Mercator Lines Ltd (MLL) is planning to list it's wholly owned subsidiary Mercator lines (Singapore) on Singapore exchange by offloading 30% stake. The subsidiary has raised USD 51 million in March 2007 through convertible bonds including FCCB of USD16 million; the balance is mandatory convertible in the event of an IPO within 24 months from the date of issue. The company is expected offload maximum of 30% in IPO including the bonds and expected to raise USD165 million.The Singapore subsidy is currently having debt of around USD350 million and the proceeds from IPO would be utilized to repay debt and fleet addition.
We believe the Singapore subsidiary will get attractive valuation considering strong charter market in dry bulk segment. The subsidiary has recently acquired seven dry bulk vessels and has chartered four bulk vessels and three tankers under Singapore subsidiary. The listing in Singapore is expected to get higher valuation than parent company as international shipping companies trades at higher P/E of around 8x to 10x earnings as compared to 5x-6x earnings in India and premium to asset value at around 1 to 1.5x.
We have valued Singapore subsidiary at Rs 22 billion at 1.3x asset value. We expect Singapore Subsidiary profits to increase from Rs 633 million in FY07 to Rs 1.72 billion in FY08 on back of strong freight rates in dry bulk segment and fleet addition. Assuming 30% dilution, the subsidiary would add Rs 5 per share in standalone earnings of Rs 6.1 per share for FY08.
Valuations:
The Company has recently acquired one trailer suction hopper dredger (on 8 august 2007) with capacity of around 5,000 m3 which is expected to add Rs 258 million in FY08 standalone revenue. We have lowered standalone revenue estimated from Rs 8.27 billion to Rs 6.62 billion due to termination of charter contracts while net profit estimate is lowered from Rs 1.52 billion to Rs 1.49 billion. We have revised the valuation from 5x FY08 to 6xFY08 consolidated earnings considering significant reduction in leverage at Singapore subsidiary after listing and recent diversification into dredger business. We have revised target price from Rs 60 to Rs 66.
We believe the Singapore subsidiary will get attractive valuation considering strong charter market in dry bulk segment. The subsidiary has recently acquired seven dry bulk vessels and has chartered four bulk vessels and three tankers under Singapore subsidiary. The listing in Singapore is expected to get higher valuation than parent company as international shipping companies trades at higher P/E of around 8x to 10x earnings as compared to 5x-6x earnings in India and premium to asset value at around 1 to 1.5x.
We have valued Singapore subsidiary at Rs 22 billion at 1.3x asset value. We expect Singapore Subsidiary profits to increase from Rs 633 million in FY07 to Rs 1.72 billion in FY08 on back of strong freight rates in dry bulk segment and fleet addition. Assuming 30% dilution, the subsidiary would add Rs 5 per share in standalone earnings of Rs 6.1 per share for FY08.
Valuations:
The Company has recently acquired one trailer suction hopper dredger (on 8 august 2007) with capacity of around 5,000 m3 which is expected to add Rs 258 million in FY08 standalone revenue. We have lowered standalone revenue estimated from Rs 8.27 billion to Rs 6.62 billion due to termination of charter contracts while net profit estimate is lowered from Rs 1.52 billion to Rs 1.49 billion. We have revised the valuation from 5x FY08 to 6xFY08 consolidated earnings considering significant reduction in leverage at Singapore subsidiary after listing and recent diversification into dredger business. We have revised target price from Rs 60 to Rs 66.
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