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G E Shipping: Hit hard by forex - Views on News from Equitymaster
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G E Shipping: Hit hard by forex
Nov 22, 2011

G E Shipping has announced its September quarter results. The company has reported a 11% growth in topline and a 98% YoY fall in profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 11% YoY during the quarter
  • Operating margins contract by 13.8% on the back of higher outgo towards hiring of chartered ships and rigs
  • More than nine fold jump in interest expenses leads to a huge 98% fall in net profits for the quarter
  • Half yearly bottomline falls 52% YoY on the back of an 11% growth in topline

(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Net sales 3,693 4,084 10.6% 7,863 8,754 11.3%
Expenditure 2,249 3,053 35.7% 4,183 5,794 38.5%
Operating profit (EBDITA) 1,444 1,031 -28.6% 3,680 2,960 -19.6%
EBDITA margin (%) 39.1% 25.2%   46.8% 33.8%  
Other income 547 949 73.4% 906 1,467 61.9%
Interest (net) 102 922 806.1% 771 1,357 76.0%
Depreciation 725 973 34.3% 1,521 1,805 18.7%
Profit before tax 1,165 86 -92.6% 2,294 1,265 -44.9%
Extraordinary items - -   - -  
Tax 35 60 72.4% 105 220 109.9%
Profit after tax/(loss)  1,130 26 -97.7% 2,189 1,045 -52.3%
Net profit margin (%) 30.6% 0.6%   27.8% 11.9%  
No. of shares (m) 152.3 152.3   152.3 152.3  
Diluted earnings per share (Rs)*         10.0  
Price to earnings ratio (x)*         20.5  
(* on trailing twelve months earnings)

What has driven performance in 2QFY12?
  • Company's topline grew by a decent 11% YoY during the quarter. The growth was driven entirely by freight and charter hire division as the company did not earn anything from sale of ships. As per the company, the tanker freight market remained under pressure throughout the quarter so much so that most of the ships struggled to even cover operating expenses. The dry bulk segment on the other hand performed relatively well as grain trade and demand for minor bulk commodities in China supported the smaller segments. As far as the revenue visibility is concerned, it stands to the tune of Rs 3.1 bn for the rest of the fiscal. This should make the revenues around 20% lower than what the company managed to achieve in FY11.

    Cost break-up...
    (Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Employees cost 541 552 2.0% 1,142 1,105 -3.2%
    % sales 14.7% 13.5%   14.5% 12.6%  
    Repairs and Maintenance 371 491 32.3% 782 840 7.4%
    % sales 10.0% 12.0%   9.9% 9.6%  
    Direct operating expenses 884 1,267 43.3% 1,907 2,345 23.0%
    % sales 23.9% 31.0%   24.3% 26.8%  
    Other operating expenses 106 77 -27.4% 198 165 -16.5%
    % sales 2.9% 1.9%   2.5% 1.9%  
    Hire of chartered ships & rigs 17 717 4244.2% 75 1,340 1681.6%
    % sales 0.4% 17.6%   1.0% 15.3%  
    Other expenses 331 (51)   79 (1)  
    % sales 9.0% -1.2%   1.0% 0.0%

  • On the costs front, margins have taken a hit to the tune of 13.8%. The biggest impact has come on account of costs incurred for hire of chartered ships and rigs. From just 0.4% of sales in 2QFY11, this cost component increased to become more than 18% of topline for the quarter ended September 2011. The margins were salvaged a bit on account of steep fall in other expenses.

  • While operating profits fell by 29% YoY, a strong 9 fold jump in interest expenses resulted in the PBT falling by 93% YoY and the PAT taking a hit to the tune of 98% YoY during the quarter. The interest costs jumped sharply on account of an adjustment related to borrowings in foreign currency.

  • The company's offshore business continued to do well, increasing its revenues by about 12% YoY and segmental profits by more than 50% YoY. Another Rs 983 m were pumped into the offshore business related subsidiary, taking the total investment till now to Rs 17 bn.

What to expect?
At the current price of Rs 205, the stock trades at a multiple of around 0.5 times its expected FY14 standalone book value per share. While short term pressures persist, in the long run shipping companies are likely to benefit from strong consumption demand from China and India as they build up infrastructure to support economic growth. In view of this, we remain positive on the stock.

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