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GE Shipping: Decent quarter, weak year - Views on News from Equitymaster

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GE Shipping: Decent quarter, weak year
May 24, 2010

GE Shipping has announced its FY10 results. On a consolidated basis, the company has reported a 25% YoY decline in sales and 64% YoY decline in net profits during the year. Here is our analysis of the results.

Performance summary
  • Consolidated net sales fall 25% YoY during FY10, led by an extremely weak performance during the first nine-month period. Fourth quarter sales drops 1% YoY.
  • Operating margins drop substantially to 25.4% in FY10, from 42.8% in FY09. This is largely due to forex losses during the year, as compared to forex gains earned in FY09.
  • Led by weaker sales and operating margins, lesser gains on sales of ships, and higher interest charges, net profits for FY10 crash by 64% YoY. Profit during 4QFY10 up 24% YoY, helped by gains on sale of ships.
  • Declares dividend of Rs 8 per share (dividend yield of 2.8%).
  • Greatship (India) Ltd., the companyís offshore services subsidiary, has filed an application with the SEBI for an IPO.


Consolidated performance snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net Sales 7,748 7,667 -1.0% 37,916 28,565 -24.7%
Expenditure 4,402 5,185 17.8% 21,676 21,308 -1.7%
Operating Profit (EBITDA) 3,347 2,482 -25.8% 16,239 7,257 -55.3%
EBITDA margin (%) 43.2% 32.4%   42.8% 25.4%  
Other income 548 603 10.0% 2,282 2,808 23.0%
Interest 452 464 2.6% 1,847 2,123 14.9%
Depreciation 1,925 1,113 -42.2% 4,540 4,246 -6.5%
Gain on sale of ships (265) 117   2,545 1,849 -27.3%
Profit before tax 1,252 1,624 29.7% 14,679 5,546 -62.2%
Tax (3) 67   353 418 18.6%
Extraordinary items - -   (149) -  
Net profit 1,255 1,557 24.1% 14,178 5,128 -63.8%
Net profit margin (%) 16.2% 20.3%   37.4% 18.0%  
No. of shares (m)       152.3 152.3  
Earnings per share (Rs)         33.7  
Price to earnings ratio (x)         8.4  

What has driven performance in FY10?
  • Led by extremely weak performance during the first nine-months, GE Shipping (GES) recorded a 25% YoY decline in consolidated net sales during FY10. The fourth quarter performance was much better, with sales falling by just 1% YoY. Nothing seemed to be going right for the company given that both the freight rates and demand were on a lower side during FY10. The shipping business (77% of total consolidated sales) recorded a 35% YoY decline in sales during the year. This was led by a 7% YoY decline in volumes (operating days). As for the freight rates, these also fell sharply during the year. Though dry bulk rates have improved by around 3% YoY during 4QFY10, these are still down massively from their peak levels. For the tanker market, the management expects the next twelve months to be better than the last twelve.

  • GES' operating margins dropped substantially to 25.4% in FY10, from 42.8% in FY09. This was largely due to forex losses during the year, as compared to forex gains earned in FY09. Higher staff costs and cost for chartered ships also added to the pressure on margins during the year.

  • Led by weaker sales and operating margins, lesser gains on sales of ships, and higher interest charges, GESí net profits crashed by 64% YoY during FY10. Profits during 4QFY10 were up 24% YoY, helped by gains on sale of ships.

What to expect?
At the current price of Rs 284, the stock is trading at a multiple of around 0.8 times its FY10 consolidated book value per share. GESí FY10 actual sales and profit numbers are lower as compared to our estimates by around 15%. The company is seeing some uptick in freight rates for both the tanker and dry bulk segments. However, the managementís overall view for FY11 is that of cautious optimism. The company almost met our target price before falling to the current levels. We will soon work on our forward estimates for the company and update you with our latest view on the stock.

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