Mercators performance likely to improve in coming quarters

MUMBAI: Mercators performance in the latest June 2012 quarter was better than expected. Jump in the offshore business and improvement in the coal business were the reasons for such a performance. The company is mainly into offshore and coal business. With the gradual improvement in both these businesses, the company's likely to perform better in the coming quarters.

Like every other offshore company, Mercators business has been impacted over the past few years. However, diversification into coal trading business has helped the company to do better than its peers. The company plans to gradually expand its coal business. It already has expanded from coal procurement and logistics business to coal mining. Likely improvements in the earnings will also help the company to reduce its debt to equity. The company's high debt to equity which is currently at 1.4 is a concern.

In the June 2012 quarter, the company's revenue increased by 37% year-on-year, to Rs 1095 crore primarily due growth in the coal business and jump in the offshore business booked on execution of ONGC's order. Profit after tax declined 11% y-o-y to Rs 18 crore. However, this was after reporting a loss of Rs 27 crore in the previous quarter.

At the current market price of Rs 20, the company is trading at a EV/EBIDTA of 5.2 which is at a discount to its global peers.