Shipping, where is it heading? - Views on News from Equitymaster

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Shipping, where is it heading?

May 11, 2000

The strength of the Indian fleet and the total cargo declined during FY99, reflecting a sharp deterioration in business prospects. However, with the trade scenario looking good, companies like Great Eastern Shipping (Gesco) and Shipping Corporation of India (SCI) should be able to shake off the slowdown that hurt their financial performance. Growth in exports during FY00 is expected to touch the double-digit mark, after hovering at 5% in FY97 and 4% in FY99. But, the only concern is that, our export basket is concentrated towards few items including gems, jewellery and cotton yarn. These items contributed to 68% of the increase in total exports during April-January FY00.

Imports also increased in US$ terms by 7.9% to $41.9 bn. This was more on account of an increase in petroleum, oil and lubricant imports. The latest figures indicate that the petroleum, oil and lubricant imports increased by 66.4% during April–February FY00.

The Baltic index, which indicates the dry bulk freight market, recovered in late July 1999. An improvement in freight rates would enable shipping companies to post better margins. Furthermore, depreciation in the value of the Indian Rupee will boost Dollar earnings of these companies.

Against this backdrop the major apprehension is that this sector lacks proper infrastructure and port handling facilities. This could affect efficiency of operations leading to a sub optimal use of capacity.

Gesco is currently trading at Rs 14.2 at a P/E of 3.3 on FY2000 earnings. SCI is currently trading at Rs 13.7 at a P/E 1.9 on FY1999 earnings.

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