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G E Shipping: Forex loss dampener - Views on News from Equitymaster

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G E Shipping: Forex loss dampener

Nov 7, 2012

G E Shipping has announced its September quarter results. The company has reported 14% YoY fall in standalone topline while the bottomline has turned negative, implying a loss of Rs 381 m. Here is our analysis of the results.

Performance summary
  • Standalone topline falls by 14% YoY during the quarter
  • Operating margins contract by 2.4% on the back of higher outgo towards repairs and maintenance
  • A forex loss to the tune of Rs 738 m pushes the bottomline into the red, resulting into a loss of Rs 381 m
  • Half yearly profits fall 41% on the back of a flat topline
  • Consolidated profits grow nearly three-fold on the back of a mere 3% growth in topline during the quarter

Standalone performance summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 4,163 3,560 -14.5% 8,418 8,417 0.0%
Expenditure 3,199 2,825 -11.7% 5,996 6,445 7.5%
Operating profit (EBDITA) 963 735 -23.7% 2,422 1,972 -18.6%
EBDITA margin (%) 23.1% 20.7%   28.8% 23.4%  
Other income 876 772 -11.8% 1,809 1,737 -4.0%
Interest (net) 922 339 -63.2% 1,357 1,079 -20.5%
Depreciation 973 812 -16.5% 1,805 1,814 0.5%
Profit before tax (55) 356   1,069 816 -23.6%
Extraordinary items 141 (738)   196 (172)  
Tax 60     220 30 -86.4%
Profit after tax/(loss)  26 (381)   1,045 614 -41.2%
Net profit margin (%) 0.6% -10.7%   12.4% 7.3%  
No. of shares (m) 152.3 152.3   152.3 152.3  
Diluted earnings per share (Rs)*         6.6  
Price to earnings ratio (x)*         39.2  
(* on trailing twelve months earnings)

What has driven performance in 2QFY13?
  • The near 15% drop in topline is indicative of the difficult conditions prevailing in the shipping industry worldwide. The company's charter yield fell 22% for the product carrier segment and 18% for the dry bulk segment. While this is in dollar terms, the appreciation of the rupee would have further compounded the woes we believe. There was also a fall of around 20% in total revenue days.

  • As per the company, the revenues visibility for the balance part of FY13 is around Rs 2.5 bn with dry bulk carriers covered to the extent of around 36% to the fleet's operating days. Crude tankers and product carriers (incl. gas) are 59% and 46% covered respectively.

    Cost break-up...
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Employees cost 512 476 -7.0% 1,015 955 -5.9%
    % sales 12.3% 13.4%   12.1% 11.3%  
    Fuel, oil and water 981 923 -5.9% 1,814 2,043 12.7%
    % sales 23.6% 25.9%   21.5% 24.3%  
    Hire of chartered ships/equipments 717 424 -40.9% 1,340 1,441 7.6%
    % sales 17.2% 11.9%   15.9% 17.1%  
    Consumption of stores and spares 298 267 -10.3% 521 515 -1.2%
    % sales 7.2% 7.5%   6.2% 6.1%  
    Repairs and maintenance 211 337 59.8% 354 596 68.5%
    % sales 5.1% 9.5%   4.2% 7.1%  
    Others 480 398 -17.2% 953 895 -6.1%
    % sales 11.5% 11.2%   11.3% 10.6%  

  • On account of a 2.4% fall in operating margins, operating profits are down to the tune of 24% on a YoY basis. This is mainly due to the 60% jump in the repairs and maintenance costs. Fuel, oil and water and employee costs have also come in higher on a percentage of sales basis.

  • A 63% fall in interest outgo as also a meaningful fall in depreciation charges has resulted in the company being profitable at PBT level as opposed to a loss during 2QFY12. However, forex loss to the tune of Rs 738 m has adversely impacted profitability, pushing the bottomline into a loss of Rs 381 m.

    What to expect?
    At the current price of Rs 258, 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. This is still good enough for the stock to remain as HOLD.

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