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G E Shipping: Offshore business disappoints - Views on News from Equitymaster
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G E Shipping: Offshore business disappoints
Nov 18, 2014

G E Shipping has announced its September quarter results. The company has reported a 12% YoY growth in consolidated topline while the bottomline has grown by 29%

Performance summary
  • Consolidated topline grows by 12% on a YoY basis
  • Operating margins fall by more than 8%, resulting in a 6% fall in operating profits during the quarter
  • Consolidated net profits still grow by 29% mainly on account of a 42% jump in other income and lower depreciation charges
  • Consolidated profits for the half year grow 6% YoY on the back of an 11% growth in topline
  • Consolidated profits for the half year falls 4% YoY despite 17% growth in topline


  Consolidated Standalone Consolidated
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change 1HFY14 1HFY15 Change
Net sales 7,738 8,678 12.1% 6,918 8,116 17.3% 15,103 16,760 11.0%
Expenditure 3,822 5,008 31.0% 4,710 5,810 23.4% 7,777 9,383 20.6%
Operating profit (EBDITA) 3,916 3,670 -6.3% 2,208 2,306 4.4% 7,326 7,377 0.7%
EBDITA margin (%) 50.6% 42.3%   31.9% 28.4%   48.5% 44.0%  
Other income 653 926 41.7% 2,815 2,312 -17.8% 2,484 1,904 -23.3%
Interest (net) 995 784 -21.2% 1,120 951 -15.1% 1,910 1,538 -19.5%
Depreciation 1,672 1,530 -8.5% 1,819 1,593 -12.4% 3,253 3,000 -7.8%
Profit before tax 1,902 2,281 19.9% 2,083 2,074 -0.4% 4,646 4,743 2.1%
Extraordinary items       - 44     44  
Tax 296 215 -27.5% 40 160 300.0% 590 491 -16.8%
Profit after tax/(loss)  1,606 2,066 28.6% 2,043 1,958 -4.2% 4,056 4,296 5.9%
Minority Interest - -   - -     -  
Net profit after minority interest 1,606 2,066 28.6% 2,043 1,958 -4.2% 4,056 4,296 5.9%
Net profit margin (%) 20.8% 23.8%   29.5% 24.1%   26.9% 25.6%  
No. of shares (m) 151.0 150.8   151.0 150.8   151.0 150.8  
Diluted earnings per share (Rs)*               39.7  
Price to earnings ratio (x)*               10.0  
(* on trailing twelve months earnings)

What has driven performance in 2QFY15?
  • Consolidated topline growth of 12% YoY was supported by a 31% growth in the shipping business whereas the offshore business witnessed a fall of 3% in revenues. This led the offshore segment to lag the company's shipping business in terms of total revenues.

  • Given that the shipping business of the company had reported a decline in sales of 8% 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 crude as well as product carriers. Charter rates were higher by more than 42% for both of these segments. Dry bulk segment on the other hand saw a decline of 4%.

    Segmental break up...
    Segment 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
    Shipping
    Revenues 4,369 5,719 30.9% 9,863 10,778 9.3%
    PBIT 627 1,090 73.8% 2,316 2,149 -7.2%
    PBIT margin 14.4% 19.1%   23.5% 19.9%  
    Offshore
    Revenues 4,469 4,331 -3.1% 8,530 8,682 1.8%
    PBIT 2,270 1,976 -13.0% 4,241 4,176 -1.5%
    PBIT margin 50.8% 45.6%   49.7% 48.1%  

  • The company's revenue days were up by a marginal 0.5% during the quarter for the shipping business.

  • As per the company, the revenues visibility for FY15 is around Rs 2.5 bn with dry bulk carriers covered to the extent of around 31% of the fleet's operating days. Crude tankers and product carriers (incl. gas) are 46% and 50% covered respectively.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change 1HFY14 1HFY15 Change
    Employees cost 1,238 1,407 13.7% 987 1,166 18.1% 2,429 2,680 10.3%
    % sales 16.0% 16.2%   14.3% 14.4%   16.1% 16.0%  
    Fuel, oil and water 920 1,263 37.3% 1,735 2,281 31.4% 1,895 2,456 29.6%
    % sales 11.9% 14.6%   25.1% 28.1%   12.5% 14.7%  
    Hire of chartered ships/equipments 182 263 44.6% 114 - -100.0% 398 497 25.0%
    % sales 2.3% 3.0%   1.6% 0.0%   2.6% 3.0%  
    Consumption of stores and spares 473 530 12.1% 472 500 6.1% 838 910 8.6%
    % sales 6.1% 6.1%   6.8% 6.2%   5.5% 5.4%  
    Repairs and maintenance 299 567 89.7% 448 764 70.5% 664 991 49.3%
    % sales 3.9% 6.5%   6.5% 9.4%   4.4% 5.9%  
    Others 711 978 37.6% 953 1,099 15.2% 1,554 1,848 18.9%
    % sales 9.2% 11.3%   13.8% 13.5%   10.3% 11.0%  

  • On account of an 8% contraction in operating margins, operating profits were down 6% on a YoY basis. The contraction was led mainly by sharp jump in fuel, repairs and maintenance and other expenses.

  • A jump in other income to the tune of 42% and fall in both depreciation as well as interest charges has led to the company bucking the trend in operating performance and actually ending the quarter with net profit growth of 29% YoY.

  • This more than helped compensate for the 9% fall in profits during the first quarter and thus led to a 6% growth in bottomline for the first half on a consolidated basis.
What to expect?
At the current price of Rs 390, the stock trades at a multiple of around 1.2x its FY17 standalone book value per share. As per the company, while the crude and product tanker markets do seem well placed, there's pressure in the dry bulk segment and also on the offshore side on account of the recent sharp fall in crude prices. This combined with hardly any room for further gains on the share price front based on our price to book value method valuation makes us take a cautious view on the stock. We would recommend investors not to buy the stock at current levels.

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