GE Shipping: Coming out of hot water?

Great Eastern Shipping Company Limited (GESCO) is one of India’s leading shipping companies. It operates in two business areas—Shipping and offshore.

Company’s shipping business involves transportation of crude oil, petroleum products, gas and dry bulk commodities. Through its offshore vertical, GESCO offers offshore services to oil exploration companies such as ONGC.

Shipping vs offshore revenues…

(Company reports, Ventura Securities)

 Prolong downturn to sow seeds of upturn…

The shipping industry has been in the downtrend for more than a decade now.  In the absence of tailwinds, even GESCO has largely remained range-bound over last 8-10 years and has destroyed investors’ capital.

 Value of RS 100 invested…

(Source: ACE Equity)

However, there’re some early signs of recovery in the shipping industry thanks to the growth in the trade volumes which is likely to outpace the increase in the fleet size.

Here’s why outlook on freight rates and asset value has turned bullish

  1. The slowdown in ship building order book, which means lower future deliveries
  2. Stable scrappage of ships will gradually curtain existing global fleet

Overall, demand-supply conditions have shifted in favour of the shipping industry. Though, the current expenses on the use of scrubber to lower pollution and the treatment of ballast water are the short term regulatory hurdles; they are supporting the daily freight rates and the rise in vessel values. 

Oil tanker rates looking up again…

Source: Company Reports & Ventura Research

 With dynamic asset allocation in shipping portfolio during past 10 years, GESCO is well positioned with its 49 ships (1/3rd of which accumulated during lower end of asset valuation cycle) to benefit from the recovery.

Fleet-Size Break-up

(Company reports, Ventura Securities)

Given the slowdown in global Exploration and Production (E&P) capex and a significant decline in oil rig counts, due to weakness in crude oil prices, outlook of GESCO’s offshore business looks lacklustre.

That said, the overall prospects for GESCO have improved. GESCO’s shipping business which contributes 71% to its top line is coming finally coming out of woods.

Read the full report here!

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