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G E Shipping: The other income boost - Views on News from Equitymaster
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G E Shipping: The other income boost
Aug 9, 2011

G E Shipping has announced its June quarter results for financial year 2011-12. The company has reported a 20% growth in topline and a 29% YoY fall in profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 12% YoY during the quarter
  • Operating margins contract by 12.2% on the back of higher outgo towards hiring of chartered ships and rigs
  • Bottomline fall restricted to 4% YoY mainly on account of higher other income

(Rs m) 1QFY11 1QFY12 Change
Net sales 4,170 4,671 12.0%
Expenditure 1,938 2,742 41.5%
Operating profit (EBDITA) 2,232 1,929 -13.6%
EBDITA margin (%) 53.5% 41.3%  
Other income 363 518 42.8%
Interest (net) 670 436 -34.9%
Depreciation 796 832 4.5%
Profit before tax 1,129 1,179 4.4%
Extraordinary income/(expense) - -  
Tax 70 160 128.6%
Profit after tax/(loss) 1,059 1,019 -3.8%
Net profit margin (%) 25.4% 21.8%  
No. of shares (m) 152.3 152.3  
Diluted earnings per share (Rs)*   17.2  
Price to earnings ratio (x)*   14.9  
(* annualised)

What has driven performance in 1QFY12?
  • G E Shipping's topline grew by a decent 12% YoY during the quarter. While revenues from freight and charter hire increased 9% YoY, gain on sale of ships witnessed a growth of a robust 48% YoY during the quarter. However, since the latter item contributes less to the overall revenues, growth in the topline was restricted to 12% YoY. It should be noted that the company delivered its 1989 built Suezemax crude carrier ‘Jag Lakshya' to the buyers and this seems to have contributed to the growth in gain on ship sale.

    Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Employees cost 601 553 -8.0%
    % sales 14.4% 11.8%  
    Repairs and maintenance 411 350 -15.0%
    % sales 9.9% 7.5%  
    Direct operating expenses 1,023 1,078 5.4%
    % sales 24.5% 23.1%  
    Other operating expenses 92.30 89 -4.0%
    % sales 2.2% 1.9%  
    Others (190) 673  
    % sales -4.5% 14.4%  

  • On the costs front, margins have taken a hit to the tune of 12.2%. The biggest impact has come on account of costs incurred for hire of chartered ships and rigs. From just 1.4% of sales in 1QFY11, this cost component increased to become more than 13% of topline for the quarter ended June 2011. All the other cost heads grew at a less than proportional rate than topline and this helped salvage the margin situation a bit.

  • While operating profits fell by 14% YoY, a strong 43% growth in other income helped the PBT to grow by 4% YoY during the quarter. What also helped matters was a steep 35% fall in interest expenses. However, with tax expenses more than doubling, net profits came in lower by 4% YoY as compared to same quarter last year.

What to expect?
At the current price of Rs 252, the stock trades at a multiple of around 0.7 times its expected FY14 standalone book value per share. While short term pressures persist, in the long run shipping companies are likely to benefit from strong consumption demand from China and India as they build up infrastructure to support economic growth. In view of this, we remain positive on the stock.

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