Great Eastern Shipping Company Investment Research Report

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 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
Sale 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:

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

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 8^th 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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