Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Unlisted diversification takes its toll - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 7, 1999

    Unlisted diversification takes its toll

    GESCO, set up in 1948, is India's largest private sector shipping company. It operates a fleet that includes 16 bulk carriers, 4 mini - bulk carriers and 17 tankers (of which 2 Aframax tankers were added during FY99), having a total dead weight tonnage (DWT) of over 1.3 million.

  • Over the years, GESCO has diversified into commodity trading, property development and leasing, and offshore services including marine construction and oilrigs. The company's property bank currently spans over 1.7 m sq. ft. across Bombay, Bangalore, Delhi and Poona.

      Latest results

    • During FY99,GESCO recorded a total income of Rs 8.4 bn, which is 12.3% lower than that recorded in the previous year. Net profit at Rs 1.2 bn was down 24.4% on year on year basis.

    • The company's subdued performance could be attributed to the consistent fall in freight rates since the Asian meltdown in 1997. With the Asian market accounting for approximately 37% of all sea borne trade (both dry and wet), lower demand from the region eventually translated into lower freight rates.

    • During the year under review, the Baltic Handy Index tumbled 16% (in FY98 it fell 12%), reflecting the subdued conditions in the dry bulk market. Even though the net supply of fresh tonnage was stagnant, the freight rates continued to fall during the year. This affected the revenues and profit growth of this division adversely.

    • Revenues of the tanker division too were adversely affected by an oversupply of tankers. The contract under which GESCO had given its nine tankers on a time charter to oil companies expired during the year. This resulted in the loss of a steady stream of revenues that was at a premium to market rates.

    • GESCO's offshore division - the largest in the private sector, continued to perform well on account of the increase in demand for oil field services. It entered into long term contracts with some parties at premium to market rates.

    • The property division is being hived off into a separate company. This move is likely to benefit the company as the property division had been absorbing a large portion of the free cash flows generated by the other divisions. Moreover, it will help the management refocus on the primary business of the company - shipping and related services.

    • The commodity trading division, which had suffered large losses in FY95, has since been reduced to a marginal business with revenues of approximately Rs 1 bn (12% of total income). The company has adopted a policy of not keeping any open positions to avoid the risk of loss.

    • GESCO has continued to reduce its equity portfolio from a high of Rs 656 m in FY95 to Rs 55 m currently. This will go down positively with the investors who were concerned that the company might be focussing too much on its equity portfolio.

    • The management of GESCO has always stated that ship trading is an integral part of their business and that they will continue to leverage on their experience to profit from opportunities that might arise from time to time. The company continues to record gains from sale of ships while at other times vessels are being added to their fleet. The management's ability to understand and comprehend the cycle of freight rates and asset values has enabled the company to earn profits from the business.


    • With no clear signs of economic recovery emanating either from the Southeast Asian countries or from Japan, the prospects of a recovery in the shipping industry seem remote. This will continue to weigh down on the freight rates resulting in lower realizations.

    • With the oil prices having risen to the pre-crisis levels, the demand for oil is likely to be adversely affected. Coupled with this, the oversupply of vessels is likely to result in thinner margins as market players compete in a shrinking market.

    • There is also a fear that the management might diversify into unrelated businesses, like it has done in the past. Inspite of the management's assurances to the contrary, investors continue to be weary of the management's dedication to such a commitment. A glance at the figures reveals that over the past 8-year period, the company has grown at a compounded annual growth rate of 14.3% and 6.1% in terms of total income and profits respectively. The unwarranted diversification into commodity trading and property development is largely responsible for the subdued performance of the company.



    Equitymaster requests your view! Post a comment on "Unlisted diversification takes its toll". Click here!


    More Views on News

    G E Shipping: Feeling Pressure From the Offshore Segment (Quarterly Results Update - Detailed)

    Aug 18, 2017

    GE Shipping reported a subdued performance on the back weak offshore segment.

    G E Shipping: A Bad Quarter (Quarterly Results Update - Detailed)

    May 9, 2017

    GE shipping registered a loss in 4QFY17 due to weak global shipping market and lower crude prices which negatively impacted the offshore segment.

    Cochin Shipyard Limited (IPO)

    Aug 1, 2017

    Should you subscribe to the IPO of Cochin Shipyard Ltd?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 09:47 AM


    • Track your investment in MAHINDRA LIFESPACE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks



    Detailed Quarterly Results With Charts