GE Shipping sailing in rough seas with offshore support
With the shipping business in turbulent seas, GE Shipping has managed to post profits mainly due to offshore business
Some things don’t change. Take for instance the trend in the financial performance of two major Indian shipping companies—Shipping Corp. of India (SCI) and Great Eastern Shipping Co. Ltd (GE Shipping). In the previous two fiscal years, SCI posted losses at the net level, while GE Shipping posted profits. In the first half of this fiscal year, the pattern continued. For the half year ended September, SCI reported a loss of ₹ 222 crore and GE Shipping a net profit of ₹ 405.61 crore.
It’s well-known the shipping business is in turbulent seas, as freight rates are under pressure due to global oversupply of ships. GE Shipping, though, has been performing well for a solid reason—its offshore business. For GE Shipping, contribution from its offshore business to its total earnings before interest and tax (Ebit) increased to about 65% in FY13 from half in FY12. In the half year ended September, too, the offshore business accounted for 65% of the total Ebit. GE Shipping derives its remaining revenue from the shipping business.
On the other hand, SCI’s major segments—liner and bulk—have been a problem area for some time now. The liner segment includes container transport and bulk comprises tankers (both crude and product), dry bulk carriers, gas carriers and phosphoric acid carriers. In FY13 and the half year ended September, both the segments posted losses at the Ebit level. Higher depreciation costs and interest expenses also affected SCI’s overall profitability this year.
What’s worse is that outlook for SCI isn’t good. “SCI, on account of poor earnings due to weak charter rates coupled with incessant capex and escalating finance cost, is expected to extend its losses in FY14 and FY15," says a note from ICICI Securities Ltd. Anyhow, the SCI stock’s sharp underperformance in the last three years reflects the concerns of weak fundamentals.
The GE Shipping stock has fared much better. Sure, the offshore business is expected to come to GE Shipping’s rescue in the coming days as well, but then the GE Shipping stock has already appreciated by 31.5% so far in this fiscal year, suggesting that most of the positives are factored in at the current levels. And then, freight rates are not expected to improve in a hurry from a near-to-medium term perspective, which would keep sentiments muted for the sector.
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