A Report on Great Eastern Shipping Company Limited

December 2012

Introduction

Great Eastern Shipping Company Limited (GE Shipping) is Indias largest private sector shipping company1 . It was established in 1948 by two enterprising families, the Sheths and the Bhiwandiwalas. It was started to transport mineral oil products, under charter, along the Indian coast. Over the years the company diversied into real estate business also but that business was sold later to the Mahindra Group (this now exists under the name of Mahindra Lifespan). At present the company has two major businesses which include; Shipping: Transportation of crude oil, petroleum, gas and dry bulk. O Shore Division: Oshore oil exploration and production. Currently the company is led by Mr. K.M. Sheth, Chairman, and Mr. Ravi K. Sheth, Executive Director. The founding families and their immediate relatives currently hold about 27.5 % of the paid up capital of the company. The details of individual holdings are available in company reports.
This note is a part of the ongoing class exercise in preparing an equity research report. This part is written by Rohit Govind. As is the case with almost everything, this report can also be improved for better presentation and more relevant information and as such there are no claims about perfection. Sections will be added as they get written.
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1.1 Historical Milestones

GE Shipping

1.1

Historical Milestones

The company has existed for more than sixty years and has earned a reputation for honest operation as well as for possessing an ability to face frequent ups and downs in global economic activity. It has evolved through some diversications and measured growth. Major historical milestones are mentioned below. 1948: Great Eastern Shipping Company was founded. 1991: Following major eorts were undertaken. Focus on replacement of old eet and modernization of the same. Entry into real estate business Merger of oshore business to oshore drilling and exploration. 1992: First to acquire ships under self nance scheme 1999: Sold its real estate business to Mahindra Group 2008: The company announced a joint venture with DOF Subsea ASA of Norway.

1.2

Industry Overview

Shipping industry reects the economic health of nations. Around 90 % of the world trade is generally done through this industry because of its cheaper rates and high eciency. It is a catalyst for economic development and is also considered as the most eco-friendly method of transportation. There are mainly two classes of goods that are transported. Wet bulk: Crude oil, petroleum products etc. Dry bulk: Iron ore, coal, fertilizers etc. The shipping industry is demand-supply driven. The rates are determined by this relationship. Higher the demand, higher the rates. The industry demands huge capital investment, which is not only for the xed assets but also for the skilled labor. GE Shipping has its own training establioshment which is rated as the best int he country. 2

1 INTRODUCTION

GE Shipping

India has a thriving economy and it is well-supported by its cargo shipping industry. About 90 % of the trade from India is done through shipping transport. The major challenges faced, however, by the industry are as follows; Port congestion. Lack of depth channels Foreign collaborations

1.3

Ranking within the sector

As per the latest declared results, the company stands second in ranking for prots and fourth for market capitalization within the shipping sector. The table below gives the details. Company Adani Ports Essar Ports GE Ship. Pipavav Shipping Corp. Market Cap. Rs. Mill. 271,760 39,516 39,307 65,176 24,874 Net Prot Rs. Mill. 1,773 -710 1,433 185.2 -4,282 EPS Rs. 5.88 -1.73 9.41 0.27 -9.19 Ranking Market Cap. 2 3 4 1 5 Ranking Net Prot 1 4 2 3 5

Table 1. Sector Rankings by Market cap and Net prot

1.4

Prot Performance

GE shipping has been, a protable company despite recent economic turbulence. Table 2 below shows the annual sales and prots for the last ve years. Year Sale: Rs. Mill. Prot: Rs. Mill. Percentage 2008 25,946 13,567 52.3 % 2009 28,362 13,747 48.5 % 2010 19,142 3,958 20.7 % 2011 2012

13,762 17,096 2,664 1,433 19.4 % 8.4 %

Table 2. GE Shipping: Five year sales and prot performance 3

1.5 Share Price Movement

GE Shipping

The graph below gives a graphical presentation of the prot performance of the past ve years. Rs. Million Great Eastern Shipping Limited Sale Prot

2008

2009

2010

2011

2012

Fig.1: Financial Performance: GE Shipping Limited

1.5

Share Price Movement

The share price (High and Low) for each year is given in Table 3. The price has dropped considerably from the high of around Rs. 550 in 2008. The High and Low values for 2012 are upto November 2012. Currently the price appears to be stabilized around Rs. 250.

Year High Rs. Low Rs.

2008 564 139

2009 316 142

2009 393 255

2010 352 183

2011 285 187

Table 3. GE Shipping: Share price movement on NSE 4

1 INTRODUCTION

GE Shipping

1.6

Future Prospects

With the recent nancial crisis there has been a reduction in trade and hence rates have dropped by around 15 %. With the Chines economy also going through a slowdown overall drop in goods transportation activity is expected to last for at least another two years. However, there has been a revival in dry bulk goods segment due to stockpiling of food grain, metals etc. in China. An increase in rening capacity and global oil exploration activity is expected, which will benet the oshore shipping segment. These factors indicate a positive outlook for the companys future in coming years. For prospects in the immediate future, however, one has to be cautious.