Tuesday, August 25, 2009

BWI: Brickwork Ratings has Assigned BWR AAA+ for The Great Eastern Shipping Co. Ltd.’s Non Convertible Debenture Issue of INR 250 crore or INR 2.5 billion

Press release from Business Wire India
Source: Brickwork Ratings
Wednesday, August 26, 2009 11:00 AM IST (05:30 AM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Chemicals, Financial Analyst, Heavy industries, Stock exchanges, Transport engineering
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Brickwork Ratings has Assigned BWR AAA+ for The Great Eastern Shipping Co. Ltd.'s Non Convertible Debenture Issue of INR 250 crore or INR 2.5 billion
NCD Issue Rating: BWR AAA+; Outlook : Stable

Bangalore, Karnataka, India, Wednesday, August 26, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA+ (Pronounced BWR Triple A Plus) for The Great Eastern Shipping Co. Ltd.'s (G E Shipping) proposed Unsecured Non Convertible Debenture (NCD) issue of INR 250 Crore or INR 2.5 billion of ten year term. Brickwork Ratings 'BWR AAA+' stands for an instrument that is considered to offer BEST credit quality in terms of timely servicing of principle and interest obligations. The rating factors economies of scale, revenue characteristics, operating efficiency, return on capital and excellent management.

GE Shipping has consistently posted strong growth in total shipping business. For FY 09 on a consolidated basis, income from operations increased at a rate of 14% to INR 4123.93 Crores as compared to INR 3615.4 Crores in FY08. However the Company's profit after tax decreased slightly to 3% from INR 1407.7 Crores in FY09 as compared to INR 1453.51 Crores in FY08 mainly due to increase in operating expenses to INR 2061.04 Crores in FY09 from INR 1616.6 Crores in FY08. The Company's Net current assets increased 49% to INR 1615.73 Crores in FY09 from INR 1080.62 Crores in FY 08.

In FY09, G E Shipping's tanker business accounted for around 67% of the net revenues and 59% of the operating profits. The company's tanker earnings derived from spot market was 64% in FY09. The crude tankers, including 'spot' and 'period', earned an average Time Charter Yield (TCY) of $ 41200/day in FY09 as compared to $ 300000/day in FY08. The product carriers, including 'spot' and 'period', earned an average TCY of $ 23700/day in FY09 as compared to $ 20250/day in FY08.

The company had a tanker fleet of 31 tankers aggregating 2.38 million dwt, with an average age of 9.9 years as on 31st Mar 2009 as compared to 33 tankers aggregating 2.35 million dwt with an average age of 10.53 years in 31st Mar 2008. In FY09, the company's dry bulk fleet business contributed 33% of the net revenues and 41% of the operating profits. The dry bulk vessels, including 'spot' and 'period', earned an average TCY of $ 39800/day in FY09 as compared to $ 38400/day in FY 08.

In FY09, second-hand value for modern and older tankers witnessed a drop of 40-60%, while modern and older dry-bulk carriers saw a drop of 60-80%.

The company's dry bulk fleet stood at eight vessels aggregating 0.50 million dwt, with an average age of 13.3 years as on 31st Mar 2009 as compared to 13 vessels aggregating 0.72 million dwt with an average age of 14.48 years in 31st Mar 2008. The Company's order book comprises of nine new vessels aggregating 0.92 million dwt, in crude, product and dry bulk carriers segment and expected to be completed in 2011.

Management Profile:

G E Shipping is India's largest private sector shipping company. It started as a sea-logistics support shipping line six decades ago for a family trading business (owned by the Sheths and the Bhiwandiwallas). Later it diversified into areas like offshore oil field services. GE Shipping has earned the status of being a preferred shipping service provider in the country.Mr. K.M. Sheth is now the Executive Chairman of GE Shipping. Mr. Bharath K. Sheth is the Managing Director and also the Deputy Chairman of the company.

GE Shipping's Board of Directors comprises of eminent people from the industry and corporate world. Operations of the company are managed by professionals with relevant industry and management experience.

Management of Risk:

GE Shipping's Enterprise Risk Management entails hedging the receivables as well as entering into forward contracts for Bunker (i.e. fuel) expenses.

The Company's revenue stream is largely denominated in US dollars. A significant part of this exposure is hedged by denominating most of the debt servicing obligations in US Dollars.

Industry Scenario

The world is experiencing an economic crisis of unforeseen proportions since last year. The maritime sector has been greatly affected by the slowdown. It is expected that trade in most commodities would remain subdued in 2009 and some of the key commodities would face a decline in volumes. On the other hand, supply has increased, whether in terms of the number of new ports/terminals recently operationalised or nearing completion or in terms of the global shipping capacity. This would add to the gap between demand-supply causing further stress on the players in these sectors. Second hand value of tankers and dry bulk carriers has been witnessing significant fall. This period could also witness adoption of strategies by established players which could improve their competitive advantage vis-à-vis new players and increase stickiness of cargo.

Rating Outlook:

Besides getting its revenue from freight, GE Shipping has also grown by acquiring and disposing off vessels at regular intervals which has been significantly contributing to its operational income. The average age of the vessels being 10 years currently helps keeping the maintenance costs in check. It also helps in the company savings on insurance and compliance costs and delivers better margin. GE Shipping with a current fleet size of 38, with average age of ten years is well poised to achieve growth in shipping volumes as and when the economic scenario turns around. The company serves both Dry Bulk and Wet Bulk cargo with majority of the revenues coming from Wet Bulk, and has maintained consistency in revenue generation. The company operates on all the major routes and has reputed clientele, and tries to maintain a time balance between Spot and Time charters to optimize revenue. Currently majority of the vessels are engaged in contracts of 18-36 months duration, giving the company steady revenue which in the present context of falling freight rates is advantageous to the Company.

The company has very low Debt- Equity and healthy return on capital. It has substantial cash reserves, which adds to its financial strength. Its diversification into offshore and energy business is likely to add further stability to its overall operations. GE Shipping, with its dynamic management, active risk management practices and consistent performance, has shown its ability to manage difficult situations in the past. Though the Company is likely to face pressures on margins in the short term, BWR expects GE Shipping to display such characteristics to overcome the present challenging times also successfully, maintain its excellent track record of debt servicing and continue to retain its leadership in the Indian Shipping Industry.

Copyright ©, 2009, Brickwork Ratings.

Brickwork Ratings has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. Brickwork has the right to change, suspend or withdraw the ratings at any time for any reasons.


CONTACT DETAILS
Mukesh Mahor, Lead Analyst Contact, Brickwork Ratings, 1-860-425-2742, mukesh.m@brickworkratings.com
Vikas Thakur, Co-Analyst Contact, Brickwork Ratings, 1-860-425-2742, vikas.t@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, 1-860-425-2742, media@brickworkratings.com
K N Suvarna, Senior VP - Business Development, Relationship Contact, Brickwork Ratings, 1-860-425-2742, kn.suvarna@brickworkratings.com

KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, CHEMICALS, Financial Analyst, HEAVY INDUSTRIES, STOCK EXCHANGES, TRANSPORT

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