Saturday, December 10, 2016

Great Eastern Shipping Company Investment Research Report

Great Eastern Shipping Company Logo

Great Eastern Shipping Company's Ship Jag Aparna
Great Eastern Shipping Company Limited
Value Investing Research Report
8th December 2016
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Basic Filtering Criteria:

Great Eastern Shipping Company Share's Market Snapshot
Great Eastern Shipping Company Share's Market Snapshot on 8th December 2016

Critical prima-facie Observations of Great Eastern Shipping Limited:
  1. PE Ratio: Great Eastern Shipping (GE SHIP)’s PE Ratio is 11.79 is well below than the maximum permitted 15 and marginally above the Ideal for Indian conditions of 10 and therefore does not pose any hurdle.
  2. Price to Book Value Ratio: At 0.67 is real bonanza! It means that the nets assets (after deducting all liabilities) of GE Ship can still be bought at a discount of 33%!
  3. Distance from 52 week low: The current price of Rs.369.30 is 34.46% away from the 52 Week Low of Rs.274.65. On this parameter the scrip does not bestow any special benefit – at the same time it is not too unfavorable too.
  4. Dividend Yield: A dividend yield of 3.66% is very decent.

In light of the above conditions, Great Eastern Shipping (GE SHIP) qualifies for further study.



A. Company Performance

Profitability Analysis


Great Eastern Shipping Consolidated
Profit and Loss Account
(Rs. in Crores)
March 31' 2013
March 31' 2014
March 31' 2015
March 31' 2016
Net sales
 3,006.69
 3,091.86
 3,438.03
 3,804.47
 % age rise (+) or fall (-)
1.73%
2.83%
11.20%
10.66%
Other Expenses
1397.84
1149.29
1446.94
1213.29
Personnel Expenses
449.35
506.86
557.85
595.65
Impairment of assets
31.78
7.28
 0.00
160.77
Depreciation
592.39
658.03
610.03
674.63
Interest
344.71
378.79
300.58
284.64
 SUB-TOTAL
2816.07
2700.25
2915.40
2928.98
Operating profit after interest                                                   
 190.62
 391.61
 522.63
 875.49
Net non-operating income
 393.76
 241.54
 275.50
 274.04
Profit Before Tax
584.38
633.15
798.13
1149.53
Provision for taxes
46.62
59.20
49.89
110.13
Profit After Tax (PAT)
537.76
573.95
748.24
1039.40
EBDITA (Operating Profits)
1127.72
1428.43
1433.24
1834.76
EBDITA (Operating Profits) %
37.51%
46.20%
41.69%
48.23%
Depreciation
 592.39
 658.03
 610.03
 674.63
EBITA
535.33
770.40
823.21
1160.13
EBITA %
17.80%
24.92%
23.94%
30.49%
Interest (Operating/ Relating to Business)
344.71
378.79
300.58
284.64
Interest Cost to Sales - %
11.46%
12.25%
8.74%
7.48%
EBT
190.62
391.61
522.63
875.49
EBT %
6.34%
12.67%
15.20%
23.01%
Net Non-Operating Income
393.76
241.54
275.50
274.04
PBDIT
1521.48
1669.97
1708.74
2108.80
FINAL PBT
584.38
633.15
798.13
1149.53
FINAL PBT %
19.44%
20.48%
23.21%
30.22%
Income Tax
46.62
59.20
49.89
110.13
PAT
537.76
573.95
748.24
1039.40
PAT %
17.89%
18.56%
21.76%
27.32%


Remarks:
  1. GE SHIP’s EBDITA margin is excellent even in the present global recessionary conditions and low shipping freight rates.
  2. Interest cost is significant at 7.48% of revenues – shipping is an asset based business and may be this is inevitable. Still the company appears to be bringing down interest costs in the last few years.
  3. EBT margin is respectable.
  4. Net non-operating income constitutes 31.30% of operating profits (EBT), which means that company will be able to maintain dividends even if operating income is affected.
  5. PAT margins are decent and improving.

Overall Great Eastern Shipping Company Limited’s profitability ratios are good.


Balance Sheet Analysis:


Great Eastern Shipping Consolidated
Balance Sheet
(Rs. in Crores)
March 31' 2013
March 31' 2014
March 31' 2015
March 31' 2016
LIABILTIES




Short-term borrowings
 -  
 -  
 -  
 -  
Sundry creditor (Trade)
 234.98
 212.49
215.45
223.62
Short Term Provisions
889.72
1072.96
1099.32
1098.62
Other Current Liabilities
1269.99
1313.24
1293.75
1057.59
Total Current Liabilities
 2,394.69
 2,598.69
 2,608.52
 2,379.83
Term loans
 5,689.37
 4,975.98
5462.62
4930.21
Long Term Provisions
23.22
29.21
33.38
37.61
Total Term Liabilities
 5,712.59
 5,005.19
 5,496.00
 4,967.82
Total Outside Liabilities (TOL)
 8,107.28
 7,603.88
 8,104.52
 7,347.65
Ordinary share capital
152.32
150.78
150.78
150.78
Reserves & Surplus
6189.44
6622.07
7279.84
8133.12
Net Worth
 6,341.76
 6,772.85
 7,430.62
 8,283.90
TOTAL LIABILITIES
 14,449.04
14,376.73
15,535.14
15,631.55
Cash and bank balances
1986.97
2323.28
2380.15
2624.98
Current Investments
2025.83
1111.55
1249.98
877.97
Receivables
 371.33
 274.97
334.62
320.56
Inventory
132.90
139.68
140.08
113.23
Other current assets
 113.10
 159.41
 149.67
 205.11
Total Current Assets
 4,630.13
 4,008.89
 4,254.50
 4,141.85
Fixed Assets -
9681.56
9840.58
10887.19
10652.35
Capital Work in Progress
19.51
358.24
226.63
365.34
Total Fixed Assets
9701.07
10198.82
11113.82
11017.69
Non Current Investments
 -  
 30.00
-
-
Long Term Loans & Advances
15.99
26.02
32.63
44.51
Deferred Tax
1.18
1.95
0.90
0.57
Other non-current assets
97.85
109.45
132.23
426.30
Total Other Non-Current Assets
 115.02
 167.42
 165.76
 471.38
Intangible assets
2.82
1.60
1.07
0.63
TOTAL ASSETS
 14,449.04
14,376.73
15,535.15
15,631.55
Tangible Net Worth (TNW)
 6,338.94
 6,771.25
 7,429.55
 8,283.27
Current Ratio
 1.93
 1.54
 1.63
 1.74
Total Outside Liabilities/ Tangible Net Worth (TOL/ TNW)
 1.28
 1.12
 1.09
 0.89
Total Term Liabilities/Tangible Net Worth
0.90
0.74
0.74
0.60



Highlights:
  1. GE SHIP has term loans and it appears inevitable in the assets heavy shipping sector. The term loans are being reduced though not drastically yet gradually.
  2. Current ratio had fallen steeply in FY 2013-14 but has been gradually improving though marginally below the minimum recommended 2 at 1.74.
  3. TOL/ TNW ratio is improving continuously in the last five years and well within the stipulated maximum 3.
  4. Long-term Deb-Equity ratio is also well less than the recommended not more than 1.

Therefore on the balance sheet front all parameters are good.

Cash Flow Analysis:


Great Eastern Shipping Limited.
Cash Flow Statement
(Rs. in Crores)
March 31' 2013
March 31' 2014
March 31' 2015
March 31' 2016
Net Cash Flows from Operating Activities as Reported
1255.82
1357.59
1444.84
2046.80
Less: Interest
344.99
371.15
310.18
-295.28
          Other

0.00 
0.00
Adjusted Cash From Operations/ Free Cash flows
910.83
986.44
1134.66
2342.08
Face Value
10.00
10.00
10.00
10.00
Number of Equity Shares
15.23
15.08
15.08
15.08
Free Cash Flows / Share
59.80
65.42
75.25
155.33
Free Cash Flows / Share as % of Market Price
16.19%
17.72%
20.38%
42.06%
Purchase of Fixed Assets (Net)
-1436.88
-622.79
-1550.63
-675.08
Description: MAC OS HDD:Users:panand:Library:Caches:TemporaryItems:msoclip:0:clip_image001.pngSale of Fixed Assets
1065.54
136.21
315.51
234.48
Placement of Fixed Deposits
550.48
-859.98
479.64
0.00
Others
-587.95
998.41
30.04
105.13
Total Net Cash Flows from Investing Activities
-408.81
-348.15
-725.44
-335.47
Loans Raised/ (Repaid)
17.41
-1141.56
240.32
-1025.04
Equity Buy Back

-42.25


Dividends Paid
-105.53
-128.59
-135.36
-312.49
Dividend Distribution Tax
-9.02
-13.53
-23.06
-61.89
Total Cash Flows from Financing Activities
-97.14
-1325.93
81.90
-1399.42
Dividend distribution as % of free cash flows
11.59%
13.04%
11.93%
13.34%
Net Increase/ Decrease in Cash for the year
17.41
-1141.56
491.12
607.19


Highlights:

  1. GE SHIP is generating handsome free cash flows from its operations.
  2. Free cash flows per share constitute 42.06% of the current market price of the share, which means that GE Ship is capable of earning back your investment in the share in less than two and half years.
  3. Even though the dividend yield is decent the percentage of free cash flows distributed as dividend is not appreciable.
  4. A respectable proportion of free cash flows is being invested in purchase of new ships. Buying ships at attractive low prices during recessionary conditions is an avowed policy of the company.
  5. In FY 2014-15 the company has repaid Rs.1025.04 crores of loans.


On the cash flows front GE SHIP’s performance is very strong.

Dividends

Distribution of net Profits
Let us study the dividend distribution pattern of GE SHIP:
(Rs. in Crores)
March 31' 2013
March 31' 2014
March 31' 2015
March 31' 2016
PAT
537.76
573.95
748.24
1039.40
Dividend
105.53
128.59
135.36
312.49
Dividend as % of PAT
19.62%
22.40%
18.09%
30.06%

Except in the FY 2015-16 the proportion of profits distributed as dividends is slightly on the lower side. It is understandable, as the company has been trying to repay loans and reduce interest cost. 

So, on this count company performance is just alright.

Uninterrupted Dividend Payment History


Year
Dividend (%)
2016
135
2015
70
2014
130
2013
75
2012
75
2011
45
2010
115
2009
55
2008
135
2007
115
2006
100
2005
95
2004
100
2003
40
2002
40
2001
28
2000
15
1999
20
1998
40
1997
30


The above table shows uninterrupted dividend payment for the last 20 years.

On the uninterrupted dividends payment front Great Eastern Shipping has an excellent track record.

Dividend Yield:
Dividend Yield is a combination of both the company’s dividend policy and performance as well as market condition. A dividend yield of 3.66% is decent, but this lower yield is partly on account of price rise of the share since June 2016.

Five-year price graph:

five year price graph of the share of Great Eastern Shipping Company
Graph shows five year price graph of the share of Great Eastern Shipping Company  














From the graph we can see that the market has been chasing this scrip, pushing the price from around Rs.220 by the beginning of March 2016 to the current level of Rs.369, a whopping 67.72%.

In conclusion the five year price graph of Great Eastern Shipping shows that presently the share is closer to  it’s five year peak and this is not a specially favourable market condition for buying the stock.

Five years returns (price rise):

Table shows price rise in the share of Great Eastern Shipping Company
Table shows price rise in the share of Great Eastern Shipping Company














The five years return of GE SHIP share of 72.19% indicates that the price of the share has appreciated significantly in the past five years. 

Therefore the market condition under this parameter too is not very favaourable.

Distance from 52-Week Low:

52-Week Low: Rs.274.65
52-Week High: Rs.398.90
Current Market Price (CMP) on 8th December 2016: Rs.369.30
The current price of Rs.369.30 is 34.46% away from the 52 Week Low of Rs.274.65.

On this parameter the scrip is NOT in an attractive zone but at the same time it is not very bad also.


 Final Conclusions:

  1.  The above brief analysis proves that Great Eastern Shipping is without doubt a great company.
  2. The EBDITA, EBT and PAT margins are excellent and the company is consistently profitable for many years into the past.
  3. All liquidity and solvency ratios demonstrate strength.
  4. Free cash flows are copious and well deployed.
  5. PE Ratio of 11.79 is in the buying zone.
  6. Price to Book Value Ratio (P2BV) of 0.67 gives a very attractive opportunity to buy the assets of the company at a discount of 33%.
  7. The market condition parameters of five-year price graph and distance from 52 Week low and five year returns do not favour much.
  8. Though the company is distributing a good proportion of the profits as dividends, the high market price has pulled down the dividend yield.


Final Investment Advice:
  1. Great Eastern Shipping (GE SHIP) is a wonderful company.
  2. Price to Book Value is very attractive.
  3. Buy the Shares and if price falls, buy more

Post Disclaimer: Opinions expressed here are the author’s personal opinions. Market conditions have a great bearing on many end results discussed in this report. No disrespect is intended towards the company, it’s management. Investors are advised not rely blindly on the opinions expressed herein but to exercise their own judgment. Neither the author nor the blog shall be responsible for any loss suffered by either acting or not acting based on the opinions expressed herein.


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