Fitch Ratings has today assigned a National Issuer Rating of ‘A+(ind)’ to India-based Varun Shipping Company Limited (Varun). Fitch has also assigned a rating of ‘A+(ind)’ to its INR22370 million long-term bank loans, and a rating of ‘F1+(ind)’ to its INR50m short-term overdraft facility (interchangeable between fund-based and non-fund-based) and an ‘F1+(ind)’ rating to its overdraft facility of INR160 m. The Outlook is Stable.

The ratings assigned to Varun reflect its leadership position in the domestic Liquefied Petroleum Gas (LPG) transportation sector with more than an 80% market share and diversified presence in crude carriers and offshore vessels. During FY07, 72% of its total revenue was generated by LPG transportation, with the biggest customer (IOCL) contributing 35% of its revenue compared to 49% in FY06, while revenue earning days on time and pool charters increased from 49% in 2005 to 85% in 2007. The ratings also factor in Varun’s increasing presence in the high margin offshore business, the proportion of which is estimated to increase in the future.

Globally, Varun is the second largest player in the less volatile mid-size LPG carrier Medium Gas Carrier (MGC) segment with a 14% market share. Indian LPG transportation companies are partially protected by the first right of refusal on any LPG transportation to and from India; however with increased domestic LPG production, imports are expected to go down, the risks being mitigated by an increase in global demand leading to an increase in LPG trade, and consequently more west bound trade which will then lead to higher ton-mile growth.

The ratings however remain constrained by an excess supply of LPG vessels MGCs and Very Large Gas Carriers (VLGCs) over the next two years, which can put pressure on margins. The liquidity risks may be accentuated by the substantial capital expenditure plans drawn out by the company (aggregating USD400m in calendar year 2008).

Positive rating triggers include the company’s ability to diversify its fleet mix with reduced dependence on LPG transport, whereas negative triggers will include pressure on margins and/or additional debt led capital expenditure impacting overall financial leverage.

Varun has a fleet of 12 LPG, three crude and one product tanker and four AHTS vessels that have been deployed on a mix of time charters, voyage charters and pool arrangement. Varun recorded a revenue growth of 3.4% to INR6845m in FY07; revenue growth was low due to higher base as revenue earning days grew by 37% in FY06 and by 4% in FY07. The EBIT margins were fairly stable in FY06 and FY07. The free cash flow was a negative INR7690m in FY07, compared to INR7691m due to high capital expenditure. The debt increased from INR12,746 m to INR17,930.5m, while net debt to EBITDA increased from 3.2x in FY06 to 4.5x in FY07 and is estimated to improve significantly during the current year. During the nine month period ended 31 December 2007, the charter hire revenue increase by 30% and the EBIT margin increased from 29% to 33% over the same period last year.

Sourced From: Sampark Public Relations Pvt Ltd

Tags: calls, daytrading, free calls, intraday, tips

Similar Posts:

• Fitch assigns A-(ind)’/’F1(ind) to Adhunik Metaliks
• Fitch assigns BBB+(ind)’/’F2+(ind) rtg to Neclife
• Fitch assigns F1(ind) rtg to STD prog of Unitech Machines
• Fitch assigns AA-(ind)’/F1+(ind) to Greaves Cotton
• Fitch assigns Genus Power Infra A-(ind)’/’F1(ind) rtg