GE Shipping

 

GE SHIPPING reported an improved performance in the March 10 quarter, thanks to a tight check on its operating cost, boosting its consolidated operating profit margin to 41.2% year-on-year (y-o-y). The company reduced key costs like repair & maintenance for its fleet and rigs, coupled with the costs related to hiring chartered ships.

   However, the much-anticipated revival of the global shipping industry in the fourth quarter does appear to have not materialised, with GE Shipping's consolidated income from operations falling 1% on a y-o-y basis to Rs 766.7 crore in the quarter.

   Senior company management highlighted that while demand from emerging markets for hiring tankers (to transport crude oil) was strong, that was not the case in the West, which still accounts for an overwhelming proportion of global oil demand. As a result, it is estimated that tanker vessels like crude carriers earned on average about $29,320 per day in the fourth quarter, a fall of nearly 9.6% y-o-y. However, on a sequential basis, average freight earnings for these crude carriers have shown a sharp improvement.

   In the smaller segment of the shipping industry, like dry bulk, the Baltic Dry Index averaged 3018 in the March 10 quarter, a jump of 93.6% y-o-y, thanks to strong demand conditions from the Chinese metal industry for transport of key inputs. Nevertheless, segment revenue of the company's shipping division declined 12.8% on a y-o-y basis to Rs 612.1 crore in the fourth quarter, but segment profit improved 7.8% helped by tight check on costs.

   The results were declared on Saturday and on Monday the stock gained 3.7% to Rs 285.35. Also, this stock has gained nearly 6.7% over the past one week as compared to a 6.9% drop in the broader Sensex, on expectations that a revival in the global economy will help the shipping industry.

   In its offshore division, a pick-up in oil exploration activity in the sub-continent and neighbouring region helped segment profit of this division rise by 201% y-o-y in the fourth quarter to Rs 69.1 crore. The company's core net profit (excluding sale of ships and other non-core items) also rose 1,028% y-oy to Rs 211.5 crore in the fourth quarter, helped by a low base effect in the previous year.

   Its offshore subsidiary, Greatship, is planning an IPO and recently filed its draft red herring prospectus with Sebi. GE Shipping trades at 8.5 times on a consolidated basis on a trailing four quarter basis and we are neutral on this stock, given the uncertainty in the global economy, especially in Europe.