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Buy Mercator Lines – Religare

December 26, 2007

Mercator Lines Ltd [MLL] is in the business of dry and liquid bulk cargo. MLL derives 70% of its revenues from long term contracts of 3 to 7 years. MLL recently raised $140 million and listed itself on the Singapore Stock Exchange.

NLL has a fleet size of 24 of which 11 are operated by its subsidiary in Singapore.Current robust economic demand in China and India is driving imports of COAL and hence the rise in shipment of DRY BULK CRARGO. Iron Ore is another commodity that is seeing bulk transportation in the region directly benefiting MLL.

Sum of the Parts Valuation:
MLL is expected to report an EPS of Rs 12.5, 13.6 and Rs 19.0 for Fy08, Fy09 amd Fy2010 respectively. The stock is trading at a P/E of 8.4 and P/BV of 1.8x.

Value of MLL’s share in Holding company – Rs 84.3/share
Value of 72% stake in Mercator singapore – Rs 92.7 / share

Thus on the basis of sum of the parts valuation a target price of Rs 177 is recommended.

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