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S. Vaidya Nathan

INVESTORS can contemplate exposures in the stock of Great Eastern Shipping, especially on declines from the current level of Rs 46.Modest declines may be in store as the stock has started to trade on an ex-dividend basis in the last three trading days. This recommendation represents a significant change in Business Line's view on the stock. A `pare exposures' stance was maintained in early 2003, as the stock traded in the Rs 35-42 range.

Steady trends in the tanker freight rates and an improvement in the dry cargo freight rates (ships that ferry coal, iron ore, grains among others) point to improved profitability, at least, over the next two quarters. A significant improvement in the fleet profile and a strong balance-sheet are bound to provide room for revenue growth from a long-term perspective.

These aspects point to scope for gains from the current price levels. Room for upside may also be provided by the liquidity that may chase this stock from time to time, as it is perceived to be one of better dividend yield plays.

GE Shipping's revenue profile is set to get better in the next couple of years. The fleet capacity at GE Shipping's disposal may not have grown large enough to make a big difference. But the considerable reduction in the fleet's age profile — now pegged at about 11.5 years — makes it fairly contemporary. This is important in the context of the tighter safety norms, especially for crude and product carriers, adopted at the international level. The safety norms are set to get even stricter with a time-bound phase out in place for dry cargo fleet as well.

GE Shipping's orders for four more product tankers are bound to lead to a sizeable expansion in the fleet size. More important, it is likely to make the company's product tanker fleet more attractive for customers.

The tonnage on order is to be delivered over the next 15 months. This could lead to a scaling up of revenues over the next couple of years. A few older ships have been sold in the past one year. Going forward, a greater proportion of GE Shipping's investments may be in fleet growth rather than fleet replacement, dictated by safety norms and the age factor.

The outlook for dry cargo rates is one of firm trends, on the back of strong coal imports and Chinese grain imports. Product tanker rates have come off the highs of the January-March quarter. But they continue to be at healthy levels and have, of late, perked up.

The offshore business, which contributes about a fourth of revenues and earnings, is likely to show steady growth with the rising levels of oil exploration and production activities. A concern area is the structure that may be used by GE Shipping to flag its fleet out of India, in case the introduction of tonnage tax is delayed. However, this is not a risk that should deter investments in the stock.

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