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GE Shipping: Buoyancy to continue? - Views on News from Equitymaster
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  • Oct 31, 2001

    GE Shipping: Buoyancy to continue?

    The Great Eastern Shipping Company (Gesco) has reported yet another superb performance for 2QFY02. While revenue growth at 24.7% is impressive, the company has managed to increase operating margins significantly in the current quarter.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Sales 2,363 2,947 24.7% 4,800 6,328 31.8%
    Other Income 150 71 -52.7% 208 114 -44.9%
    Expenditure 1,448 1,767 22.0% 2,926 3,845 31.4%
    Operating Profit (EBDIT) 915 1,180 29.0% 1,874 2,483 32.5%
    Operating Profit Margin (%) 38.7% 40.0%   39.0% 39.2%  
    Interest 188 149 -20.5% 372 293 -21.3%
    Depreciation 522 535 2.4% 1,014 1,020 0.6%
    Profit before Tax 355 567 59.8% 695 1,285 84.7%
    Extraordinary item 2 -   190 -  
    Tax 30 124 319.0% 73 225 207.4%
    Profit after Tax/(Loss) 328 443 35.3% 813 1,060 30.4%
    Net profit margin (%) 13.9% 15.0%   16.9% 16.8%  
    No. of Shares (eoy) (m) 258.8 214.8   258.8 214.8  
    Diluted number of shares 214.8 214.8   214.8 214.8  
    Earnings per share (Rs)* 6.1 8.2   7.6 9.9  

    Revenue from shipping operations grew by 30.8% in 2QFY02 to Rs 2,175 m and offshore division also posted a 7.6% growth in revenues. The company had recovered almost 35% of FY01 crude tanker revenues in the first quarter of the current financial year itself. It had also covered 35% of product tanker revenues in 1QFY02 and this seems to have resulted in higher shipping revenues despite a slowdown in world trade.

    Income break-up...
    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Shipping 1,662 2,175 30.8% 3,321 4,558 37.3%
    Offshore 508 547 7.6% 1,048 1,269 21.2%
    Others 193 225 17.0% 431 501 16.1%
    Total 2,363 2,947 24.7% 4,800 6,328 31.8%

    Though direct operating expenses increased by 84% to Rs 4,880 m in 2QFY02, a significant fall in cost of sales and other expenses enabled the company to increase operating margins by 130 basis points to 40% in 2QFY02. The company had embarked on a capital expenditure of Rs 8 bn over a three-year horizon for augmenting its fleet, especially the Aframax tankers. Towards this, it has acquired one bulk carrier and a harbor tug vessel in the current quarter at an aggregate cost of US$ 15.7 m (Rs 754 m).

    For the first half, profits have risen by 30.4% to Rs 1,060 m. But if one were to exclude the extraordinary income in the corresponding quarter of the previous year i.e. income from sale of ships and other assets, profits have actually increased by 70% for 1HFY02. The company has bought back and extinguished 1 m shares in the current quarter as per its second buy-back plan, thereby reducing the number of shares to 215 m.

    The scrip is currently trading at Rs 23 on a P/E multiple of 2.3x the annualised 1HFY02 earnings. The buoyancy 2QFY02 revenues might not sustain in the coming quarters in light of the slowdown in the global economy. Already, both tanker and dry-bulk rates have come off significantly. Though OPEC has promised not to cut crude throughput (with crude prices hovering around US$ 24-US$ 25 per barrel), crude demand is expected to lower towards the end of the current financial year. The actual estimates of 1.8% in crude demand by the International Energy Agency (IEA) has also come under cloud due to a subdued industrial activity in all the major economies like US, Japan and the European Union.



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