The Great Eastern Shipping Company (Gesco) is slated to announce its fourth quarter results today. Given the fact that the freight rates have softened, after touching decade high levels, can the company sustain its robust bottomline growth in the current quarter also?
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Gesco reported a marginal 3% growth in the income from shipping operations to Rs 7,064 m for the first nine months of the current year. But, the decline in sales was primarily on account of nil income from projects (marine construction) in 3QFY01 as against Rs 520 m in 3QFY00. If one were to exclude this item, sales has actually gone up by 12% for the first nine months of the current year. We had expected the company to post a 13% growth in sales for FY01 to Rs 10,374 m. But given the fall in sales from its marine engineering division in the third quarter, we now expect the company to report around 7% growth in sales for FY01.
Even in the fourth quarter, income from shipping operations is expected to report a sharp growth as the company has realigned its fleet to cater to the international markets in the last year. Operating margins are also expected to show marked improvement in light of higher tanker rates and the new charters entered by the company in the second quarter of the current year. Operating margins for the first nine months of the current year have gone up to 41% from 30% in the corresponding quarter of the previous year. This is line with our expectations.
Net profits for the first nine months have gone up by 57% to Rs 1,228 m. This lower growth in net profit despite a sharp increase in operating margins is primarily on account of lower extraordinary income (income from sale of ships) as compared to last year. If one were to remove this extraordinary income, net profits have actually increased by 184%.
Meanwhile the company has announced its second buy-back plan for the current year and the decision to this effect is also expected today. The promoters stake in the company has gone up to 16% during the year from 14% in FY00.
The scrip is currently trading at Rs 33 at a P/E multiple of 5.2x the annualised nine months earnings. On the shipping front, both the Baltic Freight Index (BFI) and tanker rates have come off from their high levels. While BFI has fallen just by 6% in the last six months, tanker rates have declined by 25% due to concerns on slowing US economy and mounting order book. Besides, the company lost the Petronet LNG transportation contract to Shipping Corporation of India, based on which Gesco had big plans. Overall, the outlook for FY02 is challenging for Gesco.
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