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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 13, 2012

G E Shipping has announced its June quarter results. The company has reported 14% YoY growth in standalone topline while the bottomline fell 2% on a YoY basis. Here is our analysis of the results.

Performance summary
  • Standalone topline grows by 14% YoY during the quarter
  • Operating margins contract by 9.1% on the back of higher outgo towards hiring of chartered ships and rigs
  • A strong growth in other income of the order of 56% and sharp fall in tax outgo restrict the decline in bottomline to a mere 2% on a YoY basis
  • Consolidated profits grow 11% YoY despite a 18% growth in topline

(Rs m) 1QFY12 1QFY13 Change
Net sales 4,255 4,857 14.1%
Expenditure 2,799 3,638 30.0%
Operating profit (EBDITA) 1,456 1,218 -16.3%
EBDITA margin (%) 34.2% 25.1%  
Other income 991 1,549 56.3%
Interest (net) 436 740 69.7%
Depreciation 832 1,002 20.4%
Profit before tax 1,179 1,026 -13.0%
Extraordinary items -  
Tax 160 30 -81.3%
Profit after tax/(loss) 1,019 996 -2.3%
Net profit margin (%) 23.9% 20.5%  
No. of shares (m) 152.3 152.3  
Diluted earnings per share (Rs)*   9.3  
Price to earnings ratio (x)*   28.2  
* On a trailing 12-months basis

What has driven performance in 1QFY13?
  • The 14% growth in standalone topline seemed to be mostly a result of rupee depreciation. This is because not only have the revenue days come down on a YoY basis, even the TCYs (Time Charter Yield) have suffered a decline for all of the three major segments of the company. It should be noted that total revenue days have come down by 7% YoY. TCY's on the other hand have come down by 4%, 16% and 33% YoY for crude carriers, product carriers and dry bulk respectively. The company expects the tanker markets to remain volatile for the rest of the fiscal. As far as dry bulk is concerned, even though scrapping has witnessed significant improvement, the prospect for a meaningful rise in freight market looks uncertain.

    Cost break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Employees cost 502 479 -4.7%
    % sales 11.8% 9.9%  
    Fuel, oil and water 833 1,120 34.5%
    % sales 19.6% 23.1%  
    Hire of chartered ships & rigs 623 1,018 63.4%
    % sales 14.6% 21.0%  
    Other expenses 841 1,022 21.4%
    % sales 19.8% 21.0%  

  • On account of a sharp 9% fall in operating margins, operating profits are down to the tune of 16% on a YoY basis. This is mainly due to the 63% jump in the cost of hire of chartered ships and rigs. Fuel, oil and water and other expenses have also come in higher on a percentage of sales basis.

  • Despite the 16% fall in operating profits, bottomline fall has been restricted to a mere 2%. This could be attributed to the share 81% fall in tax outgo and also the 56% growth in other income. The strong growth in other income was on account of non-cash forex gains and profit on sale of ships and other assets.

What to expect?
At the current price of Rs 257, the stock trades at a multiple of 0.6x its FY15 standalone book value per share. On account of weak macroeconomic environment and slow progress on the scrapping front, we expect the operational performance to remain subdued in the near to medium term. However, the strong cash position does put the company in a good position to snap up assets on the cheap should the slowdown become worse. While this could no doubt help the company in the long run, the medium term concerns still persist and hence, we revise the target price of the company downwards to Rs 360 per share. This is still good enough for the stock to remain as HOLD.

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