Recommendation From Shipping Sector

This column gives you 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.

India has 12 major and 187 non-major ports. According to Ministry of Shipping, around 95 per cent of India's trading by volume and 70 per cent by value is done through maritime transport. Cargo traffic, which recorded 1052 million metric tonnes (MMT) in 2015, is expected to reach 1758 MMT by 2017. The positive sentiments across the sector will help company like Great Eastern Shipping Company (GE Shipping) to grow in future term.

GE Shipping has two main businesses viz. shipping and offshore. The shipping business is involved in transportation of crude oil, petroleum products, gas and dry bulk commodities. The shipping business operates under dry bulk carriers and tankers. The offshore business provides services to the oil companies in carrying out offshore exploration and production activities.

GE Shipping has contracted to buy a Japan-built second hand vessel which will be delivered to it in the current quarter. The company signed a contract to buy a second hand very large gas carrier built in 1996 of about 76931 cubic meter (cbm). Its current fleet stands at 32 vessels, comprising 31 tankers (8 crude carriers, 14 product tankers, 1 LPG carrier) and 9 dry bulk carriers (4 Kamsarmax, 5 Supramax) with an average age of 10.4 years aggregating 2.5 million deadweight (DWT). The company has recently announced that it has committed USD 120 million capex spend by 2018 and already invested USD 38 million.

On financial front, GE Shipping’s revenue increased by 7.97 per cent to Rs 948 crore in Q3FY16 as compared to same period in previous fiscal year. The company’s EBITDA rose by 44.73 per cent to Rs 493 crore in Q3FY16 on yearly basis. Its net profit also boosted by 51.27 per cent to Rs 275 crore in Q3FY16 as compared to same period in previous financial year.

On nine month financials basis, GE Shipping’s revenue increased by 14.64 per cent to Rs 2928 crore in 9MFY16 as compared to same period in previous fiscal year. Considering segmental front, the company earned 54.68 per cent from shipping segment and remaining 45.32 per cent from offshore segment in 9MFY16 on yearly basis.

Its EBITDA too increased by 47.27 per cent to Rs 1588 crore in 9MFY16 on yearly basis as its power & fuel expense reduced by 38.29 per cent during the same period. GE Shipping’s net profit also increased by 60.52 per cent to Rs 981 crore in 9MFY16 on yearly basis. The company has debt to equity ratio of 0.88 as of March 2015. It has dividend pay-out ratio stood at 22.17 per cent as of March 2015.

On valuation front, GE Shipping is trading at trailing twelve month (TTM) PE multiple of 4.37x times which is lower industry PE multiple of 6.62x times. The company’s TTM earnings per share (EPS) is at Rs 74.16. The company has current book value at Rs 562.83. Hence, we recommend our readers to BUY GE Shipping.