Great Eastern Shipping Co. Ltd.

Transcription

1 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 August 8, 2011 COMPANY RESULTS REPORT REVIEW Great Eastern Shipping Co. Ltd. Decent quarter; clouded by macro turbulence HOLD Nifty: 5,119; Sensex: 16,990 CMP Target Price Analyst Chetan Kapoor Rs255 Rs272 Potential Upside/Downside +7% Key Stock Data Sector Shipping Bloomberg / Reuters GESCO IN /GESC.BO Shares o/s (mn) Market cap. 38,803 Market cap. (US$ mn) m daily average vol. 22,836 Price Performance 52-week high/low Rs393/240-1m -3m -12m Absolute (%) (7) (6) (18) Rel to Sensex (%) 3 2 (11) Shareholding Pattern (%) Promoters FIIs/NRIs/OCBs/GDR MFs/Banks/FIs Govt Non Promoter Corporate 8.28 Public & Others Summary GE Shipping (GESCO) recorded better than expected results mainly due to higher operating days in the shipping division. The revenue for the quarter grew by ~6% YoY to Rs6.8 bn mainly due to the increase in the operating days in the shipping division and higher charter rates in product tanker segment which constitutes~50% of total fleet in terms of numbers. EBIDTA margins remained relatively stable at 39.9%, holding a fall of 70bps. The PBT remained flat at Rs1.9 bn, whereas adjusted PAT fell by 7% YoY to Rs1.3 bn. The NAV contracted from Rs345 in Q4FY11 to Rs340 in Q1FY12. The consolidated NAV including the offshore fleet stands at ~Rs445 as compared to Rs420 in Q4FY11. We expect the pressure on the NAV to remain in the medium term with the asset prices expected to further correct in the case of Crude tanker and Dry-bulk space. Product tanker segment though has started to show signs of reaching the trough with the fleet addition scenario relatively brighter (~3% addition YoY over CY11-12). We believe that GESCO with its relatively lower leverage is in a better position to weather the turbulent macro-economic scenario. The stock currently trades at 7.3x FY12E which is at a fair multiple compared to the global shipping companies. We maintain our rating at HOLD with a target price of Rs272 following a simple NAV based target multiple (0.8x). Key Highlights Revenue increased by ~6% YoY to Rs6.8 bn mainly due to increase in operating days of the shipping division and higher charter rates in product tanker segment which constitutes ~50% of total fleet in terms of numbers. This growth was recorded despite a 32% YoY fall in the Dry-bulk TCYs booked by the company. Operating days in the shipping division increased by 1.7% YoY and 20% QoQ. EBIDTA margins remained relatively stable at 39.9% (ex-income from sale of ship) as compared to 40.6% in Q1FY11. This despite the 750bps reduction in offshore EBIT margins to 38.9%. Offshore EBIT margin fall has been ascribed to the lower utilization of couple of PSV and AHTV assets which are in between contracts. The earnings adjusted for gain from sale of ship stood at Rs1.3 bn. The consolidated NAV increased to Rs445 from Rs420 mainly on the back of the increase in the offshore asset prices. The shipping fleet saw a decline in valuation at Rs340 from Rs345 in Q4FY11. During the quarter GESCO added one Kamsarmax and delivered one Suezmax carrier taking the total fleet to 35 vessels (26 tankers, 9 dry-bulk carriers). Further to this, another Kamsarmax dry-bulk carrier is expected to be added in Q2FY12. The spot to charter mix in case of Tankers and dry-bulk stood at 55:45. Relative to Sensex Table: Financial snapshot Source: Capitaline GESCO Sensex Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) FY10 28,904 7, , FY11 24,470 9, , FY12E 27,502 11, , FY13E 28,313 11, ,

2 Outlook Crude carrier The Crude carrier segment is likely to suffer from excessive supply with weakening demand of crude by developed countries. With current orderbook at 21.7% of existing fleet, the base case net-addition scenario is expected to be in range of 7% p.a. This distills into a difficult charter rate scenario with trade growth in the range of 4%. We expect the rates to remain depressed for the next two years in the tanker segment. Product segment The Product carrier segment is likely to show first signs of recovery with a relatively benign orderbook at 14% of existing fleet and fleet addition likely to be in the range of 3-4% p.a. Hence, we expect players like GE Shipping to gain out of the recovery in this segment with about 50% of its fleet in terms of numbers belonging to this segment. Dry-bulk segment We maintain a pessimistic outlook for the Dry-bulk segment with ~37% of fleet on order excluding the ore carriers. The trade growth estimates remain highly nebulous with the uncovering macro-economic scenario. There is a wide understanding in the industry of significant cancellations with a likely bankruptcy of a number of players. The iron-ore imports by China are currently stagnating, as are its inventory levels. Offshore We expect a relatively attractive scenario to continue for Offshore till the crude oil remains above US$80/barrel territory. The increase in the asset prices over the quarter is one of the key indicator for a better earning profile. Valuations The stock currently trades at 7.3x FY12E and 7.3x FY13E EV/EBIDTA. We find credence in the lower leverage (netdebt:equity at 0.8x, FY11) but with a higher risk profile due to lower coverage 55% in crude, 42% in dry-bulk, 37% in AHTSVs and 38% for MPSSVs, induces our HOLD rating on the stock with a target price of Rs 272. Concall Highlights Relatively lower dry-docking cost during the quarter. Total 10 dry-docks expected in FY12, 4 in Q2FY12 hence repair and maintenance costs to go up in the coming quarters. The product tanker segment is likely to recover first with a relatively lower net-addition scenario of 3% YoY in the next two years. Product charter rates have relatively recorded better rates in H1CY11. The rates are likely to remain stable. Lower utilization of offshore assets stationed in Brazil and couple of AHTVs reduced margins for the quarter in the offshore segment. The utilization is expected to improve with another contract to be signed in the next week for the AHTSVs. Asset prices are expected to correct further from the current levels. According to estimates assets acquired in the last 8-9 years with more than 50% leverage are not breaking even at the current spot rates hence cancellations/scrapping is likely to pick-up further pace. 2

3 Table: Financials (Consolidated) Year-end: March Q1FY11 Q1FY12 YoY (%) FY10 FY11 YoY (%) FY12E YoY (%) FY13E YoY (%) Revenue 6,443 6, ,565 24,329 (14.8) 27, , EBITDA 2,614 2, ,257 9, , , EBITDA Margins (%) Sale of Ship ,849 1,251 (32.4) Other Income (17.5) 2,808 1,830 (34.8) 3, , Depreciation 1,047 1, ,246 5, , , Interest (21.0) 2,123 2, , , PBT 1,874 1,874 (0.0) 5,546 5,292 (4.6) 6, , Tax (70.1) 161 (65.3) PAT 1,726 1,638 (5.1) 5,134 4,829 (5.9) 6, , PAT excluding sale of ships and foreign exchange gains 1,431 1,328 (7.1) 3,895 4, , , EPS (as per above) (Rs) (7.2) Table: Segmental results Year-end: March Q1FY12 Q1FY11 YoY (%) Shipping 5,381 4, % Share Offshore 2,467 2, % Share Others Total 7,848 7, Less Inter Segment (1) (4) (86.5) Total 7,848 7, EBIT Shipping 1,649 1,731 (4.7) PBIT (%) (12.1) Offshore 960 1,074 (10.7) PBIT (%) (16.2) Others Total 2,609 2,805 (7.0) Less Interest (21.0) PBT 1,874 1,874 (0.0) Table: Average charter rates TCYs (US$/Day) Q1FY11 Q1FY12 YoY (%) Q4FY11 QoQ (%) Crude 20,444 20,097 (1.7) 23,072 (12.9) Product 15,485 16, , Dry 24,484 16,569 (32.3) 18,153 (8.7) 3

4 Table: Revenue days (Days) Q1FY11 Q1FY12 YoY (%) Q4FY11 QoQ (%) Owned tonnage 3,315 3,178 (4.1) 2, In-chartered tonnage ,021.1 Total revenue days 3,334 3, , Total owned tonnage (mn dwt) (4.1) 2.6 (1.9) Table: World fleet status Current In Service DWT ('000) Orderbook as DWT (%) Tankers Crude Oil 2, , Oil Product 1,524 53, LNG , LPG , Chemical 233 4, Carriers Bulk 7, , Ore , Vehicle , Gen Cargo 4,537 57, Ro-Ro 423 4, Containers Containerships 4, , Combination Chemical/Oil 2,998 75, Passenger Passenger/Cruise 165 1, Source: Bloomberg 4

5 Table: Peer Valuations Company Tanker CMP (US$) Mkt Cap (US$ mn) CY10/ FY11 ROE (%) P/E (x) P/B (x) EV/EBITDA (x) CY11E/ FY12E CY12E/ FY13E CY10/ CY11E/ CY12E/ FY11 FY12E FY13E CY10/ CY11E/ CY12E/ FY11 FY12E FY13E CY10/ CY11E/ CY12E/ FY11 FY12E FY13E Frontline Ltd/Bermuda (5.7) (2.8) General Maritime Corp (62.2) (34.5) (43.6) Knightsbridge Tankers Ltd Aegean Marine Petroleum Network Inc Torm A/S (11.5) #N/AN/A #N/AN/A Teekay Corp ,752 (12.7) (3.1) Tsakos Energy Navigation Ltd (1.1) Median Dry Bulk Star Bulk Carriers Corp (1) (2.9) #N/AN/A DryShips Inc 2.9 1, Diana Shipping Inc Excel Maritime Carriers Ltd (3.2) Genco Shipping & Trading Ltd (1.8) Eagle Bulk Shipping Inc (2.2) (0.7) Median

6 Financial Summary Profit & Loss Account Cash Flow Statement Net sales 28,904 24,470 27,502 28,313 Growth (%) (24.0) (15.3) Operating expenses (21,307) (14,777) (15,897) (16,663) EBITDA 7,598 9,693 11,605 11,650 Growth (%) (51.0) Depreciation (4,246) (5,061) (5,263) (5,450) EBIT 3,352 4,632 6,342 6,200 Interest paid (2,123) (2,397) (3,225) (3,278) Other income 4,316 3,057 3,068 3,524 Pre-tax profit 5,578 5,239 6,185 6,447 Tax (450) (552) (138) (161) Effective tax rate (%) Net profit 5,128 4,687 6,047 6,286 Adjusted net profit 5,096 4,739 6,047 6,286 Growth (%) (63.8) (7.0) Shares o/s (mn nos) Pre-tax profit 5,578 5,239 6,185 6,447 Depreciation 2,886 (21) 23,349 26,730 Tax paid (457) (554) (129) (161) Chg in working capital (2,627) (1,688) (1,692) 12 Other operating activities Cash flow from operations (a) 5,379 2,977 27,713 33,028 Capital expenditure (2,121) (15,787) (1,545) (10,166) Chg in investments (18,765) 3,799 (5,037) (1) Other investing activities 1, Cash flow from investing (b) (19,701) (11,911) (6,583) (10,167) Equity raised/(repaid) (37) (61) (23) 1 Debt raised/(repaid) 11,042 5,873 10,404 4,233 Dividend (incl. tax) (1,421) (1,434) (1,203) (1,324) Chg in minorities Other financing activities - - (367) - Cash flow from financing (c) 9,584 4,754 8,811 2,910 Net chg in cash (a+b+c) (4,737) (4,179) 29,942 25,771 Balance Sheet Financial Ratios Net fixed assets 75,035 90,842 69,038 52,474 Investments 21,789 17,990 23,027 23,028 Current assets 21,848 17,688 48,728 74,625 Inventories 861 1,034 1,026 1,050 Sundry Debtors 2,257 2,277 3,173 3,274 Cash and Bank 17,439 13,260 43,202 68,974 Loans and advances 1,146 1,035 1,253 1,254 Total assets 118, , , ,127 Shareholders' funds 57,098 60,683 65,129 70,092 Share capital 1,605 1,547 1,524 1,525 Reserves & surplus 55,493 58,760 63,228 68,191 Total Debt 53,702 59,574 69,978 74,211 Secured loans 44,202 47,074 59,478 65,711 Unsecured loans 9,500 12,500 10,500 8,500 Other liabilities 53,695 59,566 69,978 74,211 Curr Liab & prov 9,619 7,302 5,776 5,936 Current liabilities 7,879 6,273 5,687 5,825 Provisions 1,740 1, Total liabilities 61,573 65,838 75,666 80,036 Total equity & liabilities 118, , , ,128 Book Value (Rs) Adj. EPS (Rs) Adj. EPS growth (%) (63.8) (7.0) EBITDA margin (%) Pre-tax margin (%) ROE (%) ROCE (%) Turnover & Leverage ratios (x) Asset turnover (x) Leverage factor (x) Net margin (%) Net Debt / Equity (x) Working Capital & Liquidity ratio Inventory days Receivable days Payable days Valuation P/E (x) Price / Book value (x) PCE (x) EV / Net sales (x) EV / EBITDA (x) Dividend Yield (%)

7 Notes Vikrant Oak Head Institutional Equities (91-22) Sonam H. Udasi Head Research (91-22) Dealing (91-22) Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below. IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.) Registered Office: 2nd floor, Mittal Court C Wing, Nariman Point, Mumbai Phones: (91-22) Fax: (91-22) info@idbicapital.com Disclaimer This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. No person associated with IDBI Capital is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document. Recipients may not receive this report at the same time as other recipients. IDBI Capital will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Opinions expressed are current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis, the information discussed in this material, IDBI Capital, its directors, employees are under no obligation to update or keep the information current. Further there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. IDBI Capital, its directors and employees and any person connected with it, will not in any way be responsible for the cont ents of this report or for any losses, costs, expenses, charges, including notional losses/lost opportunities incurred by a recipient as a result of acting or non acting on any information/material contained in the report. This is not an offer to sell or a solicitation to buy any securities or an attempt to influence the opinion or behaviour of investors or recipients or provide any investment/tax advice. This report is for information only and has not been prepared based on specific investment objectives. The securities discussed in this report may not be suitable for all investors. Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own analysis. Trading in stocks, stock derivatives, and other securities is inherently risky and the recipient agrees to assume complete and full responsibility for the outcomes of all trading decisions that the recipient makes, including but not limited to loss of capital. Opinions, projections and estimates in this report solely constitute the current judgment of the author of this report as of the date of this report and do not in any way reflect the views of IDBI Capital, its directors, officers, or employees. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IDBI Capital and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. IDBI Capital, its directors or employees or affiliates, may from time to time, have positions in, or options on, and buy and sell securities referred to herein. IDBI Capital or its affiliates, during the normal course of business, from time to time, may solicit from or perform investment banking or other services for any company mentioned in this document or their connected persons or be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or their affiliate companies or act as advisor or lender / borrower to such company(ies)/affiliate companies or have other potential conflict of interest. This report may provide hyperlinks to other websites. Except to the extent to which the report refers to the website of IDBI Capital, IDBI Capital states that it has not reviewed the linked site and takes no responsibility for the content contained in such other websites. Accessing such websites shall be at recipient's own risk. is not a secure method of communication. IDBI Capital Market Services Limited cannot accept responsibility for the accuracy or completeness of any message or any attachment(s). This transmission could contain viruses, be corrupted, destroyed, incomplete, intercepted, lost or arrive late. IDBI Capital, its directors or employ ees or affiliates accept no liability for any damage caused, directly or indirectly, by this . 7