd is the second largest private sector shipping company in India in terms of tonnage, which has risen exponentially from 4,000 dwt in 1994 to about 23,03,122 dwt in 2009. The Mumbai-based company has diversified into related areas such as coal mining, offshore rigs and dredging to buck the current downtrend. H.K. Mittal discloses his company plans to Sandeep Menezes.

— H.K. Mittal, Executive Chairman, Mercator Lines Ltd

How has the slowdown affected shipping and Mercator Lines?
The global slowdown has affected every one and Mercator is no exception. However, we feel that the worst of the economic slowdown is over and whatever is in the future will be better and our company has diversified into related fields to face this situation.
What will be Mercator's growth strategy in years to come?
Since last 10 years, Mercator's growth on an average is more than 35 per cent on year-on-year basis based on top line and bottom line. We feel that there is enough scope to maintain this growth rate for the next 10 years. However, other than shipping, Mercator has diversified its activity into coal mining, dredging and offshore, and the main thrust will be to expand more into these new sectors, where each sector has unlimited potential.
Do you have fleet expansion and modernisation plans?
Mercator will keep on adding some tankers and bulkers to its fleet. Very recently, we exercised our option to purchase a Panamax which was on time charter with us, and three more brand new Post Panamaxes of 92,000 dwt will be arriving by 2009-10 and 2010-11 (which we have taken on long-term lease with nil cash outflow in capital account. Out of these, the first vessel has already been chartered to an A-class charterer for three years; the second and third vessel will join the fleet in late 2009-10 and 2010-11. We intend to use these vessels either in our existing contract of affreightment (CoA) or charter out on a long-term basis as we have done for the first vessel.
What will be the investment?
We cannot give any figure in the current economic scenario. It is difficult to find out how fast we can expand but if the market is financially sound, the company will expand in all segments or we will charter in some vessels on long-term basis at low rate without investing any money, just like we did for the three modern Post Panamax vessels, and then operate on the existing CoA or on high charter rates on spot basis.
What are the problems hindering the expansion of the Indian shipping industry?
Shipping is a highly capital-intensive industry. The main problem arises when our balance sheet does not allow us to expand, keeping in view Mercator Jackup.jpg

the debt-equity ratio. Therefore, we can keep on restructuring our finances to maintain debt-equity as per the satisfaction of the lender. However, there are certain other bureaucratic problems. Our government should recognise shipping sector as part of infrastructure. All the rules, regulations, any registrations, surveys and other administrative jobs should be absolutely at par with other shipping nations like Singapore, Greece and Norway and only then, our shipping industry can expand.
What is your view on our port infrastructure compared with those in the West?
Our port infrastructure is very backward and we cannot even compare it with other developing nations like Brazil and China. The main problems arise between the Central and state governments, where shipping is under the Central government while port infrastructure, land acquisition etc., is with the states. Entrepreneurs are lost between the state and Central governments. Therefore, hardly 5-10 per cent projects are materialising. We suggest that the entire power of land acquisition, environment clearances etc., should be with the shipping ministry.
Tell us something about your offshore business.
Mercator has invested more than Rs 1,000 crore in an offshore jackup rig which is fixed for three years. During the next five years our intention is to expand this business four-five times, provided that world economy and oil prices are not under stress. We are also trying to expand our business by taking some oil blocks as a backward integration of drilling business.
What is your expertise in dredging projects?
Mercator has created a full-fledged dredging team comprising various experts from India and abroad, and we are executing projects ourselves, apart from chartering to Dredging Corporation of India Ltd.

THIS WAS POSTED A MONTH AGO. ITS ABOUT MERCATOR LINES PARENT COMPANY.

Mercator Lines aims to become a $5 billion company

Mercator Lines, India’s second largest private sector shipping line, plans to invest and expand, riding India’s next wave of growth, the theme of the World Economic Forum’s India Economic Summit, to be held in New Delhi on 8-10 November

Mumbai: It all started with an idea floated by a co-passenger in a flight.

Harish K. Mittal, owner of India’s second largest private shipping line, does not remember the passenger’s name, but his suggestion on starting a shipping firm way back in the early 1980s stuck in his mind.

Mittal, then running a chemical factory in Muzaffarnagar in Uttar Pradesh, mentioned this idea to Atul Agarwal, who is married to his wife’s sister. Agarwal was at the time auditing some companies that included a few shipping firms.

In 1988, Agarwal mentioned that Mumbai-based Mercator Lines Ltd was on the block. Mittal, then also into the business of buying ship scrap, did not hesitate. He bought the firm for Rs1.2 crore from the Ramchandani family.

From Rs65 lakh in 1988, the firm’s revenue increased to Rs2,200 crore in the year ended 31 March. Mercator Lines today runs a fleet of 28 vessels, up from three barges in the year Mittal bought the firm.

The shipping line, riding high on the wave of India’s economic liberalization since the 1990s, listed on the Bombay Stock Exchange in 1993 and has never missed paying a a yearly dividend to shareholders, Mittal says.

The 59-year-old entrepreneur now wants to make his firm a $5 billion (around Rs23,550 crore) company, an “ambitious dream,” but not impossible for a shipping line that reported a revenue of just Rs60 crore just five years ago.

From a traditional tanker company, Mercator today has a presence in bulk shipping, tanker shipping, dredging, offshore oil exploration and coal mines.

“We have already acquired four coal mines in Indonesia and one in Mozambique. We are now looking for acquiring one more in Indonesia. This will enable us to offer a complete logistics package including coal, ship and local logistics,” says Mittal, who holds a 1973 postgraduate degree in technology from the Indian Institute of Technology, Roorkee, then known as the University of Roorkee.

A majority of new Indian power projects are eyeing imported coal, mainly from Indonesia, to run their plants.

Mittal attributes his success to his management team.

An analyst agrees. “Mercator Lines management was always aggressive to grab every opportunity that came before them, be it dredging, coal mines, offshore or dry bulk ships,” says Kapil Yadav, an analyst with domestic brokerage Dolat Capital Market Pvt. Ltd. Yadav tracks the firm’s scrip.

“The business model of Mercator Lines is to diversify to several segments to derisk, while locking in its vessels for long-term contracts to mitigate the volatility of freight rates,” he says.

Mercator Lines has acquired four dredgers and plans to add six more to its portfolio. Indian ports continuously require dredging to keep their shipping channels deep. State-run Dredging Corp. of India Ltd is unable to meet the entire requirements of the country’s ports. Some international dredging companies have set up shop in India to tap the market potential.

“We are very serious about dredging,” says Mittal. “Apart from dredging, we are also upbeat about the offshore sector.”

Mercator Lines, as part of a strategy to derisk the cyclical nature of its core shipping business, entered the offshore drilling business with the delivery of a Rs1,000 crore jack-up rig. The rig was immediately deployed on a three-year contract with state-owned Oil and Natural Gas Corp. Ltd through Great Eastern Shipping Co. Ltd.

“We are constantly looking for other areas of offshore business, exclusive offshore support vessels. This could be anything, high specification rigs or other areas,” Mittal says. “Mercator was contracted two oil blocks under the seventh round of the new exploration licensing policy,” Mittal said.

In December 2007, Mercator Lines listed its Singapore-based subsidiary on the Singapore Stock Exchange and raised over Rs500 crore.

Last year, shipping firms were hit by the global economic downturn that led to a steep decline in world trade and caused freight rates to fall. “Though there are some signs of revival, I think the next two years are going to be tough for the shipping sector,” Mittal says. “Our diversification model is going to save us during this crisis.”

“Though Mercator has done everything to de-risk by diversifying, as a shipping company it will be exposed to volatility since it is a cyclical industry,” Dolat’s Yadav says.

Mittal, however, remains optimistic. He says all the business segments of his firm are growing and he would continue to invest in these. “Nothing stops us from aiming at being a $5 billion company.”

Seems like their VP for Business Development has parted ways with the company. Glad to see some strong support at 30ct share price today. It will be helped by the fact that BPI is green today with spot rates for TCE increasing by $98 to US$27674 (still far away from last year rates).

I wished the Management would clarify the status of the 2 new post-panamax - are they under spot rate or is there negiotations for a long term charter?

Tks alot!

I would steer clear of all ship trusts in SGX due to both internal and external factors.

External Factors -

Shipping is badly hit for two reasons - a) Drop in demand for goods and commodities and b) over-capacity of ships (and this will be worsen once the book orders made in 2006/07 for 2009-2011 are fulfilled). This has led to a drastic fall in freight rates. As such, any vessels leased out will be rented out at a extremely low and uneconomical rate. This means that any new acquisitions will result in low-margins contracts for the trust and hence lower distribution income. Moreover, considering that ships are not 'free-hold' but will 'expire' within 25-30 years, any uneconomical contracts will hit the trust really hard. Moreover, if freight rates continue to drop, their clients might choose to disregard their contract obligations and return the vessel back to the trust. This has already happened to Rickmers.

Internal Factors -

Their high debt levels make any investment in a trust dangerous. This means that the trust has to turn to either a dilutive rights or placement issue or turn to the banks for a refinance of their loans. The former will hurt the minority shareholders while the latter (if successful in teh credit crunch climate) will result in higher interest expense and hence lower distributable income. Most of their growths are fueled by debt which is extremely expensive in light of the credit crunch. Rickmers is a terrible state at the moment and if they can't refinance their debt soon, they will go bust within the next 6 months. PSL is quite conservative and FSL debts only expire in 2012 but debts are very expensive (their proposed Notes issue had an interest of 12%). So I don't expect much growth in this sector.

Shipping -

There are only 2 type of shipping sectors - dry bulk and container shipping. The former deals with the transport of commodities such as iron ore, coal, grain, cotton, wood etc while the latter deals with end-products ie cars, equipments, electronic goods, clothes etc. If you wish to invest in dry bulk, the counters are Courage Marine (purely BDI play since most of their contracts are spot-based), Mercator (long term contract based hence their visible earnings) and STX PO (HUGE korean company but very low liquidity in SGX since there is only 9mil shares here). If you wish to invest in container shipping, NOL is your only option.

Hope that helps!

Jackpot2010 ( Date: 16-Dec-2009 22:38) Posted:

You seems to have done a lot of research on this counter. I'm more into property + reits but will switch my fund to shipping in 2010 - like MLS, Samudera & Rickmers. Mind sharing what r the other shipping counters you think has prospect to go up ?

grandmaster89 ( Date: 16-Dec-2009 18:48) Posted:

Closed at 29.5 cents due to weakening BDI. 4 cents away from my next loading target :)

You seems to have done a lot of research on this counter. I'm more into property + reits but will switch my fund to shipping in 2010 - like MLS, Samudera & Rickmers. Mind sharing what r the other shipping counters you think has prospect to go up ?

grandmaster89 ( Date: 16-Dec-2009 18:48) Posted:

Closed at 29.5 cents due to weakening BDI. 4 cents away from my next loading target :)

Alot of ppl are predicting a recovering in the BDI sometime in Jan. Currently its down as inventory levels in China are high. However Mercator derives 70% of its revenues from long term charters as opposed to spot rates. As a result, it is shielded by the volatility of the index to a large degree. The problem is that it chartered-in 3 post-panamax vessels - secured a 3 year contract for one with Cosco, 1 more will be coming in next year and the other one came in Oct 09 but no news of any contract. Since the BDI rate is low, any contract wins now will have very low margins.

For me, I think the 2 post-panamaxes will be used to ship coal from Mercator's mines in Indonesia.

sureesh40 ( Date: 16-Dec-2009 18:58) Posted:

what's the probability of it reaching that price or going down even further.

grandmaster89 ( Date: 16-Dec-2009 18:48) Posted:

Closed at 29.5 cents due to weakening BDI. 4 cents away from my next loading target :)

what's the probability of it reaching that price or going down even further.

grandmaster89 ( Date: 16-Dec-2009 18:48) Posted:

Closed at 29.5 cents due to weakening BDI. 4 cents away from my next loading target :)

Ok thanks Jackpot 2010.

Personally, it makes no sense for the company to rent 2 vessels without any plans to charter it out (based on their track record). I have a feeling that they will be used next year for Mercator India mines in Indonesia.

We have to wait for their announcement though...

hi grandmaster89, this DBS report is old n archived now- managed to cut n paste full report from copy. I trust research report <50%.

DBS Group Research: Mercator Lines (S) - 14 Sep 09

New delivery of a chartered-in Post-Panamax vessel.

Mercator announced at mid-day trading break that it has taken delivery of its first Post-Panamax vessel, named Chaitali Prem. This is a gearless dry bulk carrier with a 93,270 dwt capacity.

Chaitali Prem's earnings contribution has been factored in our estimates.

This Post-Panamax vessel will be chartered out to Refined Success Limited, a subsidiary of Cosco (HK) Shipping Co., Ltd, for 35-37 months at time charter rate of US$39,500 per day. The chartered-in cost to Mercator is US$25,300 per day. Hence, Mercator is expected to make a profit from this deal, which is already captured in our earnings estimates.

Chartered-out contract for Chaitali Prem was secured in March 2008

We note that the long-term time charter contract for Chaitali Prem was secured back in March 2008, way before the dry bulk freight plunges in 4Q08. Hence, the chartered-out rates for Chaitali Prem is not reflective of current freight rates.

Two more Post-Panamax vessels with no chartered-out contracts.

Our concerns remain on the expected delivery of another chartered-in Post-Panamax vessel by Mercator in 2009, and one in 2010. These two vessels will be bareboat chartered in at US$25,300-27,000 per day each, and Mercator has yet to secure back-to-back chartered-out contracts for them. We believe that a similar 3-year time charter for these two yet-to-bedelivered Post-Panamax vessels would likely fetch day rates at below US$20,000, which would be negative to Mercator should the group honors its contractual obligations.

No change to our earnings estimates and target price.

We expect Mercator to face pressure from the still depressed freight rates for newly delivered vessels that are without chartered-out contracts, and contract renewals for existing vessels. Our target price for Mercator is S$0.26, using 0.6x Price to Book ratio. Maintain SELL on Mercator, due to the lack of price catalysts and a still vulnerable shipping market.

.

Pls give me the link to the research report. I would like to read it. Only 1/3 vested into MLS. I will throw it more funds when the price dips further.

So far only 2 ships have arrived. One of them is chartered out to Cosco Group from Sept 09 onwards for 3 years at a rate of US$39.5k/day which guarantees a gross profit of 14.2k/day or US$5mil annually.

Mercator Lines did mentioned that only charter in vessels if they have managed to win a contract. I sense that they are keeping that 2 vessels for Mercator's Group use for its own Indonesian mines next year.

MUMBAI: Mercator Lines, which is possibly the only domestic shipping company to foray into the coal mining business, is now planning to acquire a
50 million tonne coal mine in Indonesia. Mercator expects to invest $50-75 million (approximately Rs 200-300 crore) for acquisition, a senior company official said.

He said that the company is evaluating acquisition options, in terms of quality of coal, coupled with the necessary infrastructure needed to transport this product. Mercator has leveraged its Singapore-based subsidiary Mercator Lines Singapore for its coal mining activities. Mercator Lines’ cash and bank balance at the end of FY08 was Rs 853 crore.

Mercator Lines derived nearly 95% of its FY08 net profit of Rs 370 crore from its core shipping business. Company officials pointed out that the objective over the next three years is to derisk themselves from the inherent cyclical nature of the shipping industry, via their recent forays like coal and the offshore segment.

Almost 15 months ago, Mercator had purchased three coal mines in Indonesia, for an investment of nearly $10 million ( approximately Rs 42 crore). Also earlier this year, it was awarded a coal block in Mozambique, by the local government there.

It’s targeting an annual production of nearly one million tonne from their existing Indonesian coal mines during FY09. Meanwhile, production from the Mozambique mines is understood to be still some time away, as the company is still conducting the necessary feasibility studies to develop the infrastructure needed.

In order to leverage the opportunities to transport coal from its overseas mines, Mercator Lines also plans to add two more ships with a capacity of 93,500 Dwt (dead weight tonne) each, on a time charter basis, over the next 18 months.

The company’s current fleet capacity is 27 vessels, which includes 12 vessels to carry bulk transport.

Apart from the coal sector, Mercator Lines had also recently forayed into the offshore segment, with its jack-up rig that has been given on a long-term contract for three years. This senior official at Mercator Lines highlighted that they are also evaluating opportunities to acquire additional oil rigs, floaters, though no specific details were available.

fundamentally this baby is strong. no effect on contract. its a matter of time TP:037-041

Jackpot2010 ( Date: 15-Dec-2009 13:50) Posted:

MLS may incur big losses IF failure to chartered out the 3 post-panamax vessels. Notice quite a fair bit of selling at 30.5c. I'm waiting to buy shipping counters too, like MLS.

DBS (14/9) TP $0.26: Two more Post-Panamax vessels with no chartered-out contracts. "

Our concerns remain on the expected delivery of another chartered-in Post-Panamax vessel by Mercator in 2009, and one in 2010. These two vessels will be bareboat chartered in at US$25,300-27,000 per day each, and Mercator has yet to secure back-to-back chartered-out contracts for them. We believe that a similar 3-year time charter for these two yet-to-bedelivered Post-Panamax vessels would likely fetch day rates at below US$20,000, which would be negative to Mercator should the group honors its contractual obligations."

grandmaster89 ( Date: 14-Dec-2009 22:16) Posted:

a) Mercator Lines Singapore has just received 2 post-panamax recently and one more will come in next year.

b) Mercator India has numerous mines in Indonesia and Monzambique under its control with estimated coal reserves exceeding 3 billion tons.

c) Mercator India only has ONE dry bulk carrier ship at its disposal. The rest (11 and 3 chartered-in) are with Mercator Singapore.

d) Mercator India owns 72% of Mercator Singapore and the son of its founder and CEO is the CEO of Mercator Singapore.

If I connect the dots, I daresay, there is a good chance that Mercator Lines India will utilize Mercator Singapore to transport its coal from its mines. It will be a lot cheaper this way since the capital will be recycled back into its 72% owned subsidiary.

What are your thoughts?

MLS may incur big losses IF failure to chartered out the 3 post-panamax vessels. Notice quite a fair bit of selling at 30.5c. I'm waiting to buy shipping counters too, like MLS.

DBS (14/9) TP $0.26: Two more Post-Panamax vessels with no chartered-out contracts. "

Our concerns remain on the expected delivery of another chartered-in Post-Panamax vessel by Mercator in 2009, and one in 2010. These two vessels will be bareboat chartered in at US$25,300-27,000 per day each, and Mercator has yet to secure back-to-back chartered-out contracts for them. We believe that a similar 3-year time charter for these two yet-to-bedelivered Post-Panamax vessels would likely fetch day rates at below US$20,000, which would be negative to Mercator should the group honors its contractual obligations."

grandmaster89 ( Date: 14-Dec-2009 22:16) Posted:

a) Mercator Lines Singapore has just received 2 post-panamax recently and one more will come in next year.

b) Mercator India has numerous mines in Indonesia and Monzambique under its control with estimated coal reserves exceeding 3 billion tons.

c) Mercator India only has ONE dry bulk carrier ship at its disposal. The rest (11 and 3 chartered-in) are with Mercator Singapore.

d) Mercator India owns 72% of Mercator Singapore and the son of its founder and CEO is the CEO of Mercator Singapore.

If I connect the dots, I daresay, there is a good chance that Mercator Lines India will utilize Mercator Singapore to transport its coal from its mines. It will be a lot cheaper this way since the capital will be recycled back into its 72% owned subsidiary.

What are your thoughts?

a) Mining will only start next year in Indonesia while mining in Monzambique will commence in the near future once the infrastructure and equipment has been built.

b) Mercator only ships coal and iron ore. It doesn't deal with grains or cottons. Though I wouldn't rule out the possibility of it expanding into new types of dry bulk commodities in the future.

c) Coal is the main source of energy for emerging economies especially China and India (which are Mercator's clients) since it is cheap and readily available.

India's Ministry of Coal -

Commercial primary energy consumption in India has grown by about 700% in the last four decades. The current per capita commercial primary energy consumption in India is about 350 kgoe/year which is well below that of developed countries. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise around 450 kgoe/year in 2010. Considering the limited reserve potentiality of petroleum & natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India 's energy scenario.

PRC -

China aims to more than double its annual natural gas output to 160 billion cubic meters by 2015. The country also wants to increase its annual production of coal to more than 3.3 billion tonnes and crude oil production to 200 million tonnes by 2015, said chief planner Hu Cunzhi of the Ministry of Land and Resources at a press conference on Wednesday.

That represents an increase of about 30 percent and 7 percent for coal and oil output respectively from the levels in 2007. Levels for 2008 have not been released.

Most of their energy is derived from coal as it is darn bloody cheap unlike the other 'green technology'. There will be a shift towards cleaner coal energy production. There won't be a paradigm shift. That is plain crazy! COAL is the most important and abundant fossil fuel in India. It accounts for 55% of the country's energy need. The country's industrial heritage was built upon indigenous coal.

d) Singapore might be majority Chinese but virtually all S Chips are shunned by it due to their poor corporate governance and lack of a strong parent. Mercator has the backing of a very big Indian company (Mercator India) which owns 72% of its shares and it is a very transparent company. Has quite a fair bit of liquidity and its share price movement has recovered very well from the bottom in March.

If they control coal mines in africa and indonesia why have they not already used mercator s'pore to ship the coal.

any way does mercator only ship coal, what about other bulky materials, such as copper, cotton or grain. there is a stigma on coal, it is a dirty fuel, wouldnt demand for coal fall.

is this why mercator share price is low. Also mercator is an indian company, singapore is a majority Chinese country.

Investors will not have a keen interest investing in Indian businesses because of traditional prejudices against indians.

grandmaster89 ( Date: 14-Dec-2009 22:16) Posted:

a) Mercator Lines Singapore has just received 2 post-panamax recently and one more will come in next year.

b) Mercator India has numerous mines in Indonesia and Monzambique under its control with estimated coal reserves exceeding 3 billion tons.

c) Mercator India only has ONE dry bulk carrier ship at its disposal. The rest (11 and 3 chartered-in) are with Mercator Singapore.

d) Mercator India owns 72% of Mercator Singapore and the son of its founder and CEO is the CEO of Mercator Singapore.

If I connect the dots, I daresay, there is a good chance that Mercator Lines India will utilize Mercator Singapore to transport its coal from its mines. It will be a lot cheaper this way since the capital will be recycled back into its 72% owned subsidiary.

What are your thoughts?

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Mercator Lines

Mercator Lines aims to become a $5 billion company