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GE Shipping: Fourth quarter spoils FY09 show - Views on News from Equitymaster

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GE Shipping: Fourth quarter spoils FY09 show
May 12, 2009

Performance summary
  • Sales grow 10% YoY during FY09, decline 24% YoY in 4QFY09. Decline in revenue days and tanker rates lead to pressure on topline during the quarter.
  • Operating margins expand by 2.8% YoY during the full year led by lower cost on hire of chartered ships.
  • Net profits grow by a marginal 2% YoY during FY09, impacted by extraordinary write-offs on account of impairment of a dry bulk carrier and compensation paid on account of cancellation of vessel construction. Excluding the extraordinary items for both the periods, profits have grown 21% YoY during FY09.
  • Declares interim dividend of Rs 3 per share. This takes the total dividend for FY09 to Rs 8 per share (dividend yield of 3.4%).


Performance Snapshot
Particulars (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net Sales 7,380 5,608 -24.0% 25,807 28,290 9.6%
Expenditure 3,484 2,958 -15.1% 13,103 13,581 3.6%
Operating Profit (EBITDA) 3,896 2,650 -32.0% 12,704 14,709 15.8%
EBITDA margin (%) 52.8% 47.3% 49.2% 52.0%
Other income 407 882 116.7% 1,879 2,813 49.7%
Interest 452 349 -22.9% 1,493 1,536 2.9%
Depreciation 830 1,085 30.7% 3,410 3,485 2.2%
Gain on sale of ships 457 (265) 2,894 2,545 -12.1%
Profit before tax 3,478 1,833 -47.3% 12,575 15,045 19.6%
Tax 74 19 -74.9% 462 349 -24.5%
Extraordinary items (410) 686 1,455 (849)
Net profit 2,994 2,501 -16.5% 13,568 13,848 2.1%
Net profit margin (%) 40.6% 44.6% 52.6% 49.0%
No. of shares (m) 152.3 152.3
Earnings per share (Rs)* 90.9
Price to earnings ratio (x)* 2.6
* On a trailing 12-months basis

What has driven performance in FY09?
  • GE Shipping (GES) grew its sales by 10% YoY during FY09, which was largely a result of higher average freight rates, given that the company recorded lesser number of revenue days across all its vessel segments. The total revenue days for the fiscal stood 15% lower as compared to FY08. Apart from the general slowdown in business activity, lesser revenue days were also due to reduction in the company’s tonnage from 3.07 mdwt (million dead weight tonnes) in FY08 to 2.58 mdwt in FY09. As for the freight rates, the same were higher by 37% YoY and 4% YoY for its crude tankers and dry bulk carriers respectively. As indicated by the management in the conference call, GES is pursuing a capital expenditure of US$ 543 m during the period FY10 to FY12.

  • For the current fiscal, the management sees the demand outlook for oil to be weaker than FY09. It believes that contraction in world output is likely to depress energy consumption, more so in the energy intensive OECD countries. To add to this, high fleet growth will continue to cast its dark shadows. Both these factors put together are likely to keep a pressure on the rates and utilisation levels for the crude tanker segment.

  • As for the dry bulk segment, pressure on freight rate is expected to continue given the contraction in demand for key commodities like steel, coking coal, and iron ore. Further, given the fact that excessive fleet addition has been the highest in the dry bulk segment-it has the largest order-book of 72% of existing world fleet - the freight situation is expected to remain tight. On the positive front, however, the management is of the belief that there has been an increased focus on infrastructure spending worldwide and low commodity prices is encouraging countries to import instead of resorting to domestic production. These factors combined are likely to prevent a further fall in rates from current levels.

What to expect?
At the current price of Rs 233, the stock is trading at a multiple of just around 0.6 times our estimated FY10 book value per share (of the standalone entity). GES’ FY09 performance has surprised us on the positive side given the fact that the company has been able to manage decent growth in the face of freight rate volatility. Based on reported numbers, the company has outperformed our FY09 sales and profit estimates by 16% and 20% respectively. We maintain our view on the stock.

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