India Ratings revises outlook on shipping industry to stable from negative2 min read . Updated: 06 Mar 2014, 03:20 PM IST
The firm said that the credit profile of Indian companies is unlikely to deteriorate further as freight rates stay stable
Mumbai: India Ratings and Research Pvt. Ltd on Thursday revised its outlook on the shipping sector for the next fiscal to stable from negative on grounds that the credit profile of Indian shipping companies is unlikely to deteriorate further as freight rates stay stable.
The rating firm said it believes that the credit profile of Indian corporates in the sector is unlikely to deteriorate further as the bulk of the ships owned by Indian shipping companies comprises of crude oil and product tankers (as on 30 September 2013 at 61.9%), a segment in which freight rates are likely to remain at around current levels in FY15.
This stable outlook comes at a time when India’s largest shipping company by fleet Shipping Corp. of India Ltd reported a loss of ₹ 65.67 crore for the quarter ended 31 December while the largest private sector shipping company Great Eastern Shipping Co. Ltd’s net profit declined 83% to ₹ 13.13 crore in the same quarter.
Many shipping companies had embarked on debt-funded capital expenditure plans in 2007-08 and since then, freight rates have dropped considerably due to overcapacity across segments as well as moderation in demand growth which led to a deterioration in the credit profiles of shipping companies globally.
Global trade volumes were muted in the first half of 2013 and only picked up tentatively in the second half, led by an improvement in industrial activity in the US and European economies.
“Therefore, seaborne trade in 2013 is expected to have grown at a similar rate as the 4.3% growth seen in 2012. The agency expects a similar growth rate for 2014," India Ratings said.
“Bunker fuel prices continued to remain high in 2013, around the same levels as witnessed in 2012. The high rates continued to hinder the revival in the profitability of shipping companies globally even in segments where freight or charter rates had somewhat stabilised," it said.
The rating agency said the outlook upgrade to “stable" is unlikely to change at least for the next one year.
“A sustained growth in international trade led by increasing demand from Europe and the US could lead to an improvement in container volumes, however likely capacity additions will keep freight rates under check," it said.
However, it cautioned that a higher-than-anticipated capacity addition in the tanker segment or a moderation in global trade activity could lead to the outlook being revised back to negative.