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G E Shipping: The other income blow - Views on News from Equitymaster
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G E Shipping: The other income blow
May 10, 2014

G E Shipping has announced results for the quarter ending March 2014 . The company has reported a 3% YoY growth in consolidated topline while the bottomline has fallen 20% YoY during the quarter. Here is our analysis of the results

Performance summary
  • Consolidated topline grows by 3% on a YoY basis during the quarter.
  • Consolidated operating margins expands by 7.6% on the back of fall in cost of hire of chartered ships and lower fuel costs during the quarter.
  • Loss at the other income level leads to the bottomline witnessing a 20% YoY decline during the quarter.
  • Standalone bottomline goes in the red again on account of other income being in the negative
  • Consolidated profits for the full year grow 7% YoY on the back of a 3% growth in topline
  • Proposes a final dividend of Rs 5 per share, taking the dividend for the full year to Rs 9 per share.

Financial performance: A snapshot
  Consolidated Standalone Consolidated
(Rs m) 4QFY13 4QFY14 Change 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 7,753 7,988 3.0% 4,280 4,029 -5.9% 30,067 30,919 2.8%
Expenditure 4,916 4,461 -9.3% 3,374 2,704 -19.9% 18,472 16,562 -10.3%
Operating profit (EBDITA) 2,837 3,527 24.3% 906 1,326 46.2% 11,595 14,357 23.8%
EBDITA margin (%) 36.6% 44.2%   21.2% 32.9%   38.6% 46.4%  
Other income 747 (170)   604 (113) -118.7% 3,938 2,415 -38.7%
Interest (net) 830 955 15.0% 481 480 -0.2% 3,447 3,788 9.9%
Depreciation 1,496 1,624 8.5% 863 860 -0.3% 5,924 6,580 11.1%
Profit before tax 1,257 778 -38.1% 167 (127)   6,162 6,404 3.9%
Extraordinary items (318) (81)   - -   (318) (73)  
Tax 102 29   70 -   466 592 27.0%
Profit after tax/(loss) 837 668 -20.2% 97 (127)   5,378 5,740 6.7%
Minority Interest - -   - -     -  
Net profit after minority interest 837 668 -20.2% 97 (127)   5,378 5,740 6.7%
Net profit margin (%) 10.8% 8.4%   2.3% -3.2%   17.9% 18.6%  
No. of shares (m) 152.3 150.8   152.3 150.8   152.3 150.8  
Diluted earnings per share (Rs)*               38.1  
Price to earnings ratio (x)*               8.9  
(* on trailing twelve months earnings)

What has driven performance in 4QFY14?
  • It is the offshore business again that came to the company's rescue during the quarter as segmental revenues were seen higher by 7% YoY during the quarter. Shipping business on the other hand continued to suffer from pressure on freight rates amidst excess supply in the market and hence witnessed a 19% YoY fall in the same period. The fact that there was Rs 627 m loss due to adverse foreign currency movements also did not help matters. The poor performance of the shipping business can also be seen in the steep 49% YoY fall in EBIT .

    Segmental break up...
    Segment 4QFY13 4QFY14 Change FY13 FY14 Change
    Shipping
    Revenues 4,936 4,004 -18.9% 20,440 18,103 -11.4%
    PBIT 659 338 -48.7% 3,272 3,272 0.0%
    PBIT margin 13.4% 8.5%   16.0% 18.1%  
    Offshore
    Revenues 3,571 3,820 7.0% 14,006 16,044 14.6%
    PBIT 1,111 1,314 18.3% 6,019 6,848 13.8%
    PBIT margin 31.1% 34.4%   43.0% 42.7%  

  • As far as operating margins are concerned, they came in higher by 7.6% during the quarter, mainly on account of a huge 83% drop in cost of hire of chartered ships and equipment.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 4QFY13 4QFY14 Change 4QFY13 4QFY14 Change FY13 FY14 Change
    Employees cost 1,193 1,393 16.7% 534 565 5.8% 4,494 5,069 12.8%
    % sales 15.4% 17.4%   12.5% 14.0%   14.9% 16.4%  
    Fuel, oil and water 826 1,052 27.3% 787 979 24.4% 4,309 3,957 -8.2%
    % sales 10.7% 13.2%   18.4% 24.3%   14.3% 12.8%  
    Hire of chartered ships/equipments 1,055 184 -82.6% 899   -100.0% 3,461 792 -77.1%
    % sales 13.6% 2.3%   21.0% 0.0%   11.5% 2.6%  
    Consumption of stores and spares 479 595 24.1% 289 322 11.6% 1,663 2,010 20.8%
    % sales 6.2% 7.4%   6.7% 8.0%   5.5% 6.5%  
    Repairs and maintenance 467 352 -24.7% 361 258 -28.6% 1,371 1,345 -1.9%
    % sales 6.0% 4.4%   8.4% 6.4%   4.6% 4.4%  
    Others 895 886 -1.0% 504 580 15.0% 3,175 3,389 6.8%
    % sales 11.5% 11.1%   11.8% 14.4%   10.6% 11.0%  

  • However, this was still not enough to offset the loss that the company witnessed at the other income level and hence the bottomline suffered a decline of 20% during the quarter.
What to expect?
At the current price of Rs 337, the stock trades at a multiple of around 0.8x its FY16 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. However, the valuations appear stretched to us from a medium term perspective and as we mentioned in our recent March 2014 update (via the monthly update in stock select), we continue to maintain a SELL view on the stock.

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