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Gesco: Going high on LNG - Views on News from Equitymaster
 
 
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  • Aug 31, 2000

    Gesco: Going high on LNG

    Great Eastern Shipping Company (Gesco) has chartered aggressive plans to expand its fleet capacity and concentrate more on international trade. Gesco had posted a drop in turnover (excluding sale of ships to the extent of Rs 480 m) by 2% in FY00. This is a commendable performance considering the fact that the Baltic Index had touched a decade low of 800 points. Last year the company repositioned its fleet, which also resulted in loss of income thus cramping operating profits.

    Nevertheless, in the Annual General Meeting last evening, management revealed its strategies for the current year:

    • It has planned to shift focus more towards international trade, which is expected to increase earnings due to consistent rupee depreciation.

    • The company has placed orders for 3 modern Aframax (60,000 to 100,000 dead weight tonnage) and 2 offshore units as a part of the current years fleet expansion programme. Delivery is expected to be in the later half of FY02.

    • Under the cost control initiatives it has proposed a voluntary retirement scheme. More than 37 employees have opted this proposal.

    • The company in collaboration with a multinational has bid for Liquefied Natural Gas (LNG) transportation for Petronet LNG project for which it has planned to make substantial investments in future to buy new ships. The typical cost of a LNG ship would be from Rs 6 bn to Rs 12 bn.

    The company is expected to post better results for current year given the fact that both tanker and bulk freight rates are hardening and there is general buoyancy in sea-borne traffic. However, margins are expected to witness pressure from rising Brent prices (currently at US $ 34.5). The management expects price to remain at the current level even for next year.

    The company has posted an 11% increase in turnover to Rs 3,906 m till August 2000. (Gesco posted a 200% jump in net profits from Rs 158 m to Rs 455 m in 1QFY01)

    The stock is currently trading at Rs 25 at a P/E multiple of 3.9x on the annualised first quarter FY01 earnings.

     

     

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