Great Eastern Shipping - Q4FY12 Result update - Centrum

Shipping business continues to be under pressure

Great Eastern Shipping's (GE Shipping) Q4FY12 results were better than expectations. While higher revenue led to better EBITDA and margins, lower depreciation and profit from sale of ships led to higher-than-expected profitability. Movement in foreign currency led to restatement of dollar denominated loans and in accordance with AS-16 Rs341mn was accounted for in interest cost during Q4 (Rs1,290mn for FY12). We have marginally raised our revenue estimates to factor in the depreciation in Re vs USD. However, freight rates are likely to remain under pressure and impact margins going ahead. The company is focused on growing its offshore business under Greatship (India), and has an order book of four vessels, including a 350-foot jack-up rig. Maintain Buy but with a lower target price to Rs288 on our revised estimates.

- Q4 results better: Consolidated revenue grew 36.7% YoY to Rs8,223mn, 11.2% above our estimate. EBITDA grew 10.1% YoY to Rs2,578mn, also 9.9% above our estimates; however, PAT (adjusted for impairment loss) at Rs592mn, was down 38.7% YoY. Shipping revenue increased 14.2% YoY to Rs4,862mn on the back of higher revenue days (up 12.5% YoY to 3,205 days). Offshore revenues grew 45.4% YoY to Rs3,404mn.

- Declining freight rates add pressure on margins: Consolidated EBIDTA margins declined 757bp YoY and 332bp QoQ to 31.3%. Though offshore EBIT remained flat up 1.8% YoY to Rs781mn, its margins declined 983bp YoY to 22.9%. Shipping EBIT (adjusted for impairment) was also flat, down just 0.2% YoY to Rs988mn, while its EBIT margins too declined 293bp YoY to 20.3%.

- Global oversupply adds pressure on freight rates: Freight rates continued to remain under pressure in both the crude and dry bulk segments, impacted by the global slowdown in demand combined with record new-vessel deliveries especially in the dry-bulk segment. While the average time charter yield (TCY) declined 14.1% YoY to $19,830/day in the crude tanker segment, it declined 16.7% YoY to $15,130/day in the dry-bulk carrier segment. Average TCY declined 14.2% YoY to $13,353/day in the product tanker segment.

- Maintain Buy, target price lowered to Rs288: We continue to value GE Shipping on sum-of-the-parts (SOTP) basis on FY14. While we have valued the shipping business at Rs256/share (0.7x FY14 standalone BV), we value offshore business at Rs32/share (6.5x FY14E EBITDA) to arrive at our revised target price of Rs288 (earlier Rs308). The company's standalone NAV at the end of Q4 was down 20.9% YoY and 4.2% QoQ to Rs273.

Source : Equity Bulls

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