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G E Shipping: The impairment boost - Views on News from Equitymaster
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G E Shipping: The impairment boost
May 7, 2012

G E Shipping has announced its March quarter results. The company has reported 38.5% YoY growth in standalone topline while the bottomline has turned positive as against a loss last year. Here is our analysis of the results.

Performance Summary
  • Standalone topline grows by 38.5% YoY during the quarter.
  • Operating margins contract by 14.7% on the back of higher outgo towards hiring of chartered ships and rigs.
  • Absence of any impairment charges leads to the company reporting a profit of Rs 102 m during the quarter. Same quarter last year, the company had witnessed a loss of Rs 320 m in its standalone financials.
  • Full year profits fall 46% YoY on the back of 24% growth in topline.
  • Consolidated profits fall 35% YoY despite a 21% growth in topline.

Standalone financials...
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 3,250 4,501 38.5% 13,818 17,096 23.7%
Expenditure 2,072 3,532 70.5% 8,329 12,350 48.3%
Operating profit (EBDITA) 1,178 969 -17.7% 5,490 4,747 -13.5%
EBDITA margin (%) 36.3% 21.5%   39.7% 27.8%  
Other income 594 621 4.5% 2,802 3,066 9.4%
Interest (net) 414 701 69.4% 1,453 2,798 92.6%
Depreciation 758 787 3.8% 3,030 3,571 17.8%
Profit before tax 600 102 -83.0% 3,809 1,444 -62.1%
Extraordinary items (857) -   (857) 210  
Tax 63 -   288 220 -23.5%
Profit after tax/(loss) (320) 102   2,665 1,433 -46.2%
Net profit margin (%) -9.8% 2.3%   19.3% 8.4%  
No. of shares (m) 152.3 152.3   152.3 152.3  
Diluted earnings per share (Rs)*         9.4  
Price to earnings ratio (x)*         26.9  
(* on trailing twelve months earnings)

What has driven performance in 4QFY12?
  • Company's topline grew by 38.5% YoY during the quarter. The growth was driven mostly by freight and charter hire division as the company earned very little from sale of ships. As per the company, freight rates, especially for crude tankers remained firm throughout the quarter. But a steady growth in fleet capped any significant spurt in freight rates. Going forward, the key positive factor to watch out for will be a stronger than expected US recovery and increase in long haul voyages which can result in stronger fleet utilization and freight rates.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Employees cost 479 453 -5.4% 2,040 1,875 -8.1%
    % sales 14.7% 10.1%   14.8% 11.0%  
    Loss on foreign currency transaction - 357   - 70  
    % sales 0.0% 7.9%   0.0% 0.4%  
    Fuel, oil and water 619 1,051 69.9% 2,562 3,788 47.9%
    % sales 19.0% 23.4%   18.5% 22.2%
    Hire of chartered ships & rigs 20 742 3630.2% 158 2,638 1573.6%
    % sales 0.6% 16.5%   1.1% 15.4%  
    Other expenses 952 928 -2.6% 3,589 3,859 7.5%
    % sales 29.3% 20.6%   26.0% 22.6%  

  • On the costs front, margins have taken a hit to the tune of 14.7%. The biggest impact has come on account of costs incurred for hire of chartered ships and rigs. From just 0.6% of sales in 4QFY11, this cost component increased to become 16.5% of topline for the quarter ended March 2012. The margins were salvaged a bit on account of fall in other expenses.

  • While operating profits fell by 18% YoY, a 69% jump in interest expenses resulted in the PBT falling by 83% YoY. However, the absence of any impairment adjustment during the quarter led to the bottomline witnessing a profit of Rs 102 m as against a loss of Rs 320 m during same quarter last year.

  • The company's offshore business continued to do well, increasing its revenues by about 47% YoY but segmental profits remained mostly flat.

What to expect?
At the current price of Rs 251, the stock trades at a multiple of around 0.63 times its expected FY14 standalone book value per share. While short term pressures persist, in the long run shipping companies are likely to benefit from strong consumption demand from China and India as they build up infrastructure to support economic growth. In view of this, we remain positive on the stock.

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