India, blessed with a vast coastline, has long been a pivotal player in global maritime activities. From bustling ports managing international trade to offshore platforms facilitating vital oil and gas exploration, the ocean is the lifeblood of the nation’s economy.

As we look ahead, the role of shipping companies becomes increasingly critical. In today’s interconnected world, where over 90% of global trade depends on reliable ocean transportation, top shipping companies are the unsung heroes of international commerce.

Recently, Shipping Corporation of India (SCI) has made headlines with a significant 7% surge in its share price. This rise underscores the growing recognition of the essential role these companies play in India’s economic health.

But this is just the beginning.

Government Divestment

On Wednesday, June 12, 2024, SCI shares surged 7.5%. This uptick likely stemmed from reports that the long-awaited divestment in the Navratna PSU will now be expedited. A prior report indicated that divestment of state-owned companies, including NTPC and SCI, is a priority in the government’s first 100-day action plan. The Maharashtra cabinet’s approval of a land transfer, delayed by the Lok Sabha elections, marks a crucial step forward.

The strategic sale of SCI is set to proceed without further delays, having secured approval for a stamp duty waiver from Maharashtra, removing a significant Rs 3 billion hurdle. As part of the divestment, the government plans to sell its 63.8% stake in SCI. The Department of Investment and Public Asset Management (DIPAM) is preparing to invite financial bids for SCI.

SCI’s non-core assets, managed by the Ministry of Ports, Shipping, and Waterways, were demerged and listed separately as Shipping Corporation of India Land and Assets (SCILAL) in March. This move paves the way for inviting financial bids for SCI’s strategic sale, potentially fetching around Rs 30 billion.

SCILAL, formed in November 2021, holds SCI’s non-core assets, including Shipping House, a 19-story building, and the Maritime Training Institute in Mumbai. This demerger ensures SCI’s core shipping business is sold separately, making it more attractive to potential buyers.

Can Divestment Fuel a Booming Market for Shipping Corporation?

The Indian government’s divestment of SCI represents a transformative shift. Private ownership often brings a sharper focus on profitability, with new management likely to streamline operations and reduce bureaucracy, leading to cost savings and improved performance. Private companies typically have easier access to capital markets, potentially enabling SCI to raise funds more easily for fleet expansion, technology upgrades, and market growth.

Moreover, the demerger of non-core assets allows SCI to concentrate on its primary shipping business, enhancing service delivery and innovation. However, divestment could mean losing government benefits like subsidies or preferential treatment, which might make SCI less competitive against companies still receiving such support.

Second-Hand Ship Deal Stalls

SCI encountered setbacks in its attempt to procure six second-hand vessels, valued at over Rs 20 billion. The initiative received a lackluster response, with few fleet owners showing interest amid a thriving freight market. SCI faced no takers for a 15-year-old container ship due to the Red Sea crisis, forcing ship owners to reroute vessels via the longer Cape of Good Hope route.

Despite the booming shipping market, SCI’s tender for a container ship yielded no offers. Comparatively, a similar tender in 2015 received 38 responses, but this time only garnered 3-4 offers.

A Close Look at its Financials

Over the past three years, SCI’s financial performance has been lackluster. Revenue saw a healthy 16.8% growth in 2023 but declined by 12.5% in 2024, resulting in a low three-year CAGR of 0.7%. Net profit also fluctuated, showing a CAGR degrowth of 7.5%. The net profit margin dropped from 17.3% in 2022 to 12.3% in 2024.

What’s Next?

Looking ahead, SCI aims to solidify its leadership in the Indian shipping sector while expanding globally. The company strives to enhance operational efficiency and service quality, establishing a significant global presence, particularly in energy-related sectors, dry bulk shipping, and niche container markets. This strategic expansion aligns with its goal of becoming a key player in international maritime trade.

India is gearing up to expand its fleet of large domestically flagged ships amid global supply chain disruptions and a focus on international trade security. This initiative is significant as flagged ships are often retained during geopolitical disputes. The government aims to increase the number of Indian flagged ships tenfold, positioning the nation as a formidable player in global maritime commerce.

India has approximately 1,500 registered vessels, with a gross tonnage (GT) of 13.69 million. Most of these vessels are involved in coastal trade, with the remainder on international routes. This strategic move is poised to enable SCI to bolster its fleet size and strengthen its presence in the global shipping arena.

Nevertheless, it’s always wise to conduct thorough research before making any investment decisions, ensuring the investment aligns with your financial objectives and risk tolerance.