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Great Eastern Shipping Company Ltd. (GESHIP)
By Bharat Chhoda, Jehangir Master, Prerna Jhunjhunwala


Ready to sail…  

Great Eastern Shipping Company Ltd (GE Shipping) is the largest private shipping company in India. The company is expanding its fleet size from the current 62 vessels to 74 vessels over the next two years. Its subsidiary company Greatship Ltd has a significant presence in the offshore segment with a fleet of 21 vessels, which is being scaled up to 27 vessels. With new deliveries joining the fleet over the next two years, GE Shipping would be operating at peak capacity and its impact would be visible in the financial performance. Global freight rates are also showing signs of strength. This will translate into improved performance by the company.  

  • Capacity expansion to fuel growth for company

GE Shipping currently operates a fleet of 62 vessels and is expanding it to 74 vessels (consisting of 13 crude tankers, 19 product carriers, one LPG carrier, 11 dry bulk carriers and 27 offshore vessels). With new vessel additions, GE Shipping would be operating at peak capacity, which would also translate into an improved financial performance.  

  • Outlook bright for offshore business with crude oil prices at $80/barrel

Greatship Ltd, the subsidiary company of GE Shipping, has a significant presence in the offshore segment with a fleet of 21 vessels, which is being scaled up to 27 vessels. Crude oil prices have been resilient in the last six months. This has improved the utilisation levels and earnings outlook for offshore vessels.  

  • Up-tick in freight rates across segments a big positive

Freight rates across vessel categories have moved upwards over the last fortnight. Baltic Dry Index (BDI), which is the benchmark index for dry bulk freight rates, has spiked up sharply in the last couple of days to inch higher to 3121 level. With a rise in commodity demand (iron ore and coal) from China, bulk rates are expected to firm up even further. After being weak in the first half of February, tanker rates have also recovered. As tanker/product carriers constitute the largest segment of GE Shipping (12 crude oil tankers and 19 product carriers), any firmness in tanker rates would be very beneficial.

 
  Quarter ended Year ended Rs. cr
year   2009/12 2008/12 var %   2009/03 2008/03 var %
Sales Income   466.93 728.77 -35.93   3,083.47 2,580.71 19.48
Other Income   59.54 48.10 23.78   281.28 622.80 -54.84
Expenditure   334.61 397.28 -15.77   1,428.08 1,310.34 8.99
Interest   31.77 44.40 -28.45   153.64 149.28 2.92
Gross Profit   160.09 335.19 -52.24   1,783.03 1,743.89 2.24
Depreciation   86.73 82.30 5.38   348.49 340.95 2.21
Tax   1.00 5.00 -80.00   45.00 46.20 -2.60
PAT   75.30 233.04 -67.69   1,374.69 1,356.81 1.32
Equity   152.29 152.29 0.00   152.29 152.27 0.01
OPM (%)   28.34 45.49 -17.15   53.69 49.23 4.46
GPM (%)   21.53 39.39 -17.86   48.70 43.44 5.26
NPM (%)   16.12 31.97 -15.85   44.58 52.57 -7.99
 
Key Financial Ratios
  2009/03 2008/03 2007/03 2006/03 2005/03
EPS 90.27 89.10 58.01 55.39 42.77
CEPS 117.75 111.49 75.43 74.50 57.80
Book Value 323.61 273.02 201.47 156.70 115.01
Dividend/Share 8.00 15.00 11.50 10.00 9.00
OPM 54.04 61.44 59.42 57.95 58.83
RONW 20.28 20.94 24.01 24.98 33.79
Debt/Equity 0.62 0.59 0.71 0.78 0.95
Ratio 2.73 2.97 4.07 4.48 3.75
Interest Cover 7.73 3.74 4.86 4.32 6.45
 
Financials:

Valuation

At the CMP of Rs 287, GE Shipping is trading at 4.8x FY12E earnings and 0.62x FY12E P/BV. Factoring in FY12E earnings, GE is trading at a significant discount to its fair value and is likely to get re-rated.
 
technical analysis
 

Technical Outlook

GE Shipping continues to be in an up trend since its lows in March 2009 around Rs 140 levels. Recently, the stock corrected from Rs 320 odd levels and hit a double bottom around Rs 260. During the past one week, it has rallied with good volumes and closed above the intermediate top of Rs 283. The double bottom formation projects a price target of Rs 306 and then up to Rs 320. Further, rising short-term moving averages and positive cross over of the 14-period RSI suggests bullish momentum in the stock.

 
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