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G E Shipping: Profits fall nearly by half - Views on News from Equitymaster
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G E Shipping: Profits fall nearly by half
Feb 10, 2014

G E Shipping has announced its December quarter results. The company has reported a 3% YoY growth in consolidated topline while the bottomline has fallen 47% YoY. Here is our analysis of the results

Performance summary
  • Consolidated topline grows by 3% on a YoY basis
  • Operating margins expands by 2.8% on the back of fall in cost of hire of chartered ships and lower fuel costs
  • Significantly lower other income leads to the bottomline witnessing a steep 47% YoY decline
  • Standalone bottomline comes in lower by 83% YoY while the topline falls by 15% YoY
  • Consolidated profits for the nine month period grow 12% YoY on the back of a 3% growth in topline

(Rs m) 3QFY13 3QFY14 Change 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 7,591 7,828 3.1% 4,655 3,979 -14.5% 22,314 22,931 2.8%
Expenditure 4,400 4,324 -1.7% 3,233 2,581 -20.2% 13,556 12,101 -10.7%
Operating profit (EBDITA) 3,190 3,505 9.9% 1,423 1,398 -1.7% 8,758 10,830 23.7%
EBDITA margin (%) 42.0% 44.8%   30.6% 35.1%   39.2% 47.2%  
Other income 1,225 102 -91.7% 826 175 -78.8% 3,191 2,585 -19.0%
Interest (net) 856 923 7.8% 531 530 -0.3% 2,617 2,833 8.3%
Depreciation 1,510 1,696 12.3% 956 912 -4.6% 4,428 4,948 11.8%
Profit before tax 2,049 988 -51.8% 761 131 -82.8% 4,904 5,634 14.9%
Extraordinary items       - -     -  
Tax 131 (27) -120.8% 10 -   364 563 54.7%
Profit after tax/(loss)  1,918 1,015 -47.1% 751 131 -82.5% 4,540 5,071 11.7%
Minority Interest - -   - -     -  
Net profit after minority interest 1,918 1,015 -47.1% 751 131 -82.5% 4,540 5,071 11.7%
Net profit margin (%) 25.3% 13.0%   16.1% 3.3%   20.3% 22.1%  
No. of shares (m) 152.3 150.8   152.3 151.0   152.3 151.0  
Diluted earnings per share (Rs)*               39.1  
Price to earnings ratio (x)*               7.4  
(* on trailing twelve months earnings)

What has driven performance in 3QFY14?
  • As far as the segmental performance is concerned, revenues from the shipping business was down 23% YoY during the quarter while those from the offshore segment were up 11% YoY. However, this break up was impacted to a great extent by the other income component present in the segment wise financials and hence, a clear picture of the operational performance of both the segments is that much difficult to get. However, the shipping segment seems to have done poorly again what with the revenue days coming down by 20%. However, the same for the offshore business was higher by around 9% YoY.

  • However, what was encouraging from the shipping business point of view were the higher time charter rates for dry bulk, which were the highest they have been in four quarters. The same for product carriers were also higher on a sequential basis while crude carriers witnessed a dip in its time chartered rates.

  • The company placed an order for 3 new dry bulk carriers which are expected to join the fleet in 2Q and 3Q of CY16.

  • As per the company, the revenues visibility for FY14 is around Rs 2 bn with dry bulk carriers covered to the extent of around 64% of the fleet's operating days. Crude tankers and product carriers (incl. gas) are 74% and 87% covered respectively.

  • On the offshore side, revenue visibility stood at Rs 3.6 bn for the rest of the fiscal.

    Segmental break up...
    Segment 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Shipping
    Revenues 5,499 4,236 -23.0% 15,505 14,099 -9.1%
    PBIT 1,302 619 -52.5% 2,613 2,934 12.3%
    PBIT margin 23.7% 14.6%   16.9% 20.8%  
    Offshore
    Revenues 3,317 3,694 11.4% 10,435 12,224 17.1%
    PBIT 1,603 1,292 -19.4% 4,908 5,534 12.7%
    PBIT margin 48.3% 35.0%   47.0% 45.3%  

  • On account of a 2.8% expansion in operating margins, operating profits were up 10% on a YoY basis. The expansion was led mainly by fall in both, the cost of hire of chartered ships/equipments and lower fuel, oil and water expenses as a percentage of sales.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 3QFY13 3QFY14 Change 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Employees cost 1,050 1,247 18.8% 502 506 0.8% 3,300 3,676 11.4%
    % sales 13.8% 15.9%   10.8% 12.7%   14.8% 16.0%  
    Fuel, oil and water 1,254 1,010 -19.4% 1,200 930 -22.6% 3,483 2,905 -16.6%
    % sales 16.5% 12.9%   25.8% 23.4%   15.6% 12.7%  
    Hire of chartered ships/equipments 682 211 -69.1% 576 - -100.0% 2,405 608 -74.7%
    % sales 9.0% 2.7%   12.4% 0.0%   10.8% 2.7%
    Consumption of stores and spares 412 577 40.1% 268 280 4.3% 1,184 1,415 19.5%
    % sales 5.4% 7.4%   5.8% 7.0%   5.3% 6.2%  
    Repairs and maintenance 235 330 40.6% 155 255 64.8% 904 994 9.9%
    % sales 3.1% 4.2%   3.3% 6.4%   4.0% 4.3%  
    Others 769 949 23.4% 531 611 15.0% 2,280 2,504 9.8%
    % sales 10.1% 12.1%   11.4% 15.3%   10.2% 10.9%  

  • A fall in other income to the tune of 92% has resulted in the company witnessing a steep 52% YoY fall at the PBT level on a consolidated basis. The fall in other income was a result of exchange related losses as opposed to gains during the same quarter last year.

  • The bottomline witnessed a slightly lower fall of 47% YoY on account of a tax income as opposed to a tax outgo.
What to expect?
At the current price of Rs 288, the stock trades at a multiple of around 0.7x its FY15 standalone book value per share. As per the company, while trade is likely to remain robust going forward, a wave of new supply of vessels is likely to put pressure on freight rates. Strong revenue visibility on the offshore side however is a comforting factor as per us. We came out with a recommendation report on the company currently and we stick with the target price of Rs 350 per share from an FY16 perspective as mentioned in the report.

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