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Revenue down, offshore business offers comfort for GE Shipping

Revenue down, offshore business offers comfort for GE Shipping
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First Published: Sun, Feb 20 2011. 07 48 PM IST
Updated: Sun, Feb 20 2011. 07 48 PM IST
Adecent show in the offshore business segment has set off the weak performance of the shipping business in the December 2010 quarter for Great Eastern Shipping Ltd (Gesco) to some extent.
That hasn’t, however, enthused the Street.
Analysts have revised their earnings estimates downwards for FY11 and FY12 after the disappointing financial results.
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They are now pencilling in the oversupply of ships and the resulting weakness on freight rates and utilization levels in the foreseeable future.
For the quarter, revenue from the shipping business was hit primarily on account of a decline in revenue days and, to an extent, due to lower rates.
Shipping business revenue declined sharply by 27% on a year-on-year basis to Rs435 crore and accounted for 67% of the total revenue compared with 75% in the December 2009 quarter. The remaining revenue came from the offshore business, which increased by 4%, helped by a greater number of operating days. The profitability of the offshore business was far more robust than that of the shipping business.
Operating performance improved as overall costs fell more sharply, especially repairs and maintenance of fleet and rigs, direct operating expenses and hire charges. Operating profit margin thus improved by more than eight percentage points to 36.4% from 28.2% in the same period last year. This operating margin does not include the forex impact and gain on sale of ships. Strong operating performance and a 3-4% decline in interest and depreciation costs led to 24% growth in net profit to Rs117 crore.
Gesco has decided not to proceed with the issue of shares of its subsidiary, Greatship (India) Ltd, and has withdrawn the draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (Sebi), citing “prevailing market conditions”. This withdrawal “is expected to impact the valuation multiple for the company. We were expecting re-rating in offshore business with valuation of Rs195 per share,” wrote analysts from Antique Stock Broking Ltd in a note to clients last week.
Gesco’s share has underperformed this fiscal and declined by 6% to Rs276 per share compared with the 1% improvement in the BSE 200 index on the Bombay Stock Exchange. In the near future, there is little reason for that trend to change, given the muted shipping environment. Having said that, the company’s offshore business should continue to compensate the underperformance in the shipping business, at least to some extent.
Graphic by Ahmed Raza Khan/Mint
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First Published: Sun, Feb 20 2011. 07 48 PM IST