Great Eastern Shipping (GESHIP) 405

Transcription

1 Result Update Rating matrix Rating : Hold Target : 44 Target Period : 12 months Potential Upside : 9% What s changed? Target Changed from 41 to 425 EPS FY16E Changed from 56.6 to 66.1 EPS FY17E Changed from 54.2 to 67 Rating Hold Quarterly performance Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%) Revenue 1, EBITDA EBITDA (%) bps bps PAT Key financials Crore FY14 FY15 FY16E FY17E Net Sales 3,92 3,438 3,834 3,946 EBITDA 1,436 1,433 1,857 1,931 Net Profit ,131 1,186 EPS ( ) Valuation summary FY14 FY15 FY16E FY17E P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalization ( Crore) 6,16.6 Total Debt Gross (FY14) ( Crore) 6,149.3 Cash and Investments (FY14) ( Crore) 2,38.1 EV ( Crore) 9, week H/L 422 / 327 Equity capital 15.8 Face value 1. Stock data Stocks 1M 3M 6M 1 Yr GE Shipping SCI Mercator Lines Research Analyst s Bharat Chhoda bharat.chhoda@icicisecurities.com Ankit Panchmatia ankit.panchmatia@icicisecurities.com November 13, 215 Great Eastern Shipping (GESHIP) 45 Product carrier adding to elevated tanker rates GE Shipping s (Gesco) Q2FY16 revenue grew 19% YoY (up 9% QoQ) at crore (I-direct estimate: crore). Revenue days for the shipping segment improved significantly from 263 days in Q2FY15 to 2834 days in Q2FY16. Furthermore, utilisation for offshore segment was at 221 days vis-à-vis 212 days in Q2FY15 EBITDA sequentially continued to bolster for the third consecutive quarter on the back of lower bunker costs that declined 36% YoY. EBITDA for quarter grew 6% YoY (up 16% QoQ) to 589 crore (Idirect estimate: 459 crore). Subsequently, EBITDA margins continued to inch up to 57% in current quarter. Higher realisation on same assets & better utilisation levels added to lower bunker costs A better operational performance coupled with lower tax rate led PAT (before exceptional gain/loss) to more than double to 361 crore compared to 155 crore in Q2FY15. Adjusted PAT for the quarter was at 383 crore, which included loss of 15.3 crore on sale of ship and forex gain of 37 crore Standalone NAV grew 7.6% QoQ to 367 compared to 341 in the previous quarter. Consolidated NAV was at 565 in Q2FY16 compared to 536 in Q1FY16 Product carrier rate accelerates; tanker rate continues to be elevated TCY rates for crude carriers continued to stay above $3/day levels for the third consecutive quarter. This provides a firm footing to the company s earning in tanker segment. On the back of continuous higher supplies from refineries to meet limited demand, these rates are expected to remain strong at current levels. Added momentum during the quarter was provided by increase in rates for product tankers that sequentially grew 34% (up 47% YoY) to $3128/day. With a combination of eight crude carriers, 12 product carriers and one gas carrier we believe the company is well positioned to capture the opportunity in terms of favourable rates. Favourable fleet configuration; poised for continued momentum Gesco is the second largest shipping fleet operator in the country with 3 ships totalling ~2.36 million dwt haulage capacity and an average age of 9.6 years. Gesco s fleet profile is skewed towards the tanker segment due to which it was comparatively less impacted by the meltdown in the shipping industry. Softness in dry bulk shipping freight rates continued on the back of subdued trade environment. Following this, the revenue visibility for shipping for H2FY16 was at 271 crore while for the offshore segment in the same period it was at 89 crore. Earnings visibility, operating leverage already factored; retain HOLD With a proactive management at the helm, Gesco has deliberately reduced its exposure to the dry bulk segment. Further, on the back of higher tanker rates majority of the carriers are held on spot market. The management also gains from fluctuations of asset rates on the back of trading of ships. We believe this performance will continue, which is already priced in. We marginally increase our revenue expectation, which would grow at a CAGR of 6% over E. The operational performance would lead profitability growth to outpace revenue growth. Thus, we expect EBITDA, PAT to grow at a CAGR of 13%, 16% respectively. Following this, we revise our FY17E book value to 625 and continue to assign P/BV multiple of.7x to arrive at a fair price of 44. We have a HOLD recommendation on the stock. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Revenue Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments Shipping segment revenue posted growth of 14% YoY on back of good product 1, carrier rates and firm tanker rates. Offshore revenues grew 13% Employee Expenses Fuel oil & water Hire of chartered ships & equip Other expenses EBITDA Lower Fuel and maintainence expenses perked up EBITDA EBITDA Margin (%) bps bps Margins expanded for the third consecutive quarter Depreciation Interest Other income Extra-ordinary gain/loss Includes loss on sale of ship to the tune of 15 crore and forex gain of NA crore Total Tax PAT Key Metrics Q2FY16 Q2FY15 YoY Q1FY16 QoQ Shipping Tanker & product carrier performance resutled in the shipping growth Offshore Improvement on the back of better refining activities Revenue Days (Shipping) 2,834. 2, , Revenue Days (Offshore) 2,21. 2, , Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 3,671. 3, , , Our FY16 & FY17 revenue estimates revised upwards EBITDA 1,65.6 1, ,69.9 1, EBITDA Margin (%) bps bps On the back of continued lower fuel costs we have increased our margin estimates for FY16, however we expect this to moderate in FY17 PAT , , EPS ( ) Assumptions Current Earlier Comments Average (TCY $/ day) FY15 FY16E FY17E FY16E FY17E Crude carriers 21,575 28,414 37,214 27,631 36,178 Increased our estimations on the back of sustained tanker rates Product carrier (incl Gas) 2,797 2,88 24,533 19,522 23,847 Traction experienced in the quarter and expect it to sustain Dry Bulk 1,176 9,289 1,232 9,289 1,232 Unchanged ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Product tanker keeps afloat as dry bulk recuperates The shale gas revolution in the US together with geopolitical risks arising in Iran and the Middle & North Africa (MENA) region resulted in long-haul trade routes such as China, India and Latin-America. In terms of global fleet addition, crude and product tanker segment tonnage capacity increased at a CAGR of ~4.5% over As the segment added lower capacity vis-à-vis the dry bulk segment, the freight rates downfall was arrested, to a large extent. In the dry bulk segment, capacity addition of nearly 16 and 58 million dwt was done in CY12 and CY13, respectively. Though the dry bulk segment fleet addition has tapered it is expected to grow at 6% and 4% in CY15 and CY16, respectively. Consequently, freight rates continue to remain subdued. However, with a pick-up in global seaborne trade, the dry bulk segment is also expected to revive. As a result, Gesco plans to add five Kamsarmax dry bulk carriers in FY16 to take advantage of the turning tide. Exhibit 1: Shipping segment trend 3 The shipping business for FY15-16 has revenue visibility of ~ 33 crore. Of the total number of fleet operating days, crude and product carriers (including gas) are covered to the extent of 27% and 15%, respectively, whereas the dry bulk segment is covered till 15% of fleet s operating days FY12 FY13 FY14 FY15 Revenue EBITDA PAT Offshore segment continues to support amid turbulent times Gesco through its subsidiary Greatship Ltd operates 24 offshore vessels, which includes three jack-up rigs, four platform support vessels, nine AHTSV, two MPSSV and six ROVSVs. Gesco s offshore segment is pretty young with average age of nearly four years and is equipped with technologically advanced positioning and fire fighting equipment. Further, as safety becomes an important issue for oil companies, a young and advanced fleet due to higher efficiency and minimum downtime comes as a natural choice. Globally, an offshore vessel fleet is more than 22 years old whereas jack-up rigs are about 24 years. Currently, the order book for jack up rigs is at 22% of current fleet (523 rigs) followed by PSV and AHTSV with order book of nearly 19% and 6% of current fleet, respectively. On the demand front, though global E&P companies are expected to increase spending to ~$65 billion (up 4% YoY), spending on offshore is expected to remain flattish. Consequently, utilisation and demand levels are expected to taper for offshore companies. ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 2: Offshore segment On the offshore front, revenue visibility remains robust and stands at 151 crore for FY The fleet is better covered to the extent of 82% and 59% in PSV and AHTSV segment, respectively. In case of ROVSV and MPSSV, the coverage stood at 77% and 29%, respectively, whereas jack-up rigs are covered to the extent of 94% of their operating days for FY FY12 FY13 FY14 FY15 Revenue EBITDA PAT Exhibit 3: Topline performance trend cr FY12 FY13 FY14 FY15E FY16E FY17E Revenue Exhibit 4: EBITDA performance trend cr % FY12 FY13 FY14 FY15E FY16E FY17E EBITDA OPM (%) 2. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 5: OPM (%) trend Shipping & Offshore Offshore segment margins contracted 47 bps to 41.7% in FY15, on account higher expenses for mobilization of a rig and a PSV. However, going ahead, on account of higher utilisation and lower mobilisation, cost margins are expected to improve. Shipping segment margins continue to reel under pressure FY12 FY12 FY13 FY14 OPM (%) Standalone (Shipping) OPM (%) Subsidiaries (Offshore & others) Exhibit 6: PAT performance trend Shipping & Offshore cr % 2 5. FY12 FY13 FY14 FY15E FY16E FY17E PAT NPM. Exhibit 7: Gesco's fleet During FY15, GE Shipping s fleet size in the shipping segment was at 29 vessels comprising eight crude carriers, 12 product carriers, one gas carrier and eight dry bulk carriers. In terms of dead weight tonnage, the total fleet comprises 2.28 million dwt with an average age of 9.9 years. On the offshore fleet front, it comprises 5 PSV s, 6 ROSVs, 9 AHTSVs and 4 rigs Crude Product Dry Bulk LPG-VLGC Rig AHTS PSV MPSSV ROVSV Current Fleet FY16E ICICI Securities Ltd Retail Equity Research Page 5

6 Exhibit 8: Vessels on order Vessel Type Medium Range (MR) Product Tanker 2 (Two) Kamsarmax Dry Bulk Carriers 3 (Three) Kamsarmax Dry Bulk Carriers Approx Dwt Expected Delivery 5 Q4FY216 STX (Dalian) Shipbuilding Co. Ltd.,China 816 H1FY16 Built at Tsuneishi Shipbuilding Co.Ltd, Japan (Philippines facility) 82,(each) Q2 & Q3 CY16 Jiangsu New Yangzi Shipbuilding Co. Ltd.,China Exhibit 9: Owned revenue days decline sharply 35 Revenue days (owned tonnage) for shipping fleet declined 11%, since Q4FY13 to ~26 days, which stagnated at same level; thereby exposing the fleet to the volatility of the spot market (Days) Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Revunue Days (Standalone) Net asset value improves on back of higher utilisation In terms of net asset value, over the past 1 years (FY5-14) Gesco recorded an average NAV of 56 on a consolidated basis with a peak of 632 in FY8. However, since the crisis, the NAV declined at a CAGR of ~8% over FY8-13 as asset prices plummeted globally. However, on the back of steady seaborne trade growth at a CAGR of 5% between 212 and 214, asset prices had increased. Prices climbed sharply over FY13-14 posting growth of 3% YoY against an average of 8% in the past three years (FY11 to FY13). In Q2FY16, NAV was at 565, which sequentially improved from 518 in FY15 and 536 in Q1FY16. Gesco s average market price has always traded at a discount to its NAV. With the recent run up in stock price, the stock is at discount of 4% to the current NAV. Exhibit 1: NAV to market price discount FY1 FY11 FY12 FY13 FY14 FY15 Q1FY16 Q2FY16.1. NAV AVG Market Price Disc to NAV Avg Discount to NAV ICICI Securities Ltd Retail Equity Research Page 6

7 Valuation The key to GE Shipping s stable performance in spite of being in a cyclical industry has been the ability of its management to make the purchase and sale of vessels at the right time. The composition of the fleet (crude, dry bulk, offshore) has mostly been balanced and in line with the market outlook for specific segments. The company has not shied away from reducing exposure to a segment that has a depressed outlook and adding vessels from a segment where the prospects are better. All this has been achieved with a moderate leverage compared to its peers who have been at the wrong end of the asset purchase/sale cycle or over aggressive on a specific segment resulting in fleet concentration and, thereby, highly volatile earnings. We believe that GE Shipping would continue its consistent performance on the back of a diversified fleet profile (48% shipping, 52% offshore). Its presence in the high margin offshore segment would enable it to have revenue visibility, going ahead, and reduce the volatility in revenues and cushion its earnings. GE Shipping s low leverage would enable it to tap fleet expansion opportunities and grow at a decent pace. We expect it to maintain a dividend payout in excess of ~2% over the next two years. Rates for tanker segment have remained stable and improved significantly over the past year. Going ahead, the product tanker category and gas carriers are expected to perform well on back of firmer charter rates. However, dry bulk rates have declined/stagnant and going ahead with increased capacity it is expected to remain subdued. The average P/BV multiple for Gesco was.6x in FY14 against.57x in FY13. Going ahead, as overall outlook remains fairly stable we rollover to FY17 estimates with expected book value of 625 in FY17E and assign a P/BV of.7x to FY17E estimates to arrive at a fair price of 44 and recommend HOLD rating on the stock. Exhibit 11: P/BV trend Oct-5 Oct-6 Oct-7 Oct-8 Oct-9 Oct-1 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Close -Unit Curr.5 X.6 X.7 X.8 X 1. X Exhibit 12: Valuations Sales Sales EPS EPS PE EV/EBITDA RoNW RoCE ( cr) Growth (%) ( ) Growth (%) (x) (x) (%) (%) FY FY FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 7

8 Company snapshot 5 45 Target Price: Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Feb-11 Apr-11 Event Finance Ministry allows duty free import of spare parts to ship owners GE Shipping sells three VLCCs under construction of 318, dwt each and mulls focusing on lucrative ofshore segment; BDI falls 5% in six months Nov-11 Sharp decline in profit of 84% YoY in Q2FY12 Jul-12 GE Shipping plans to buy VLGC of about 49,7 dwt of 199 built and is expected to join the fleet in Q2FY13 Aug-13 GE Shipping announces buy back of 279 to the aggregate amount of 279 crore Sep-13 Order of offshore rig (delivery 215), taken delivery of medium range product tanker "Jag Pranav" Oct-13 RBI restricts FII purchase on GE Shipping after it triggers limit of 24%; GE Shipping contracts to build three new Kamsarmax ships Jun-15 Posted Q1FY16 results. Reported best ever EBITDA margins 3.3%, since FY1 Nov-15 Posted Q2FY16 results. Revenue grew 9% and EBITDA margins stood at 57% d Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 ICICI Prudential Asset Management Co. Ltd. 31-Aug Sheth (Bharat Kanaiyalal) 3-Sep Sheth (Ravi Kanaiyalal) 3-Sep Nalanda Capital Pte Ltd 3-Sep Fidelity Management & Research Company 3-Sep ICICI Prudential Life Insurance Company Ltd. 3-Sep UTI Asset Management Co. Ltd. 3-Sep Laadki Trading & Investment, Ltd. 3-Sep Stewart Investors 3-Apr General Insurance Corporation of India 3-Sep Shareholding Pattern (in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Promoter FII DII Others Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares First State Investments (Singapore) 7.21m 1.26m Franklin Advisers, Inc m -2.2m PGGM Vermogensbeheer B.V. 3.85m.67m DNB Asset Management (Asia) Limited -4.26m -.74m Manulife Asset Management (Asia) 2.33m.38m Caisse de Depot et Placement du Quebec -1.34m -.23m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8

9 Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15P FY16E FY17E Total operating Income 3,91.9 3,438. 3, ,946.1 Growth (%) Employee Expenses Fuel, Oil & Water Hire of Chartered ships Spares & Stores Repairs & maintainence Other Total Expenditure 1, ,4.8 1,977. 2,15.2 EBITDA 1, , , ,93.9 Growth (%) Depreciation Interest Other Income PBT ,99.9 1,171.3 Extraord Income / (Exp) Total Tax PAT ,13.7 1,186.4 Growth (%) EPS ( ) Cash flow statement Crore (Year-end March) FY14P FY15P FY16E FY17E Profit after Tax ,13.7 1,186.4 Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions ,21.9 Others CF from operating activities 2, , , ,182.5 (Inc)/dec in Investments (Inc)/dec in Fixed Assets -1, , , ,266.5 Others.... CF from investing activities -1, , , ,266.5 Issue/(Buy back) of Equity Inc/(dec) in loan funds -1, Dividend paid & dividend tax Inc/(dec) in Sec. premium.... Others 1, CF from financing activities Net Cash flow Opening Cash 1,987. 2,16.2 2,38.1 2,116.6 Closing Cash 2,16.2 2,38.1 2, ,76. Balance sheet Crore (Year-end March) FY14P FY15P FY16E FY17E Liabilities Equity Capital Reserve and Surplus 6, , , ,279.5 Total Shareholders funds 6, ,43.6 8,42.6 9,43.2 Total Debt 4, , , ,339.5 Long Term Provisions Minority Int / Others.... Total Liabilities 11, , , ,83.1 Assets Gross Block 13, , , ,161.9 Less: Acc Depreciation 3, ,47. 4, ,34. Net Block 1,2.6 11, , ,821.9 Capital WIP.... Total Fixed Assets 1,2.6 11, , ,821.9 Oth non-current assets Investments Inventory Debtors Loans and Advances Other Current Assets 1, ,27.2 1, ,643.1 Cash 2,16.2 2,38.1 2, ,76. Total Current Assets 3,71.8 4, , ,68.9 Creditors Oth liab and provisions 2, , ,421. 1,21. Total Current Liabilities 2, ,68.5 2, ,531.6 Net Current Assets 1,13.1 1, , ,77.3 Others Assets Application of Funds 11, , , ,83.1 Key ratios (Year-end March) FY14P FY15P FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Shipping) EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) CMP ( ) TP ( ) Rating Mcap ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E G.E Shipping HOLD 6, Pipavav Defence HOLD 4, NA NA Guj Pipavav port# BUY 7, SCI 77 7 HOLD 3, ICICI Securities Ltd Retail Equity Research Page 1

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11

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