Rising demand and higher freight rates bode well for GE Shipping

Great Eastern Shipping (GES) stock is up 7% over the past month in a volatile market after losing 12% in the previous two months. The upside is likely to continue in the medium term as the country’s largest private shipping company stands to benefit from rising freight rates following the opening up of China’s economy and longer crude oil trade routes amid the Russia-Ukraine conflict.

According to Vortexa, a global water-based oil and gas flow data and analysis company, 1.2 billion barrels of crude were on the water in the first week of March, the highest since 2016 as demand for China, the world’s largest, soared The oil importer ended Covid-related lockdowns last year. This has led to a sharp increase in freight rates

Interests in pure crude oil tankers, which companies such as Nordic American Tankers,
Teekay Tankers and Scorpio Tankers are up 25-40% over the past two months.

Crude oil, product and gas carriers make up 29 out of 43 fleet sizes for GES – almost two-thirds of the deadweight tonnage (DWT). The effect of rising freight rates should come into full effect from the June quarter of 2023.

The remaining capacity of GES is dedicated to dry bulk, which consists mainly of coal and metals.
Although demand has started to increase, there is no significant supply
market for the next three years. According to the data shared by the company, the global
Order backlog as a percentage of total fleet for crude oil, product and bulk carriers was 3.6%,
4.8% and 7.4% for CY22, the lowest value since 1999. In better years between 2007 and 2010 it was even 40-70%.

GES had increased fleet size between 2016 and 2018. A higher demand in 2022, strong
Understanding economic cycles and disciplined capital allocation helped the company achieve net debt-free. In the December quarter, the company’s sales rose 62% year-on-year to Rs 1,522 crore, while its operating income before depreciation and amortization (EBITDA) rose 96% to Rs 8,98 crore. Net profit tripled to Rs 626 crore.

The company had a cash surplus of Rs. 1,153 crore at the end of December 2022 compared to a net debt of over Rs 800 crore a year ago.

The company’s other offshore rig business is expected to make losses
Break-even by FY25 as Rigs contracts are due for a re-evaluation in the next two years.

Offshore rig prices are up 70-100% over the past year, with global capacity
Utilization at over 90%.

Shortages in the supply of tankers and increasing demand have pushed the net asset value (NAV) down
up 55% in the first nine months of fiscal 23, according to the company. At Wednesday’s close of Rs 607.4 on the BSE, the stock was trading at 0.6 times NAV
compared to 0.8-1.2 for the global peers. The stock is trading at six times forward FY23 earnings. Source: ET

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