Great Eastern Shipping Ltd (GE Shipping) is one of the largest shipping
companies in India operating a fleet of 62 shipping and offshore vessels.
The company has the best financials in the shipping space. It’s under
leveraged balance sheet would enable it to acquire additional shipping
assets in the second-hand market. Due to the challenging business
environment, the operating performance of the company could remain
volatile in the near term. However, the company would benefit
immensely as the shipping cycle turns around in the next couple of
years. Greatship Ltd, a subsidiary company of GE Shipping, has filed its
DRHP and is expected to get listed in Q3FY11. The offshore business of
GE Shipping is housed under its subsidiary Greatship Ltd. Its listing will
lead to value unlocking for the parent company i.e. GE Shipping.
Consistent performer in volatile industry
The company is ramping up its fleet (especially in the offshore segment),
which will be scaled up to 27 vessels and the total fleet size would rise to
74 vessels in FY12. Scaling up of the fleet along with improvement in
tanker freight rates is likely to result in an improvement in the operating
performance. We expect the topline to report a steady rise over the next
two years on account of new vessel additions accompanied by a
marginal rise in tanker freight rates. GE Shipping is likely to report an
operating margin expansion along with a rise in bottomline.
Valuation
We have valued GE on multiple valuation parameters and recommend
BUY with a price target of | 356.
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