Not yet smooth sailing for shipping companies1 min read . Updated: 20 Aug 2012, 11:39 PM IST
Not yet smooth sailing for shipping companies
The shipping sector is still not out of hot water. At least, that’s what the latest results of the two leading Indian shipping companies seem to convey.
SCI’s liner business (including break bulk and container transport) saw a sharp decline in earnings before interest and tax (Ebit) loss from the previous quarter.
On the other hand, the bulk business posted a profit at the Ebit level.
The bulk segment includes tankers, dry bulk carriers and gas carriers and had posted an Ebit loss in the March quarter. But then, as expected, depreciation and interest costs ate into the core profits of the company yet again.
Unlike SCI, Great Eastern Shipping Co. Ltd (GE Shipping) has posted a profit in the June quarter. In fact, the company had posted a net profit last fiscal year as well when SCI had incurred a loss. The main reason for GE Shipping being able to sail smoothly is because of the strong support to earnings from its offshore business.
What’s more, analysts expect the offshore business to drive growth for the company in the days to come.
Since the beginning of this fiscal year, SCI stock has underperformed the Sensex while GE Shipping shares have marginally outperformed.
The outlook for shipping companies continues to be weak. The main reason is the oversupply of vessels at a time when global macroeconomic signals are discouraging. This means that freight rates are unlikely to see any sharp improvement any time soon.
Moreover, for SCI, higher interest and depreciation costs are likely to keep profitability under pressure.
Although GE Shipping’s earnings are cushioned to an extent because of its offshore business, the shipping business still faces challenges.
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