Recommendation from Shipping Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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Dredging Corporation Of India 

DREDGING PORTS FOR SAFE PASSAGE TO PROFITS

HERE IS WHY
DCI preferred choice in the industry
Government initiatives to help DCI grow
Increasing growth visibility

Dredging Corporation of India Ltd (DCI) is a Mini-Ratna public sector unit engaged in the business of dredging. DCI undertakes dredging activity exclusively for Indian seaports. DCI is one of the oldest players in the dredging industry in India. DCI is the preferred choice and undertakes dredging requirements of majority of ports in India. DCI undertakes capital dredging assignments, depending on availability of vessels and other logistics requirements. 

Large vessels in India can be berthed only by DCI. This offers significant opportunity for DCI as the dredging activity is on the rise in Indian markets. If we go by the information provided by Ministry of Shipping (MoS), at least 12 major ports have proposed to increase their capacity in the next five years, which entails dredging market pegged at Rs.20,000 crore. Setting up of additional berths at majority of private ports, along with announcement of new major ports, pegs the size of the dredging market by volume at over 1 billion cubic metres in the coming five years. 

Ministry of Shipping has set initial targets and this would lead more work orders for DCI. Clearly, DCI is the undisputed leader in the maintenance dredging business. 



DEMAND DRIVERS 

1. Prospects of development and maintenance of existing major ports
2. Building new ports
 3. Onshore resource exploration
 4. Demand from navy
 5. Projects envisaged for national waterways
6. Government push for promoting coastal activities - Sagarmala Programme.

On the financial front, DCI posted a 12 per cent decrease in its net sales at Rs.585.87 crore in FY17, as against a net sales of Rs.665.86 crore in FY16. The company posted 9.76 per cent decrease in its operating profit at Rs.130.81 crore in FY17 on a yearly basis. The profit after tax of the company recorded a massive decline of 82.34 per cent to Rs.7.40 crore in FY17 on a year-on-year basis, as compared to a PAT of Rs.41.91 crore in the previous year. 

On a quarterly basis, the net sales of the company declined by 26.36 per cent to Rs.130.13 crore in the fourth quarter of the FY17, from Rs.176.72 crore in the Q4FY16. However, the operating profit of the company witnessed an increase of 17.21 per cent to Rs.42.91 crore in the fourth quarter of FY17, as compared to an operating profit of Rs.36.61 crore in the same quarter of the previous fiscal. The company's PAT decreased massively by 78.17 per cent to Rs.3.74 crore in Q4FY17 on a Q-o-Q basis, compared to a PAT of Rs.17.13 crore in Q4FY16. 

The EBITDA of the company witnessed a decrease of 10 per cent on a YoY basis to Rs.117 crore as compared to an EBITDA of Rs.130 crore in FY16, while the EBITDA margin maintained a sluggish trend at 20 per cent during the fiscal year 2017. 

The increasing growth visibility augurs well for the stock and hence we recommend a BUY on DCI.