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Sailing into rough waters

Sailing into rough waters
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First Published: Wed, Nov 23 2011. 05 08 PM IST

Updated: Fri, Nov 25 2011. 12 30 AM IST
It’s well known that shipping companies have been sailing in turbulent seas for some time now. Shipping Corp. of India Ltd (SCI) has posted a net loss for the third consecutive time in the quarter ended September.
While SCI’s net loss was about Rs 6 crore each in the June and March quarters, it was a massive Rs 140 crore in the September quarter. Of course, the huge difference is because of a notional forex loss to the tune of Rs 126 crore included in the interest expenses. This is why interest expense shows a dramatically sharp increase compared with the same period a year ago and the June quarter.
But clearly, these are not the best of the times for shipping companies operationally. Consider this: SCI’s bulk business has posted a loss at the earnings before interest and tax (Ebit) level for the first time. Bulk business revenue accounted for 62% of the total revenue for the September quarter. About one-third of the revenue came from SCI’s liner segment, which has also reported an Ebit loss.
On the other hand, the Great Eastern Shipping Co. Ltd (GE Shipping) managed to report a consolidated net profit for the September quarter, which again was adversely affected on account of higher interest costs. But note that GE Shipping’s offshore business has performed comparatively better than the shipping business and boosted the company’s overall performance.
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Why has Shipping Corporation of India posted losses while Great Eastern Shipping reports profits? Mint’s Pallavi Pengonda tells us why.
While the operating environment remains weak, analysts maintain that GE Shipping is better placed than SCI. Why is that?
A key reason is SCI’s fleet expansion. The company had ordered vessels at relatively higher rates at the peak of the freight rate cycle. In the current scenario of weak freight rates, break-even of these vessels becomes challenging.
On the other hand, “most of GE Shipping’s capex is in the offshore segment, which is relatively stable compared with the shipping business. That’s why, in the current environment, GE Shipping is less affected than SCI”, said Siddhartha Khemka, analyst at Centrum Broking Pvt. Ltd.
Analysts expect SCI to post a net loss for the current fiscal year. On the other hand, GE Shipping’s offshore business is likely to offer a cushion for the company’s overall financial performance in the days to come. So far this fiscal year, the GE Shipping stock has performed better than SCI.
Also See | Cruising Ahead (PDF)
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First Published: Wed, Nov 23 2011. 05 08 PM IST