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Great Eastern Shipping
F3Q11: Weak Quarter
GESCO reported weak F3Q11 revenues, lower
relative to our estimate and consensus: The Rs5.6bn
figure implies a decline of 21% YoY and 12% QoQ. This
was driven by lower revenues days, as the company
sold assets, and a sequential decline in freight rates.
EBITDA margins (core) declined 470bps QoQ to 36.4%,
resulting in 22% lower EBITDA at Rs2bn. On a YoY
basis, margins improved given a low base, leading to
2% growth in EBITDA. PBT declined 36% QoQ, ahead
of EBITDA, reflecting higher depreciation and interest
costs to Rs1.4bn.
Shipping business disappointed given weak freight
rates: We estimate revenues to have declined 12%
QoQ (3% lower revenue days) to Rs3bn, with an
EBITDA decline of 28% to Rs1 bn, given the 765bps
QoQ decline in margins to 35.5%. During the quarter,
average yields for the company were lower by 9-11% in
the tanker (key segment) and product tanker segment,
while yield improved marginally in the bulker segment.
Revenues in the offshore business also declined:
They were down by 12% QoQ (flat YoY) to Rs2.1bn.
However, EBIT margins were broadly stable at 34%, on
our estimate.
Management commentary turning cautious:
Management is relatively positive on demand, given the
likelihood of better than expected recovery in the West
and continued strength in China / India, in both the
tanker and bulker segments. However, it highlights
excess capacity as the key risk for freight rates in both
segments.
GESCO has withdrawn IPO plans for the offshore
subsidiary, Greatship India: As per management,
given the current market conditions they have decided to
delay this for now. It will affect the stock sentiment in the
near term, in our view.
GESCO has a shipping fleet of 32 vessels as of
December 2010 and has around eight vessels on order,
which will be added in the next 24-30 months.
Other Highlights
• As of December 2010, crude tankers are covered for 74%
of operating days, product tankers are covered for 83% of
their operating days for F11e while bulkers are covered to
the extent of 62% of their operating days. Based on this,
GESCO has revenue visibility of around Rs2bn for the
remaining F2011e on the shipping business.
• On a consolidated basis, GESCO has gross debt of
Rs5bn and a cash position (including investments) of
Rs16bn. The company has gross gearing of 0.8x at the
consolidated level and 0.6x at the standalone level – it is
still in a comfortable position from a balance sheet
perspective.
• The company has entered into an agreement for
purchase of a 350-foot jackup rig, which is currently being
in-chartered by the company. We estimate this
acquisition to cost around $200mn and the company
could save around $34mn – in-chartering fees paid.
However, this would result in higher depreciation and
could lead to marginally lower return on equity, at least in
the near term.
• GESCO standalone has a capex plan of $573mn as of
December 2010, of which $260mn is already paid. This
would result in addition of around 1.31dwt to the tonnage
– three tankers and five bulkers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Great Eastern Shipping
F3Q11: Weak Quarter
GESCO reported weak F3Q11 revenues, lower
relative to our estimate and consensus: The Rs5.6bn
figure implies a decline of 21% YoY and 12% QoQ. This
was driven by lower revenues days, as the company
sold assets, and a sequential decline in freight rates.
EBITDA margins (core) declined 470bps QoQ to 36.4%,
resulting in 22% lower EBITDA at Rs2bn. On a YoY
basis, margins improved given a low base, leading to
2% growth in EBITDA. PBT declined 36% QoQ, ahead
of EBITDA, reflecting higher depreciation and interest
costs to Rs1.4bn.
Shipping business disappointed given weak freight
rates: We estimate revenues to have declined 12%
QoQ (3% lower revenue days) to Rs3bn, with an
EBITDA decline of 28% to Rs1 bn, given the 765bps
QoQ decline in margins to 35.5%. During the quarter,
average yields for the company were lower by 9-11% in
the tanker (key segment) and product tanker segment,
while yield improved marginally in the bulker segment.
Revenues in the offshore business also declined:
They were down by 12% QoQ (flat YoY) to Rs2.1bn.
However, EBIT margins were broadly stable at 34%, on
our estimate.
Management commentary turning cautious:
Management is relatively positive on demand, given the
likelihood of better than expected recovery in the West
and continued strength in China / India, in both the
tanker and bulker segments. However, it highlights
excess capacity as the key risk for freight rates in both
segments.
GESCO has withdrawn IPO plans for the offshore
subsidiary, Greatship India: As per management,
given the current market conditions they have decided to
delay this for now. It will affect the stock sentiment in the
near term, in our view.
GESCO has a shipping fleet of 32 vessels as of
December 2010 and has around eight vessels on order,
which will be added in the next 24-30 months.
Other Highlights
• As of December 2010, crude tankers are covered for 74%
of operating days, product tankers are covered for 83% of
their operating days for F11e while bulkers are covered to
the extent of 62% of their operating days. Based on this,
GESCO has revenue visibility of around Rs2bn for the
remaining F2011e on the shipping business.
• On a consolidated basis, GESCO has gross debt of
Rs5bn and a cash position (including investments) of
Rs16bn. The company has gross gearing of 0.8x at the
consolidated level and 0.6x at the standalone level – it is
still in a comfortable position from a balance sheet
perspective.
• The company has entered into an agreement for
purchase of a 350-foot jackup rig, which is currently being
in-chartered by the company. We estimate this
acquisition to cost around $200mn and the company
could save around $34mn – in-chartering fees paid.
However, this would result in higher depreciation and
could lead to marginally lower return on equity, at least in
the near term.
• GESCO standalone has a capex plan of $573mn as of
December 2010, of which $260mn is already paid. This
would result in addition of around 1.31dwt to the tonnage
– three tankers and five bulkers.
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