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G E Shipping: A good journey - Views on News from Equitymaster
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G E Shipping: A good journey
Nov 12, 2013

G E Shipping has announced its September quarter results. The company has reported a 16% YoY growth in consolidated topline while the bottomline has nearly doubled.

Performance summary
  • Consolidated topline grows by 16% on a YoY basis
  • Operating margins expands by 11% on the back of fall in cost of hire of chartered ships and lower fuel costs
  • Strong operating performance supported by higher other income leads to 99% YoY growth in net profits during the quarter
  • Standalone bottomline comes in higher by 233% YoY while the topline falls by 18% YoY
  • Consolidated profits for the half year grow 55% YoY on the back of a 3% growth in topline

  Consolidated Standalone Consolidated
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change 1HFY13 1HFY14 Change
Net sales 6,653 7,738 16.3% 8,417 6,918 -17.8% 14,724 15,103 2.6%
Expenditure 3,997 3,822 -4.4% 6,435 4,710 -26.8% 9,156 7,777 -15.1%
Operating profit (EBDITA) 2,656 3,916 47.4% 1,982 2,208 11.4% 5,568 7,326 31.6%
EBDITA margin (%) 39.9% 50.6%   23.5% 31.9%   37.8% 48.5%  
Other income 270 653 141.8% 1,556 2,815 80.9% 1,966 2,484 26.3%
Interest (net) 571 995 74.4% 1,079 1,120 3.9% 1,761 1,910 8.5%
Depreciation 1,382 1,672 21.0% 1,814 1,828 0.7% 2,917 3,261 11.8%
Profit before tax 974 1,902 95.3% 644 2,075 222.0% 2,855 4,638 62.4%
Extraordinary items       - 8     8  
Tax 162 296 82.9% 30 40   234 590 152.8%
Profit after tax/(loss)  812 1,606 97.8% 614 2,043 232.6% 2,622 4,056 54.7%
Minority Interest 6 -   - -     -  
Net profit after minority interest 806 1,606 99.2% 614 2,043 232.6% 2,622 4,056 54.7%
Net profit margin (%) 12.2% 20.8%   7.3% 29.5%   17.8% 26.9%  
No. of shares (m) 152.3 151.0   152.3 151.0   152.3 151.0  
Diluted earnings per share (Rs)*               45.1  
Price to earnings ratio (x)*               6.4  
(* on trailing twelve months earnings)

What has driven performance in 2QFY14?
  • Consolidated topline growth of 16% YoY was supported by a 21% growth in both the shipping as well as offshore segment of the company. However, as was the trend during same quarter last year, the offshore segment nosed slightly ahead of the shipping segment in terms of absolute sales.

  • Given that the shipping business of the company had reported a decline in sales of 14% during the first quarter on a YoY basis, the current quarter's growth is an encouraging sign. This seems to have been driven by higher time charter rates of its fleet of 13 product carriers. Charter rates were higher by 13% for its fleet of product carriers. However, the same were lower by 23% and 17% for its fleet of crude carriers and dry bulk respectively.

    Segmental break up...
    Segment 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Shipping
    Revenues 3,608 4,369 21.1% 10,006 9,863 -1.4%
    PBIT (404) 627 -255.2% 1,311 2,315 76.6%
    PBIT margin -11.2% 14.3%   13.1% 23.5%  
    Offshore
    Revenues 3,683 4,469 21.3% 7,119 8,530 19.8%
    PBIT 1,948 2,271 16.5% 3,306 4,242 28.3%
    PBIT margin 52.9% 50.8%   46.4% 49.7%  

  • The company's revenue days were down by a marginal 1% during the quarter for the shipping business.

  • As per the company, the revenues visibility for FY14 is around Rs 2 bn with dry bulk carriers covered to the extent of around 27% of the fleet's operating days. Crude tankers and product carriers (incl. gas) are 41% and 55% covered respectively.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change 1HFY13 1HFY14 Change
    Employees cost 1,078 1,238 14.9% 500 502 0.3% 2,251 2,429 7.9%
    % sales 16.2% 16.0%   5.9% 7.3%   15.3% 16.1%  
    Fuel, oil and water 993 920 -7.4% 933 1,200 28.7% 2,230 1,895 -15.0%
    % sales 14.9% 11.9%   11.1% 17.4%   15.1% 12.5%  
    Hire of chartered ships/equipments 497 182 -63.4% 556 576 3.7% 1,724 398 -76.9%
    % sales 7.5% 2.3%   6.6% 8.3%   11.7% 2.6%  
    Consumption of stores and spares 412 473 14.9% 260 268 3.3% 772 838 8.5%
    % sales 6.2% 6.1%   3.1% 3.9%   5.2% 5.5%  
    Repairs and maintenance 374 299 -20.0% 377 155 -58.9% 669 664 -0.8%
    % sales 5.6% 3.9%   4.5% 2.2%   4.5% 4.4%  
    Others 644 711 10.5% 465 525 13.0% 1,511 1,554 2.9%
    % sales 9.7% 9.2%   5.5% 7.6%   10.3% 10.3%  

  • On account of a 10.7% expansion in operating margins, operating profits were up 47% on a YoY basis. The expansion was led mainly by fall in both, the cost of hire of chartered ships/equipments and lower fuel, oil and water expenses as a percentage of sales.

  • A jump in other income to the tune of 142% has resulted in the company growing by a strong 98% YoY at the PBT level on a consolidated basis. The strong growth in other income was a result of lower unrealized losses on its bank balances and debtors/creditors. This includes an unrealized loss of Rs 325 m as against unrealized loss of Rs 1.3 bn during same quarter last year.

  • Despite an 83% jump in tax charges, the bottomline grew at an impressive rate of 99% YoY.
What to expect?
At the current price of Rs 288, the stock trades at a multiple of around 0.7x its FY15 standalone book value per share. As per the company, while trade is likely to remain robust going forward, a wave of new supply of vessels is likely to put pressure on freight rates. Strong revenue visibility on the offshore side however is a comforting factor as per us. We came out with a recommendation report on the company currently and we stick with the target price of Rs 350 per share from an FY16 perspective as mentioned in the report.

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