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GE Shipping: Crude tankers save the day - Views on News from Equitymaster
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GE Shipping: Crude tankers save the day
Jan 30, 2009

Performance summary
  • Sales grow 16% YoY during 3QFY09, 23% YoY during 9mFY09. Growth largely aided by higher freight rates in the crude tanker segment as revenues days decline. Dry bulk freight remains under severe pressure.
  • Operating margins contract by 4.6% YoY during the quarter, largely due to higher costs of fuel, staff, and repairs and maintenance.
  • Led by fall in operating margins, other income, and gains on sales of ships, bottomline declines by 18% YoY during 3QFY09.
  • Declares interim dividend of Rs 2.5 per share. Total dividend declared for FY09 so far stands at Rs 5 per share.


Financial performance snapshot
Particulars (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net Sales 6,043 7,017 16.1% 18,428 22,683 23.1%
Expenditure 3,140 3,973 26.5% 9,619 10,626 10.5%
Operating Profit (EBITDA) 2,903 3,044 4.9% 8,809 12,056 36.9%
EBITDA margin (%) 48.0% 43.4%   47.8% 53.2%  
Other income 685 481 -29.8% 1,472 1,934 31.4%
Interest 386 444 15.1% 1,041 1,188 14.1%
Depreciation 878 823 -6.3% 2,580 2,400 -6.9%
Gain on sale of ships 490 271 -44.8% 2,437 2,810 15.3%
Profit before tax 2,815 2,529 -10.1% 9,098 13,212 45.2%
Tax 103 (30)   388 330 -14.9%
Extraordinary items 224 (149)   1,865 (1,534)  
Net profit 2,936 2,410 -17.9% 10,575 11,348 7.3%
Net profit margin (%) 48.6% 34.3%   57.4% 50.0%  
No. of shares (m)       152.3 152.3  
Earnings per share (Rs)*         94.2  
Price to earnings ratio (x)*         1.8  
* On a trailing 12-months basis

What has driven performance in 3QFY09?
  • GE Shipping’s (GES) sales grew by 16% YoY during 3QFY09. This was largely led by a strong 60% YoY surge in freight rates of crude tankers. On the other hand, while overall revenues days declined by 13% YoY, freight rate of dry bulk tankers came down substantially (by around 32% YoY). In an overall tough global trade environment, GES’ broader performance stands apart.

  • The management expects the next few months to be really tough for the dry bulk segment, as has been seen over the previous two quarters. It has indicated that lack of credit lines from banks continues to hamper normal resumption of global trade. As for the tanker segment, the management believes that the usage of large tankers like VLCCs and Suezmaxes and onshore storage capacity for crude given that prices have crashed, will keep freight rates high.

  • GES’ operating margins contracted by 4.6% YoY during the quarter. This was largely due to higher cost of fuel, staff, and repairs and maintenance (all as percentage of sales). Led by fall in operating margins, other income, and gains on sales of ships, GES’ bottomline declined by 18% YoY during 3QFY09. Profits grew by 7% YoY during the nine-month period.

What to expect?
At the current price of Rs 171, the stock is trading at an attractive valuation of 0.4 times our estimated FY11 book value per share. GES’ 9mFY09 performance is well in line of outperforming our full year estimates. We maintain our positive view on the stock from a 2 to 3 years perspective.

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