Great Eastern Shipping Company Limited
Value Investing Research Report
Basic Filtering Criteria:
|
Great Eastern Shipping Company Share's Market Snapshot on 8th December 2016 |
Critical prima-facie Observations of Great Eastern Shipping
Limited:
- 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.
- 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%!
- 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.
- 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:
- GE SHIP’s EBDITA margin is excellent even in the present
global recessionary conditions and low shipping freight rates.
- 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.
- EBT margin is respectable.
- 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.
- 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:
- 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.
- Current
ratio had fallen steeply in FY 2013-14 but has been gradually improving though
marginally below the minimum recommended 2 at 1.74.
- TOL/
TNW ratio is improving continuously in the last five years and well within the
stipulated maximum 3.
- 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:
- GE SHIP is
generating handsome free cash flows
from its operations.
- 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.
- Even though
the dividend yield is decent the percentage of free cash flows distributed as
dividend is not appreciable.
- 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.
- 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 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:
- The
above brief analysis proves that Great Eastern Shipping is without doubt a
great company.
- The
EBDITA, EBT and PAT margins are excellent and the company is consistently
profitable for many years into the past.
- All
liquidity and solvency ratios demonstrate strength.
- Free
cash flows are copious and well deployed.
- PE
Ratio of 11.79 is in the buying zone.
- 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%.
- The market condition parameters of five-year price graph and distance from 52 Week low and five year returns do not favour much.
- 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:
- Great Eastern Shipping (GE SHIP) is a wonderful company.
- Price to Book Value is very attractive.
- 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.