Recommendation from a Shipping Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

The Great Eastern Shipping Co. Ltd.: SAILING AT GOOD SPEED

HERE IS WHY

✓ Beneficiary of industry growth and trends
✓ Impressive domestic and foreign revenue
✓ Sound expansion strategy

According to the Ministry of Shipping, around 95 per cent of India’s trading by volume and 70 per cent by value is done through maritime transport. According to Modor Intelligence, the India freight and logistics market size is estimated at USD 288.18 billion in 2023, and is expected to reach USD 484.43 billion USD by 2029, growing at a CAGR of 9.04 per cent during the period 2023 to 2029. One such company which will be a beneficiary of this upward spiral is The Great Eastern Shipping Company Limited, which is India’s largest private sector shipping service provider. 

The company’s shipping business operates under two main businesses: dry bulk carriers and tankers. Backed by an enviable clientele comprising industry leaders, international oil companies and governments, the company has earned the status of being the most preferred shipping service provider. It is involved in the offshore services business through its wholly-owned subsidiary Greatship India Ltd. that provides offshore oilfield services with the principal activity of owning and operating offshore supply vessels and mobile offshore drilling rigs.

In Q1FY24, on a consolidated basis the company’s revenue decline by 6.03 per cent YoY to ₹1,283.69 crore compared to ₹1,366 crore from the previous year’s same quarter. The PBIDT excluding other income increased by 21.32 per cent to ₹790.45 crore YoY as compared to ₹651.53 crore from the previous year’s same quarter. Net profit stood at ₹576.27 crore compared to ₹457.04 crore, a YoY increase of 26.09 per cent. In the latest quarter, the company’s revenue share consists of 81.3 per cent from the shipping business and 18.7 per cent fromthe offshore business.

On the geographical front, the company generated 35.3 per cent of its revenue from India, with the remaining 64.7 per cent coming from the rest of the world. As of June 2023, the company operates 42 vessels, comprising 28 tankers and 14 dry bulk carriers. It operates a diversified fleet, including crude carriers, product carriers, gas carriers and dry bulk carriers. This fleet expansion and diversification has enabled the company to participate in multiple segments of the shipping industry, spreading risk and potential for growth. 

The company’s strategic scrapping of older vessels allows for fleet rejuvenation, leading to cost savings and operational efficiency, ultimately supporting profitability. Its presence in the offshore segment offers diversification and revenue stability beyond traditional shipping. The company’s overall seaborne crude and product trade grew by around 7 per cent and 4 per cent YoY, respectively, during Q1FY24. Trade disruptions caused by the European Union’s embargo on Russian oil continue to boost tanker ton-mile growth for the company, resulting in more profit with fewer sales. 

The company has a history of consistent dividend payouts, which is an attractive feature for investors and can help maintain shareholder confidence. Currently, it boasts a good dividend yield of 3.40 per cent. The company is currently trading at a PE ratio of 4.69 times compared to the industry PE ratio of 6.89 times, and lower than its threeyear median PE of 7.8 times. Over the last three years, the company has delivered an average ROE of 16.0 per cent and ROCE of 12.4 per cent, respectively.Considering the company’s business and market, we recommend BUY.

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