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Shipping: Outperforms Sensex - Views on News from Equitymaster
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  • Apr 17, 2001

    Shipping: Outperforms Sensex

    The shipping industry had a memorable year 2000 thanks to the buoyant world trade, which boosted freight rates to historically high levels. In the current year, the major Indian shipping companies like Great Eastern Shipping (Gesco), Shipping Corporation of India (SCI) and Essar Shipping have recorded an aggregate growth of 224% in net profits in the third quarter of the current year.

    As a result, if you take a look at the top gainers during the year 2000-01, Gesco and SCI are one of the top gainers on the bourses. While the benchmark BSE Sensex has fallen by 39.5% (1st January 2000 to 16th April 2001), both Gesco and SCI have appreciated by 11.1% and 36.8% respectively, which is apparent from the graph below.

    One of the primary reasons for this is that both these companies have a strong presence in the tanker segment. Freight rates for tankers (includes crude and product carriers) increased from US$ 10,000 per day to touch US$ 55,000 per day, which helped the companies in recording significant growth in bottomline in the first three quarters. Operating margins grew by 330 and 1,100 basis points for SCI and Gesco respectively in the first nine months of the current year. Even excluding extraordinary items (i.e. income from sale of ships), net profits, on an average, have gone up by 150%.

    Going forward, both these companies have plans to expand their tanker capacity to cater to international crude demand, which is expected to register sharp growth in the long-term (though the current scenario is shabby). Besides, SCI recently won the much-awaited Petronet LNG transportation project. As a result, cash flows are expected to stabilise for the company, as LNG transportation contracts are generally for more than 20 years. In case of Gesco, the company has placed orders for three Aframax carriers and has altered its fleet to cater to international demand in the last year itself. As a result, both margins and revenue growth are expected to remain buoyant in the fourth quarter also.

    Though sales and margins are expected to come under pressure towards the later half of the year due to the slow down in the world trade as well as increasing world order book for new tonnage for bulk carriers, tanker rates have stabilised. Besides, both these companies have entered into long-term charter contracts with some of the leading oil exploration companies in India. This should marginalize the effect of lower realisations.



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