GE Shipping: Hold/cut exposures using buyback

Recommendation: Hold/cut exposures using buyback

S. Vaidya Nathan

This stock has been hogging the limelight in the last month or so. It has languished at around Rs 23.

But Gesco Corporation, the property development business which was spun off into a separate unit, has come under threat of takeover at Rs 27 per share from the Renaissance group of the Dalmias. With the promoters holding a stake of around 14 per cent in GE Shipping, the bid on the sister company prompted the promoter group to shore up its stake. As part of this endeavour, the company has proposed the buyback of its shares at Rs 42 per share through the open-offer route.

The company has earmarked Rs 150 crore (more than 50 per cent of its internal cash generation in 1999-2000) for this purpose. The buyback programme may kill 3.50 crore shares and raise the promoters stake to 17 per cent. The resources diverted for the buyback may cut into the company's plans for fleet expansion and modernisation.

GE Shipping has a diversified fleet with interests in tankers, dry cargo carriers and offshore supply vessels (OSV). The company aggressively expanded in the OSV category and plans to enter LNG transportation. It has a fairly large equity base (Rs 257 crore) and given the price performance of its stock, raising equity to finance expansions may be a tough task. The company's financial performance in the last few years has been mixed and volatile depending on the `other income' (profit from sale of ships). As for this fiscal, the company had a fairly good first quarter but an indifferent second. For the six months ended September, the income from operations was Rs 459.16 crore (Rs 410.39 crore) and profits Rs 81.27 crore (Rs 59.57 crore).

The company has ordered two Aframax crude tankers and two OSVs on an outlay of $100 million. With the possibility of a steady performance this fiscal, shareholders can stay invested and use the buyback programme to pare exposures. A fresh look at the company's stock as an investment option can be considered at a later stage.