Shipping continues to be in rough waters1 min read . Updated: 21 Nov 2012, 06:38 PM IST
The general outlook remains weak on account of excess supply in the market and a muted global demand
The September quarter results show no respite in the near future for the shipping business.
Sure, Shipping Corp. of India Ltd (SCI) reported a net profit of ₹ 297 crore in the quarter ended September, compared with a net loss in the last fiscal and the June quarter.
But net profit this time around was driven by an extraordinary item of about ₹ 480 crore. IDBI Capital estimates that SCI’s losses have expanded to ₹ 210 crore for the September quarter, adjusted for the ship-sale income and forex income gain/loss.
What’s more, even revenue growth was slower last quarter compared with the June quarter. Revenue growth was slower mostly because the liner business (including break bulk and container transport) revenue declined by 25% on a year-on-year basis. Moreover, bulk segment revenue increased at a slower pace than the June quarter.
With no turnaround in sight for shipping companies, given the depressed freight rates and a slowing global economy, the Street anticipates SCI to post losses this fiscal and the next year as well. This, of course, is likely to reflect in the stock performance.
On the other hand, another major shipping firm, Great Eastern Shipping Co. Ltd (GE Shipping), has been performing comparatively much better and reporting profits thanks to the strong performance of its offshore business. In fact, GE Shipping’s offshore business has been a strong earnings driver for the past several quarters and that is expected to continue in the future as well.
For the September quarter, too, the company posted a consolidated net profit of ₹ 81 crore against ₹ 27 crore for the same period last year.
Still, GE Shipping’s September quarter financial performance was below expectations. One reason is the shipping business was affected on account of lower charter rates.
In fact, the shipping business posted a loss at the earnings before interest and tax level, compared with a profit in the same period last year and the June quarter.
In future too, shipping is expected to face rough seas. Sure, the offshore business would offer support to profitability, but that is largely priced into the stock price for now.
In any case, the general outlook for shipping companies remains weak on account of excess supply in the market and a muted global demand. Analysts do not foresee a sharp improvement in freight rates any time soon.