Ladies and Gentlemen
I have great pleasure to place before our esteemed shareholders the 66th Annual Reportof the Company for the financial year 2015-16. The said report describes in detail theworking of your Company for the financial year ended 31st March 2016. I would like tobriefly apprise you about the performance of your Company during the aforesaid year.
It is a matter of pride to state that despite extremely challenging times andunfavourable market conditions we reported a consolidated net profit of Rs. 389.4 croresdespite an impairment loss of Rs. 136 crores for the year ended 31st March 2016 against anet profit of Rs. 200.93 crores for the year ended 31st March 2015. The losses due tounprecedented downturn in the dry bulk markets have been partially offset by the rally inthe tanker markets. While the net income from operations has almost remained flat theappreciable decrease in various expenses including bunkers steady tanker freights andchange in depreciation policy have contributed to the positive results. The overallfinancial health of the company has improved & our borrowings are reduced.
Global Shipping Scenario:
Shipping industry has always been known to be cyclical however the prevailing downwardcycle has prolonged making it the worst shipping downturns in living memory. It has beeneight years since the onset of global financial crisis and we are still in search of asustainable growth path. Though the world economy grew 3.1% last year (as per IMF) but arobust and sustained recovery still remained elusive. Resultantly the global shippingindustry is still struggling to come out of its unprecedented long recession.
The shipping business has been a victim of excess supply of ships hitting the marketputting pressures on freight rates. The dry bulk and container markets have been the worstaffected with no signs of recovery in the near future. Our industry is largely driven bythe market forces i.e. supply of tonnage & demand of the world trade. World trade isdominated by the developed and the developing economies. However a slowdown inChinas growth and fall in demand in Europe & US have contributed to the subduedbusiness environment. Leading exporters Russia and Brazil have been in recession for overa year now.
Recently the fear of UKs exit from Eurozone has also been causing anxiety to theworld trade especially the financial markets. The UKs imports account for anestimated 2% of global seaborne trade and its exports 1%. In fleet ownership or tradeterms the UK alone is not so significant (though the EU as a whole is accounting for anestimated 16% of seaborne imports and 12% of exports.). The more important impact might bethe wider fallout of uncertainty surrounding the Brexit which will play out inthe next few months.
The shale gas revolution in the North American continent has drastically changed thedynamics of the crude tanker trade. The OPEC countries have maintained their productionlevels despite the falling crude oil prices triggering a price war with non-OPEC nations.Lower world crude oil prices have translated to lower bunker prices which have in turncontributed to the reduction in direct operating expenses of ships. SCIs fleet hasalso benefitted to that extent. Iran is back in business and is coming to the market is abig way. Oil and petrochemical products constitute a major part of Iranian exports andIndia is one of the major buyers of Iranian oil. On 16th January 2016 EU & UN liftedsanctions on Iran US also lifted the secondary sanctions however the primary US sanctionsremain in place. After lifting of sanctions after a gap of almost four years SCI hasresumed shipment of Crude Oil from Iran. SCIs Suezmax tanker MTAnkleshwar loaded Crude Oil from Kharg Island for discharging atVisakhapatnam. The voyage was performed under COA with M/s. HPCL. We also have COAs withM/s. BPCL and M/s. MRPL which will require us to lift crude from Iran.
Indias appetite for import of crude is ever increasing. Based on EIA estimatesimports supplied 75% of the Indias total liquid fuels demand as Indias totalliquid fuels consumption in 2015. Presently SCI carries about 50% of Indian crude importsby Indian fleet. SCI carries almost 100% of crude oil on the Indian coast for PSUrefineries on its tankers. The dry bulk trade during the last year has seen unprecedentedlows bankrupting many companies in the dry bulk business. The Baltic Dry Index (BDI)touched an all time low of 290 on 10th February 2016 and continues to hover at 700levels. At this rate the owners / operators of dry bulk carriers do not recover theirdaily standing charges. Presently around 14.2% of world dry bulk fleet is on order whichmakes a revival in the dry bulk market in near term very difficult. However during thelast quarter of FY16 scrapping of dry bulk tonnage has touched an all time high (14million DWT scrapped in Q4 FY16) which makes the outlook relatively promising as thetonnage growth would be arrested. The global dry bulk trade is expected to grow at anaverage of over 2% during the next 3-4 years. This will only augment the freight to opexlevels indicating an uninspiring modest recovery. China is a key player and much willdepend upon its domestic steel demand and production. In the Container segment losses havebeen piling up as liner freights have dipped below even 2009 global financial crisislevels. The industry is reeling under the impact of larger mega ships entering the marketwith cascading effects on freight rates which are in a free fall. However newbuildingorders have come to a virtual stop which is a respite for now. The liner business issuffering from negative operating results. In the current market a Panamax size vessel ofapprox 4300 TEU has negative earnings of about USD 2000 per day. Liner companies have beenreshuffling their partnerships to form global alliances with an aim to achieve costsavings and enhance profitability through operational collaboration and networkoptimization. Barring few companies the performance of the liner companies during thefiscal has been dismal primarily due to fast deteriorating market conditions and low loadfactors. SCIs liner fleet though small has not been able to shield itself from suchadverse conditions.
Ship Acquisition Programme:
SCI prides in having a diversified fleet of 69 vessels of 5.89 mn DWT with an averageage about 9 years. The present downturn in world shipping has also resulted in the declinein the prices of certain asset classes especially Bulk Carriers and Offshore assets whichpresents us with an opportunity to strategically place orders and increase our fleet size.With the CAPEX plan for FY2016-17 SCI has ambitious plans to augment its tanker andoffshore tonnage through acquisition of secondhand vessels.
Other Corporate Developments:
To remain in business organizations have to constantly think of newer ideas. We haverestructured our SMILE service synergizing SCIs services with M/s. Shreyassservices to seamlessly link the Persian Gulf with East Coast of India and West Coast ofIndia thereby further strengthening and expanding SCIs presence in the CoastalShipping Sector. We have also resumed the India Myanmar Liner service and talks are on forextending the service to certain South East Asian Ports. I am also happy to share thatONGC has entrusted the management of its MODUs Sagar Vijay & SagarBhushan for a period of six years. I am also happy to share with you that SCI hasbeen entrusted with the technical management of 17 Foreshore vessels belonging to theAndaman & Nicobar Administration. These vessels will be managed from our Port BlairOffice thus taking the total number of ships being managed from Port Blair to 28. To takeadvantage of the increasing opportunities in Inland Waterways SCI has signed an MOU withInland Waterways Authority of India during the Maritime India Summit 2016 and is in theprocess of forming a wholly owned subsidiary to undertake InIand Waterwaystransportation on National Waterways-1 2 & 5. This new company will be headquarteredat Kolkata.
Indias GDP grew by 7.9% during the last quarter of FY 2015-16 aggregating to 7.6%growth for the whole of FY 2015-16. If the current rate of growth is sustained India isprojected to clock 8% growth for FY 2016-17 thus reinforcing its position as the fastestgrowing major economy as predicted by the World Bank. However the global shipping sectorcontinues to sail in stormy waters and it is time that we explored hitherto uncharteredwaters for our survival. We have also increased our attention to the InlandWaterways and Coastal Shipping.
would like to express my sincere gratitude to Shri Nitin J. Gadkari Union Minister ofShipping Government of India I for providing support to your Company. I would also liketo thank Shri Pon Radhakrishnan Minister of State for Shipping & Shri MansukhlalMandaviya Minister of State for Shipping for his encouragement. I wish to express mygratitude to Shri Rajive Kumar Secretary (Shipping) for the guidance provided by him. Isincerely acknowledge the support of all other officials of the Ministry of Shipping andvarious departments of Government of India. I am thankful to all my colleagues on theBoard whose support and guidance has assisted us in carrying out the affairs of yourCompany amicably and smoothly. I also wish to express my deep sense of gratitude to allthe stakeholders shareholders all employees (shore & floating) for their continuedsupport and dedication.
As the adage goes a smooth sea never made a skillful sailor your Company has alsolearnt immensely during the last few years surviving through the tough times and adversemarket conditions. Your company has served the nation for about 55 years and continues toremain fundamentally strong and operationally dynamic aspiring to achieve greater success.I seek continued support and patronage of all stakeholders in the companys effortsto march forward with a renewed vigour.
Captain B. B. Sinha
Chairman & Managing Director