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GE Shipping: The non-operational boost - Views on News from Equitymaster
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GE Shipping: The non-operational boost
May 14, 2015

GE Shipping has announced its March quarter results. The company has reported an 11% YoY growth in consolidated topline while the bottomline has more than doubled. Here is our analysis of the results

Performance summary
  • Consolidated topline grows by 11% on a YoY basis
  • Operating margins contract by 3.5% on the back of sharp increase in other expenses amongst others
  • Fall in interest as well as depreciation outgo plus a positive other income has led to the bottomline growth of more than 100% during the quarter
  • Standalone bottomline records a profit as opposed to a loss during same quarter last year
  • Consolidated profits for the full year grow 30% YoY on the back of an 11% growth in topline
  • Proposes a final dividend of Rs 7 per share, taking the dividend for the full year to Rs 11 per share.

Standalone financials: A snapshot
  Consolidated Standalone Consolidated
(Rs m) 4QFY14 4QFY15 Change 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 7,988 8,842 10.7% 4,029 4,670 15.9% 30,919 34,380 11.2%
Expenditure 4,500 5,291 17.6% 2,701 2,830 4.8% 16,601 20,048 20.8%
Operating profit (EBDITA) 3,488 3,551 1.8% 1,328 1,840 38.5% 14,318 14,332 0.1%
EBDITA margin (%) 43.7% 40.2%   33.0% 39.4%   46.3% 41.7%  
Other income (170) 186   (116) (118)   2,415 2,755 14.1%
Interest (net) 916 756 -17.5% 480 451 -6.0% 3,749 3,006 -19.8%
Depreciation 1,705 1,563 -8.4% 860 787 -8.5% 6,653 6,144 -7.7%
Profit before tax 697 1,420 103.6% (127) 485   6,332 7,938 25.4%
Extraordinary items - -   - -   - 44  
Tax 29 50   - (40)   592 499 -15.7%
Profit after tax/(loss)  668 1,370 104.9% (127) 525   5,740 7,482 30.4%
Minority Interest - -   - -     -  
Net profit after minority interest 668 1,370 104.9% (127) 525   5,740 7,482 30.4%
Net profit margin (%) 8.4% 15.5%   -3.2% 11.2%   18.6% 21.8%  
No. of shares (m) 150.8 150.8   150.8 150.8   150.8 150.8  
Diluted earnings per share (Rs)*               49.6  
Price to earnings ratio (x)*               7.1  
(* on trailing twelve months earnings)

What has driven performance in 4QFY15?
  • It is time for a bit of a role reversal as far as the company's topline is concerned. The offshore segment which had been the key driver for all these quarters slowed down and managed to grow by only 9% during the quarter. The slowdown could be attributed to lower crude prices which in turn are making oil exploration companies go slow on oil exploration and production.

  • The shipping business on the other hand did well and grew by around 30% YoY during the quarter. This was mainly on the back of buoyancy in the product tanker business. The dry bulk business on the other hand continues to face challenging times.

  • As highlighted by the company, the time charter yield for the dry bulk segment fell almost 50% as compared to same quarter last year. The same for crude carriers and product tankers however, witnessed a good amount of increase.

  • Going forward, while the revenue visibility for FY16 stood at Rs 3 bn for the shipping business, the same stood at Rs 15 bn for the offshore business.

    Segmental break up...
    Segment 4QFY14 4QFY15 Change FY14 FY15 Change
    Shipping
    Revenues 4,003 5,235 30.8% 18,013 21,230 17.9%
    PBIT 333 959 188.1% 3,268 4,318 32.2%
    PBIT margin 8.3% 18.3%   18.1% 20.3%  
    Offshore
    Revenues 3,820 4,164 9.0% 16,027 16,511 3.0%
    PBIT 1,280 1,216 -5.0% 6,813 6,669 -2.1%
    PBIT margin 33.5% 29.2%   42.5% 40.4%  

  • As far as operating margins are concerned, they came in lower by 3.5% during the quarter, mainly on account of significant jump in other expenses as well as greater hiring of chartered ships and equipments.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 4QFY14 4QFY15 Change 4QFY14 4QFY15 Change FY14 FY15 Change
    Employees cost 1,393 1,501 7.7% 565 637 12.8% 5,069 5,579 10.1%
    % sales 17.4% 17.0%   14.0% 13.6%   16.4% 16.2%  
    Fuel, oil and water 1,052 1,225 16.4% 979 1,051 7.3% 3,957 5,065 28.0%
    % sales 13.2% 13.8%   24.3% 22.5%   12.8% 14.7%  
    Hire of chartered ships/equipments 184 351 91.0% - -   792 1,193 50.6%
    % sales 2.3% 4.0%   0.0% 0.0%   2.6% 3.5%  
    Consumption of stores and spares 595 552 -7.2% 322 276 -14.3% 2,010 2,116 5.3%
    % sales 7.4% 6.2%   8.0% 5.9%   6.5% 6.2%  
    Repairs and maintenance 352 437 24.3% 258 272 5.5% 1,345 1,890 40.5%
    % sales 4.4% 4.9%   6.4% 5.8%   4.4% 5.5%  
    Others 925 1,226 32.5% 580 594 2.4% 3,428 4,205 22.7%
    % sales 11.6% 13.9%   14.4% 12.7%   11.1% 12.2%  

  • While the operating performance wasn't all that great, a positive other income as opposed to a loss last year and fall in interest as well as depreciation charges led the bottomline to surge and grow nearly 105% during the quarter.
What to expect?
At the current price of Rs 350, the stock trades at a multiple of around 1.1x its FY17 standalone book value per share. As per the company, while the crude and product tanker markets don't seem all that bad, there's pressure in the dry bulk segment and also on the offshore side on account of the recent sharp fall in crude prices. This combined with hardly any room for further gains based on our price to book value method valuation - despite the current fall in price - makes us take a cautious view on the stock. We would recommend investors not to buy the stock at current levels.

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