Essar Shipping: Hold/Avoid fresh exposures

Recommendation: Hold/avoid fresh exposures

S. Vaidya Nathan

With its decision to spin off the port terminal project as Essar Tankers, a subsidiary, Essar Shipping appears to be re-focussing on the shipping business.

Though prima facie this move augurs well, it may take a while before the market regains some confidence in the stock. The company has been through a rough phase with the port terminal project weighing down its financials and the scrips's valuation.

The Essar group's problems have also cast a shadow. It may take a few years of focussed effort before the stock's valuation shows a sustainable fundamentals-linked improvement. Essar Shipping has a fairly diversified fleet with presence in the dry cargo and tankers business. The company's experience of operating in market-based freight structures should come in handy, especially with the freight rates volatility of the last 18 months. Questions may be lingering over the subsidiary issue and until these are settled and the company sustains earnings growth for a few years, it may be better to avoid fresh exposures in the stock.