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G E Shipping: The other income boost - Views on News from Equitymaster
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G E Shipping: The other income boost
Feb 9, 2015

G E Shipping has announced its December quarter results. The company has reported a 12% YoY growth in consolidated topline while the bottomline has grown 79% YoY. Here is our analysis of the results

Performance summary
  • Consolidated topline grows by 12% on a YoY basis
  • Operating margins fall by 6% on the back of rise in most of the cost heads as a percentage of sales
  • Significantly higher other income leads to the bottomline witnessing a steep 79% YoY rise in profits despite a poor operating performance
  • Standalone bottomline is up more than 5-fold on the back of a 15% growth in topline
  • Consolidated profits for the nine month period grow 21% YoY on the back of an 11% growth in topline


Consolidated financial snapshot
  Consolidated Standalone Consolidated
(Rs m) 3QFY14 3QFY15 Change 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Net sales 7,828 8,778 12.1% 3,979 4,556 14.5% 22,931 25,538 11.4%
Expenditure 4,324 5,374 24.3% 2,581 3,056 18.4% 12,101 14,757 22.0%
Operating profit (EBDITA) 3,505 3,404 -2.9% 1,398 1,499 7.2% 10,830 10,781 -0.5%
EBDITA margin (%) 44.8% 38.8%   35.1% 32.9%   47.2% 42.2%  
Other income 102 664 554.6% 175 570 225.0% 2,585 2,569 -0.6%
Interest (net) 923 713 -22.8% 530 484 -8.7% 2,833 2,250 -20.6%
Depreciation 1,696 1,581 -6.7% 912 855 -6.3% 4,948 4,581 -7.4%
Profit before tax 988 1,775 79.7% 131 731 456.5% 5,634 6,518 15.7%
Extraordinary items       - -     44  
Tax (27) (42)   - 40   563 449 -20.2%
Profit after tax/(loss)† 1,015 1,817 79.0% 131 691 426.0% 5,071 6,113 20.5%
Minority Interest - -   - -     -  
Net profit after minority interest 1,015 1,817 79.0% 131 691 426.0% 5,071 6,113 20.5%
Net profit margin (%) 13.0% 20.7%   3.3% 15.2%   22.1% 23.9%  
No. of shares (m) 150.8 150.8   150.8 150.8   150.8 150.8  
Diluted earnings per share (Rs)*               42.6  
Price to earnings ratio (x)*               6.8  

What has driven performance in 3QFY15?
  • As far as the segmental performance is concerned, revenues from the shipping business were up 31% YoY during the quarter while those from the offshore segment were up 5% YoY. However, operationally, the shipping business does not seem to have done all that well as a significant part of the gain has come from gain in foreign exchange and other non-core income.

  • The story of the quarter was of course drop in crude oil prices which impacted the companyís business positively as low price resulted in high stocking amongst nations and companies which increased demand for both crude as well as product tankers. However, the other division of dry bulk is going through a terrible time, thus leading to the overall sedate performance of the shipping segment.

  • The muted growth in the offshore segment on the other hand was a result of companies slowing their E&P spends on the back of lower crude prices.

  • As per the company, the revenues visibility for FY15 is around Rs 1.8 bn with dry bulk carriers covered to the extent of around 44% of the fleetís operating days. Crude tankers and product carriers (incl. gas) are 68% and 55% covered respectively.

  • On the offshore side, revenue visibility stood at Rs 4 bn for the rest of the fiscal.

    Segmental break up...
    Segment 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    Shipping
    Revenues 4,236 5,562 31.3% 14,099 16,340 15.9%
    PBIT 619 1,211 95.5% 2,935 3,360 14.5%
    PBIT margin 14.6% 21.8%   20.8% 20.6%  
    Offshore
    Revenues 3,694 3,881 5.1% 12,224 12,563 2.8%
    PBIT 1,291 1,276 -1.2% 5,532 5,453 -1.4%
    PBIT margin 35.0% 32.9%   45.3% 43.4%  

  • On account of a 6% contraction in operating margins, operating profits were down 3% on a YoY basis. The contraction was led by almost all of the cost heads as they went up on a percentage of sales basis as compared to same quarter last year.

  • A jump in other income to the tune of 555% has resulted in the company witnessing a steep 80% YoY growth at the PBT level on a consolidated basis. The spurt in other income was a result of exchange related gains as opposed to losses during the same quarter last year.

  • The bottomline witnessed a similar growth of 79% YoY.
What to expect?
At the current price of Rs 341, the stock trades at a multiple of around 0.9x its FY17 standalone book value per share. As per the company, while the crude and product tanker markets donít seem all that bad, thereís pressure in the dry bulk segment and also on the offshore side on account of the recent sharp fall in crude prices. This combined with hardly any room for further gains based on our price to book value method valuation - despite the current fall in price - makes us take a cautious view on the stock. We would recommend investors not to buy the stock at current levels.

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