Bangalore / Mumbai: The global economic downturn that has caused world trade to slow and led to a steep fall in freight rates has taken its toll on the earnings of domestic shipping companies. Net profit at three of India’s largest shipping firms dropped sharply in the June quarter.
“The global slowdown, lower demand for moving commodities and excess capacity in the system pulled down earnings from dry bulk and oil tankers by as much as 80% compared with the same period last year,” said Kapil Yadav, a research analyst at Dolat Capital Market Pvt. Ltd.
Great Offshore Ltd on Wednesday posted a net profit of Rs22.2 crore for the quarter against Rs12.01 crore for the corresponding period last year, an 84% increase. Revenue rose 21.88% to Rs247.04 crore against Rs202.68 crore.
However, Great Offshore’s net profit came from capitalizing Rs19.54 crore of expenditure incurred from five-yearly special surveys. If the change in accounting practice had not been implemented, the actual net profit would have been a meagre Rs2.66 crore for the quarter, a nearly 450% decline.
“The company has changed its accounting policy with effect from 1 April 2009 in respect of expenses incurred at the time of five-yearly special surveys and life enhancement programmes by which class certificates or operating licences are renewed, and capitalized the said expenses,” the company said in a note to investors on Wednesday. “In the opinion of the company, the said change in the accounting policy would result in a more approximate representation of the financial statements of the company.”
Two of the largest shipyards in the country—ABG Shipyard Ltd and Bharati Shipyard Ltd—are currently competing for a strategic stake in Great Offshore, which provides offshore support ships to oil exploration companies.
State-run Shipping Corp. of India Ltd (SCI), India’s largest shipping company in terms of fleet size and revenue, posted a 57% drop in net profit for the quarter from the year-ago period. Its net profit rose to Rs119.92 crore from Rs279.60 crore a year earlier, while revenue fell to Rs882.79 crore from Rs1,061.91 crore a year ago.
India’s biggest gas carrier, Varun Shipping Co. Ltd has also reported a 91% fall in profits for the quarter to Rs1.84 crore from Rs21.33 crore a year earlier. The firm’s first quarter revenues declined to Rs176.67 crore from Rs206.49 crore in the year-ago period.
“It appears that fiscal year 2009-10 will be a challenging year for shipping due to continuing global economic meltdown and sharp drop in the production, movement and price of crude oil and petroleum products,” Arun Mehta, chairman of Varun Shipping, said on Tuesday at the firm’s 38th annual general meeting.
Varun Shipping, which runs crude tankers and gas carriers, registered a 70% drop in freight rates in this segment on a quarter-on-quarter basis. “The tanker markets continue to be challenging,” said Yudhishthir Khatau, Varun Shipping’s vice-chairman and managing director. The firm’s average freight earnings from crude tankers declined to $15,000 a day from about $45,000-50,000 a day in the last quarter, he said.