GE Shipping is India’s largest private sector shipping service provider with a formidable presence in the international maritime industry mainly operating in the dry bulk carrier and tanker segment. It has a fleet of 47 ships under its name operating around the globe.
To summarise the business of the company during the FY 20-21 at the time of heightened uncertainty of the pandemic and business climate, GE Shipping has done reasonably well with not being overtly too aggressive in buying assets or misallocating capital. The initial part of last year saw very high rates for tankers on the back of reduced supply of ships for transportation of oil, but due to the pandemic, the rates collapsed during the month of May and June 2020. The company did better on the crude tanker business segment as it had fixed contracts for the large capacity vessels and was able to outperform the spot market. On the other hand, the latter part of the year was quite strong for the dry bulk market carriers because of strong demand for commodities led by China where rates were seen at unbelievable high levels since 2010. The LPG segment saw strong earning growth for most part of last year due to healthy exports from US to Asia. The offshore oil segment saw some interesting things happening with spending coming down on drilling and exploration leading to less new oil field discoveries and tightening of oil prices. Plus experts also suggest that since oil producing fields cannot keep producing at same levels forever.
They would ultimately have to be replaced at some point of time resulting in higher oil prices in the future. Similarly, the older oil rigs could also pose a business challenge. GE Shipping is quite optimistic on the crude market carriers as OPEC has announced a gradual increase in oil production and any possibility of Iran coming out of sanctions by the US would be extremely beneficial to the shipping companies. If that were to happen then many economies would go back to pre Covid levels and business could see a huge demand increase.
The GE shipping management has also recognised the fact that even though it is sitting on large levels of cash in its books which has a downward bearing on the overall balance sheet return. But it is happy as long as it can price its capital allocation in a disciplined manner because any mistake of misallocating capital can be a costly affair. Recently, a large domestic fund house has increased its share holding in GE Shipping from 5.13% to 7.23% which bodes well for the shareholders. Analysts tracking the shipping industry expect the commodity (agri, oil, coke and iron ore) boom to continue in the foreseeable future and shipping companies like GE Shipping to do well. The stock price of GE Shipping, currently at Rs 400, can be purchased by long term investors for solid gains over the next 18 months’ time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.