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GE Shipping: Allround performance

Jan 30, 2002

Despite the slowdown in world trade, The Great Eastern Shipping Company (Gesco) has managed to post a sharp rise in profits in the third quarter ended December 31, 2001. Change in revenue mix, weak crude prices and cost saving initiatives have resulted in a higher than expected rise in operating profits.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Net sales 2,691 2,836 5.4% 7,490 9,164 22.3%
Other Income 69 62 -10.4% 277 176 -36.3%
Expenditure 1,671 1,514 -9.4% 4,597 5,359 16.6%
Operating Profit (EBDIT) 1,020 1,322 29.7% 2,893 3,806 31.5%
Operating Profit Margin (%)37.9%46.6% 38.6%41.5% 
Interest 176 115 -34.5% 548 408 -25.5%
Depreciation 503 513 1.9% 1,517 1,532 1.0%
Profit before Tax 410 757 84.5% 1,106 2,042 84.7%
Extraordinary items 44 38 -11.9% 237 38 -83.8%
Tax 38 88 129.4% 112 314 181.4%
Profit after Tax/(Loss) 415 707 70.3% 1,231 1,766 43.5%
Net profit margin (%)15.4%24.9% 16.4%19.3% 
No. of Shares (m) 258.8 208.0   258.8 208.0  
Diluted Earnings per share* 6.4 13.6   6.3 11.3  
P/E Ratio  1.8    2.2  

Though revenues increased by 5% to Rs 2,836 m in 3QFY02, a closer look at the sales mix reveals a clearer picture. While income from freight and demurrage have declined by 7% to Rs 806 m, charter income has risen by 18% in the same period. Higher proportion of fleet in the charter market, as against the spot market has enabled the company to post higher sales growth in the cocerned quarter. In line with the company's strategy of focusing on core areas, income from other businesses like commodity trading and property have declined in 3QFY02. This is also vindicated by the fact that income from charters, as a percentage of sales is higher in the third quarter of the current fiscal as compared to 9mFY02.

Revenue-mix...
Segment3QFY02% of sales9mFY02% of sales
Freight and demurrage 807 28.4% 3,102 33.8%
Charter hire 1,871 66.0% 5,146 56.2%
Project - 0.0% 213 2.3%
Others 159 5.6% 704 7.7%
Total income 2,836 100.0% 9,164 100.0%

Operating profit margin in 3QFY02 has gone up significantly. This was on account of a 6% and 27% fall in staff costs and direct operating expenses respectively. Direct operating expenses primarily constitutes fuel charges and canal dues (9% of FY01 expenses). Bunker costs, the fuel for running ships, have remained weak in the last six months, which seems to have benefited Gesco. The sharp spurt in depreciation charge is understandable, as Gesco has added two ships to its portfolio.

Net profit has gone up by 44% for 9mFY02 to Rs 1,766 m. For a comparable analysis, if one were to exclude extraordinary items (primarily profit from sale of ships), net profit has actually increased by 74% for 9mFY02. While this is a commendable performance, the prospects for the fourth quarter as well as for FY03 remains challenging in light of continued weakness in world trade. We expect the company to post a net profit of around Rs 2,350 for FY02. Gesco currently trades at Rs 25 implying a P/E multiple of 2.2x annualised nine months earnings.

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