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Shipping sector: Time to create waves?

Shyam G. Menon

MUMBAI, May 4

HAVING finished strong in the financial year 2001, the Indian shipping sector seems to be looking to the favourable eye of the stock market.

Financial year 2001, besides seeing record profit after tax (PAT) for Great Eastern Shipping (GE Shipping), also saw the country's biggest shipping company, SCI, posting a 149 per cent rise in PAT to Rs 401.59 crore. Smallest of the listed big four, Varu n Shipping, reported a 81.31 per cent rise in PAT for the financial year 2001.

What amazes senior shipping officials is that sectoral players do not fetch kudos for even good financial results. ``If you benchmark us against good corporates, we will come out pretty much a winner,'' Mr Vijay K. Sheth, Managing Director, GE Shipping, said.

``The long-term perspective should be on factors such as dividend, weighted average and the liability side of the balance sheet,'' he argued.

Investors rarely get that far, getting bogged down by fears of the industry's trade cycles quite early on. Mr Bharat Sheth, also Managing Director, GE Shipping, counters that the sector is no more cyclical than other businesses - like, commodities.

``There isn't enough research and knowledge about shipping here,'' he said.

Eventually, few of the strengths get reflected in the price of shipping stocks, Mr Sheth rued, agreeing that part of the blame possibly lay in the stock market's bias for short-term gains while shipping is a studied, long-term game.

GE Shipping, which posted a 66.2 per cent rise in PAT for 2000-2001, is planning this month the first-ever analysts meet by a domestic shipping major.

Company officials see this as a pioneering move, given the fact that brokerages here have a very few shipping analysts and the tendency of those few to move off to other more fancied sectors.

In contrast, there are many specialised shipping stock analysts abroad.

Stock prices and trading multiples have also ruled low in India compared to listed shipping companies abroad. GE Shipping concluded in April its first round of buyback and approved on Thursday its second round, the consequently reduced paid-up capital ca pable of statistically improving shareholder earnings.

While company officials say this is ``one of the best ways of deploying surplus capital'', another plausible theory is that low share price for the floating stock of good companies is uncomfortable in a globalised sector sporting consolidated entities.

If Shipping Corporation of India (SCI) undergoes disinvestment, at least one of the big boys could drop anchor in India.

``This is not only a shipping company but also a large cash flow generator,'' Mr Bharat K. Sheth, Managing Director, GE Shipping, submitted at a press briefing here on Thursday to discuss his company's 2000-2001 results. GE Shipping has maintained, on an average, a cash-flow not less than Rs 300 crore per annum.

While SCI and GE Shipping together account for 61.94 per cent of Indian tonnage as per the 1999-2000 annual report of the Indian National Shipowners Association (INSA) along with Varun Shipping and Essar Shipping, the quartet contribute 77.18 per cent of tonnage.

Good results for them have an impact on sectoral turnover for the financial year 2001, albeit on a restricted scale. ``The listed four operate several tankers, which more than other trades fetched good revenues last year,'' a senior INSA official said.

GE Shipping's projection is that financial yea 2002 should be healthy, the supply position in ships compensating any direct weakness from tanker freight rates (down already from $ 40,000 in the fourth quarter of the financial year 2001 to $30,000 and rid ing a weak global economy) which peaked in the financial yea 2001.

Mr Sheth points out that given scheduled deliveries of just 12-14 Suezmaxes and 16-17 Panamaxes, scrapping will exceed new tonnage this year.

On the other hand in dry bulk, which formed 37.3 per cent of Indian tonnage as in July 2000, a flood of 52 Handymaxes and 52 Panamaxes is anticipated globally over 56 weeks, he said. The sector is seen to grow at just 2 per cent, while 8 per cent is need ed to absorb the additional tonnage. Critical here, would be each listed company's exposure to dry bulk shipping.

GE Shipping's funds employed in the segment is pegged at about Rs 200 crore, about 10 per cent of its balance sheet. ``Further, tanker earnings will help to compensate,'' Mr Sheth said.

GE Shipping's analysts' meet is hoped to encourage a new look at this old sector. Champagne times perhaps, though other crucial parametres such as fleet age and company-specific concerns also need looking into, before the jittery bourses join the party.