GESHIP - Great Eastern Shipping Co. Ltd. Share Price

In the earnings call on May 12, 2025, management of The Great Eastern Shipping Company highlighted several forward-looking points and shared their outlook. The management reported that the consolidated net asset value (NAV) remained steady at approximately INR 1,400 per share, the same level as March 2024. They announced a dividend of INR 5.40 per share, marking the 13th consecutive quarterly dividend.

Management discussed various challenges faced, particularly a significant decline in tanker earnings, which saw a drop of about INR 400 crore from Q4 FY '24 to Q4 FY '25. Crude tanker earnings fell by approximately $22,000 per day, and product tanker earnings declined nearly one-third from $37,000 to $24,700 per day. LP gas carrier rates increased from $35,500 to $43,000 per day due to time charters.

Management emphasized that the shipping market remains uncertain due to factors such as the broader economic conditions and sanctions, with potential for volatility in earnings. They indicated a drop in tanker asset prices by around 20% over the last year and noted a low scrapping rate, suggesting that supply-side adjustments in the fleet remain limited.

Importantly, management mentioned having locked in 80% of their vessel capacity for FY '26 at profitable rates, managing risks associated with fluctuating market dynamics. For upcoming contracts, they indicated that two of their rigs secured short-term contracts post-monsoon, commencing around October to November 2025.

Overall, management's outlook for the near future includes cautious optimism, balanced with acknowledgment of ongoing market volatility and potential opportunities for fleet expansion should asset prices become more favorable. They expressed a target for achieving at least a 10% internal rate of return (IRR) on new assets.

Question 1: "How many rigs are deployed today? How many are idle for you? And what is the repricing?"
Answer: We have a total of 4 rigs. 2 are on long-term contracts, while 2 have come off their previous contracts. Of those, 1 rig is idling, but it receives a minimal standby rate to cover basic expenses. The other rig's contract will start after the monsoon, in October or November. We have repricing set for 3 rigs in the next 1.5 years.

Question 2: "With the recent imposition of U.S. tariffs on Chinese goods, could you elaborate on how these developments might impact the shipping tankers and dry bulk segment?"
Answer: The impact on crude is minimal since oil is largely exempt from tariffs. China can easily find alternative suppliers. Dry bulk trade, particularly soybeans, might see realignment. Historically, trade patterns adjusted to avoid tariff impacts. Therefore, we can expect limited effects from these changes on our operations.

Question 3: "What measures does GE Shipping have in place to protect or maximize operating profit margin in an unfavorable market environment?"
Answer: To counter market volatility, we focus on maintaining a strong balance sheet and may secure time charter covers to lock in revenue. As market conditions fluctuate, we also stand ready to invest more to renew and expand our fleet if valuations become favorable again.

Question 4: "Why does GE Shipping trade at such a discount to its net asset value despite strong margins and a robust track record?"
Answer: Market perceptions greatly influence stock valuation, and while we communicate our business fundamentals effectively, it's ultimately up to investors to gauge our worth. We acknowledge discrepancies in valuation compared to our peers, which we do not actively analyze.

Question 5: "What is the impact of age on your fleet regarding day rates and overall operational efficiency?"
Answer: Vessels over 20 years face declining marketability, impacting earnings. We've been actively replacing older ships to maintain a competitive fleet age. Nevertheless, as ships age, operational costs can rise, necessitating careful management to minimize impacts on day rates.

Question 6: "What strategies do you have in place regarding asset acquisitions in the current market?"
Answer: Currently, we focus on waiting for market corrections. Prices are inflated due to strong earnings and limited supply. We aim to acquire ships at prices that yield at least a 10% IRR, ensuring that asset purchases align with value expectations in the market.

Question 7: "What is the breakup of cash and cash equivalents by instrument and currency?"
Answer: Approximately 55% of our cash is in U.S. dollars, held primarily in bank deposits, while the rest is in rupees, with about one-third in bank deposits and the remainder in debt mutual funds.

Question 8: "How do you see crude supply changing over this year?"
Answer: OPEC's planned increase in oil quotas, along with boosting Atlantic Basin supplies, suggests stronger crude availability. This growth can positively impact crude tanker demand as supply ramps up to meet market needs, particularly in the East.

Question 9: "What has been your experience with pricing in the LPG market?"
Answer: We opted for long-term time charter contracts since they started, which have been priced favorably compared to current spot market rates. This decision is a strategic market call rather than a fundamental difference from our approach in other segments.

Question 10: "Have you adjusted your IRR expectations for asset acquisitions?"
Answer: Yes, we previously sought a 15% IRR but have adjusted our baseline to 10% due to the recognition that this is a challenging target in the current market environment. While we maintain rigorous investment criteria, we aim for realistic benchmarks.