Exposure can be taken in this Shipping Stock

Investors can consider taking exposures in the stock of Varun Shipping, which trades at five times its trailing 12-month earnings.

With freight rates firming up and buoyancy in global trade, Varun Shipping is likely to sustain growth in operating profits.

Varun Shipping is a niche player in the shipping industry that focuses on the mid-size LPG carrier segment. It is among the larger global players in this space and is well poised to tap growth opportunities in this sector.

Asia is emerging as a large LPG consuming region; also, rising supply-demand imbalance in the LPG business would help in firming up freight rates for this niche segment.

With the country facing a deficit situation on the LPG front, imports are critical to meet demand. This, in turn, is expected to trickle into volume growth for Varun Shipping's LPG carrier business.

Besides securing a tanker on charter basis, Varun Shipping added three LPG carriers to its fleet in FY06, raising its capacity in this segment by about 50 per cent.

A diversified fleet that includes crude oil and petroleum product tankers, anchor handling tug supply (AHTS) vessels and a dry bulk carrier provides cushion against a downturn in its LPG business.

Prospects appear bright for its crude oil and petroleum product tanker business. Expansion in the domestic refining and petrochemical sector is expected to ensure sustained volumes for this tanker segment.

With the Union Government stressing on energy security, prospects for oil drilling appears bright. This, in turn, is expected to result in growth opportunities for its AHTS business. Varun Shipping, with a view to tapping opportunities, plans to strengthen its presence in the offshore sector.

A high return on capital employed and sustained cash flow from operations provides comfort from an investment perspective.