Stock Review: GE Shipping

 

GE Shipping's March 11 quarter results once again highlight the difficult operating environment for companies in this sector.

And that's because in the quarter under review, in key tanker segments like crude carriers, the average freight rate declined 21% to $23,072 per day, given sluggish global demand and expanded vessel capacity in this segment.

Apart from that, the average of the Baltic Dry Index was substantially weaker in the quarter under review compared with a year earlier. Shipping companies have long term contracts with key customers to minimise fluctuations in spot freight rates. Nevertheless, the company's consolidated operating profit margin declined 260 basis points year-on-year to 38.6% in the March 11 quarter, at a time when its core income from operations also fell 21.5% to . 601.6 crore. In the fourth quarter, there was also a reduction in the company-owned shipping fleet capacity on a YoY basis.

The company's net profit fell nearly 55% YoY in the March 11 quarter. However, taking into account the impairment charges related to three vessels it had sold, net profit plummeted 93% to . 10.8 crore in the fourth quarter. The quarterly results were declared after the close of Friday trade and over the past two trading sessions, the stock fell 4% to . 274. The stock has also underperformed the Sensex over the past three months. Going forward, the outlook for the shipping industry is not expected to improve in the short term, with central banks in fast growing emerging markets hiking interest rates and its potential negative impact on oil demand. The only bright spot for GE Shipping appears to be its smaller offshore division, given buoyant demand conditions from upstream oil companies.