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The Great Eastern Shipping Co. – 2QFY2011 Result Update
Angel Broking maintains a Buy on The Great Eastern Shipping Co. with a Target Price of Rs396.
GE Shipping’s (Gesco) 2QFY2011 results were in line with our estimates,
reflecting tepid shipping markets but thriving offshore markets. Management has
reported a higher current NAV at `382/share in 2QFY2011 v/s `368/share in
1QFY2011, led by increased asset prices. Management guided that the global
slippages stand at around 25% and 40% for tankers and dry bulk segments,
respectively, with virtually no cancellations creating an over-supply in the near
term. Gesco intends to list its offshore subsidiary Greatship Ltd. (GIL) in the near
future, which will unlock value of its offshore business. We maintain our Buy
rating on the stock.
Offshore segment saves the day: Gesco’s consolidated revenue (excl. gain on
sale of vessels) declined by 4.8% yoy and 2.1% qoq to `631cr. The shipping
segment’s revenue declined by 23.7% yoy `478cr due to lower revenue days
(down 6.1% yoy) and time charter yields (TCY), which fell by 10.1% yoy, for the
product tanker segment. The offshore segment’s revenue grew by 36.1% yoy to
`238cr, driven by increased operating days. EBIT margins for both the segments
registered growth on a yoy basis on account of increased freight rates in case of
the shipping segment and better operating leverage in the offshore segment.
Consequently, EBITDA margin stood at 41.1% (up 1,567bp yoy and 51bp qoq).
There was a substantial decline of 53.2% yoy and 26.0% yoy in interest cost and
tax expense, respectively. Consequently, reported PAT increased by 55.5% yoy,
down 1.8% qoq, to `169cr.
Outlook and valuation: We believe the accelerated phase-out of single hull
tankers and higher slippages/cancellations would ease over-supply and improve
charter yields going forward. Moreover, healthy capex (eight vessels over the next
two years) would spur revenue growth in the high-margin offshore segment.
We recommend a Buy rating on the stock with a Target Price of `396.
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