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G E Shipping: Feeling Pressure From the Offshore Segment - Views on News from Equitymaster
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  • Aug 18, 2017 - G E Shipping: Feeling Pressure From the Offshore Segment

G E Shipping: Feeling Pressure From the Offshore Segment
Aug 18, 2017

GE Shipping has announced the first quarter results of the financial year 2017-2018 (1QFY18). The company has reported an 8.9% YoY decline in the topline while the bottomline has declined by 58.2% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated topline declined by 8.9% on a YoY basis whereas standalone topline increased by 13.1% YoY.
  • Operating profit declined during the quarter by 30.3% YoY. Operating margin declined by 12.9% and stood at 41.9%.
  • Other income increased by 43.7% during this quarter. Similarly, Finance cost and Depreciation seen an increase of 32% YoY and 16.5% YoY respectively.
  • Net profit declined by 58.2% during the quarter.

      Standalone Consolidated
    (Rs m) 1QFY17 1QFY18 Change 1QFY17 1QFY18 Change
    Net sales 4,109 4,648 13.1% 8,092 7,376 -8.9%
    Expenditure 2,462 3,131 27.2% 3,662 4,287 17.1%
    Operating profit (EBDITA) 1,647 1,517 -7.9% 4,430 3,089 -30.3%
    EBDITA margin (%) 40.1% 32.6%   54.7% 41.9%  
    Other income 850 1223 44.0% 834 1199 43.7%
    Finance cost 524 788 50.4% 776 1024 32.0%
    Depreciation 822 1159 41.0% 1,586 1,847 16.5%
    Profit before tax 1151 793 -31.0% 2903 1417 -51.2%
    Tax 115 70 -39.1% 425 381 -10.4%
    Net Profit 1,036 723 -30.1% 2,478 1,036 -58.2%
    Net profit margin (%) 25.2% 15.6%   30.6% 14.0%  
    No. of shares (m)         150.8  
    Diluted earnings per share (Rs)*         38.2  
    Price to earnings ratio (x)*         10.1  

    (* on trailing twelve months earnings)

  • What has driven performance in 1QFY18?

  • The crude carrier segment witnessed pressure during the quarter with average TCY for crude carriers declined by 38.7% YoY. This is on the back of supply pressure which continues to remain on the crude side. Product carrier TCY also declined during the quarter by 23.3% YoY. The dry bulk segment benefitted from a reversal in commodity cycle due to growth in commodity trade in China. This sharp increase was due to some regulatory changes in China and a stronger demand. Iron ore imports to China increased 9%. Similarly, the seaborne coal import numbers from Australia to China is up 25%.

    Average (TCY $ Per day) 1QFY17 1QFY18 Change
    Crude carrier 25,426 15,584 -38.7%
    Product carrier 20,122 15,432 -23.3%
    Dry Bulk 5,784 9,166 58.5%

  • On the offshore side, the market continues to be challenging. The offshore segment is affected by reduced E&P (Exploration and Production) spending by the oil majors. Due to this, fewer new contracts are coming up and this has caused large amounts of unutilized capacity in the sector. Globally the utilization number of assets in the offshore space has come down to below 50%. There was a decline in the topline due to lower utilization and lower TCY on the re-priced contract. As of date, one rig and one vessel continue to remain idle.

    Breakup of Revenue Days (Offshore)
    Revenue Days 1QFY17 1QFY18 Change
    Offshore Logistics 1,627 1,449 -10.9%
    Drilling Services 356 273 -23.3%
    Total 1,983 1,722 -13.2%


    Segmental break up...
    Segment 1QFY17 1QFY18 Change
    Shipping      
    Revenues 4,789 5,884 22.9%
    PBIT 1,625 1,508 -7.2%
    PBIT margin 33.9% 25.6%  
    Offshore      
    Revenues 4,171 2,759 -33.9%
    PBIT 2,054 932 -54.6%
    PBIT margin 49.3% 33.8%  

  • On the operating margin front, the company witnessed some pressure due to a sharp increase in other expenses which include repairs and maintenance, fuel, oil and water. Other income increased on the back of MTM gain on foreign currency and derivative translations. Finance cost increased 32% YoY on the back of a significant increase in borrowing in the last 12 months.
  • Net profit during the quarter declined by 58.2% on YoY basis on the back of decline in operating profit, an increase in depreciation expenses and finance cost. This was partly offset by a decline in taxes and an increase in other income.
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