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Shipping: Tapering growth rates - Views on News from Equitymaster
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  • Apr 12, 2001

    Shipping: Tapering growth rates

    After an eventful year thanks to the buoyant freight rates, it seems that the dust has settled down for the shipping companies. Major economies like US, Japan and Europe have scaled down their economic growth projections by an average of 50 basis points, which does not augur well for these companies.

    An analysis of the third quarter results of the top three shipping companies, which includes Great Eastern Shipping, Shipping Corporation of India and Essar Shipping shows the impact of the buoyant freight rates on bottomline of these companies. Though growth in sales was below the industry growth rates (internationally shipping companies have reported more than 50% growth in sales), higher tanker as well as bulk freight rates have improved average realisations by more than 300 basis points. Thus, operating margins of shipping companies have also gone up sharply by 1,280 basis points to 32.2% in the third quarter of the current year.

    Consolidated results*
    (Rs m) 3QFY00 3QFY01 Change
    Gross sales 9,440 12,041 27.6%
    Other income 448 413 -7.8%
    Total revenues 9,888 12,454 26.0%
    Expenses 7,609 8,160 7.2%
    Gross profit 1,829 3,880 112.1%
    Depreciation 1,299 1,352 4.1%
    Interest 549 548 -0.2%
    Profit before tax 429 2,393 457.8%
    Tax 109 485 345.0%
    Profit after tax 320 1,908 496.3%
    Gross profit margin 19.4% 32.2%  
    Net profit margin 3.4% 15.8%  
    * Includes G.E. Shipping, SCI and Essar Shipping

    But, prospects for the bulk carrier business do not sound promising given the fact that the growth in world trade is expected to taper in FY02. Yesterday, The Organisation for Economic Co-operation and development (OECD) cut its forecast for the euro-zone economic growth by 40 basis points to 2.7% (3.1% earlier). The slow down in even more pronounced in the US where estimates of growth rate has been lowered from 2.5% earlier to just over 1% recently. The US accounts for 12.4% and 18% of world exports and imports respectively.

    Share of developed countries (goods loaded)
    (% share) Crude Products Dry cargo Total
    FY80 6.3% 25.5% 64.7% 37.0%
    FY90 13.4% 32.7% 63.4% 43.8%
    FY97 11.9% 33.7% 63.2% 43.1%
    FY98 11.6% 33.0% 63.3% 43.4%
    FY99 11.6% 33.7% 63.0% 43.3%
    FY00 11.6% 33.7% 63.1% 43.8%

    Besides, US and Asia account for more than 14% and 26% respectively of the total uploaded tonnage. However, the share of Asian economy has come down from 31% in FY80 to 26% in FY00, which could be due to the economic turmoil in these economies off late. So, if these economies were to slow down further, the effect on shipping companies will be more materialistic. As a result, we expect both sales and operating margins to decline in FY02 (but decline in margins will not be commensurate to the decline in sales growth).



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