GE Shipping - Rs.155.00

Incorporated in 1948, Great Eastern Shipping Co. Ltd (GES), is India's largest private sector shipping company. GES has two main business divisions: Shipping and Offshore oil field services. The shipping division is involved in transportation of crude oil, petroleum products, gas and dry bulk commodities. The offshore oil field service division offers services to oil companies in carrying out offshore exploration and production activities by providing a gamut of assets viz. exploratory drilling rigs, offshore support vessels, tugs, and construction barges. The shipping division operates under two main businesses: dry bulk carriers and tankers. A sizeable part of the tankers enjoy approvals from oil giants like Shell, BP, Exxon, Mobil, Chevrontexaco, Totalfinaelf and BHP to name a few

GES is predominantly focused in the crude and product transportation segment with largely 'Aframax' type tanker mix. Currently, the company’s fleet size stands at 75 vessels – 44 ships aggregating 3.22 million DWT and 31 offshore vessels. Its 31 offshore fleet comprises of 17 offshore supply vessels, 2 exploratory rigs, 1 construction barge and 11 harbour tugs. The company had also contracted three modern Handymax dry bulk ships, which are expected to be delivered during this quarter. Apart from these, its new building orderbook stands at 12 vessels – 5 MR product Tankers and 7 Offshore Supply Vessels. Notably, the company has booked forward revenue of Rs.705 cr. for FY06. Of these, the Crude Tanker segment has share of Rs.222 cr., Product Tanker segment has share of Rs.387 cr. and the Dry Bulk Carrier segment has contributed Rs.96 cr. Besides, as a part of horizontal integration, the company is seriously looking at container shipping, which is currently the monopoly of SCI. Interestingly, as on 31st March 2005, the company’s Net Asset Value stands at Rs.282 per share.

In FY05, GES was a beneficiary of the buoyancy in global freight rates and the strong growth in trade ofcommodities and crude. But the same pace may not continue in FY06 as the freight rates have softened. For FY05 its total revenue increased 50% to Rs.2050 cr. and NP jumped more than 70% to Rs.810 cr. thereby reporting an EPS of Rs.42.50 on an equity of Rs.190 cr. Against this, for FY06 first qtr GES has already posted impressive numbers with Sales at Rs.576 cr. and NP of Rs.353 cr. including Rs.194 cr. as profit on sale of vessels. Considering all these aspects, it is estimated to end FY06 with topline of Rs.2300 cr. and NP of Rs.600 cr. (excluding OI), which means an EPS of Rs.32. If we include extraordinary items as well, then EPS may be well over Rs.45. Investors are strongly recommended to buy this share with a price target of Rs.250 (nearly 60% return) in 12~15 months.