Hi, First let me start by saying that I am holding 500 shares of GE purchased @ 500 in Dec 07. I have seen the price as low as 280 on this stock in January. I am a firm believer in the concept of value. Imagine a simple situation wherein you can buy a fleet of 43 ships (2.9 M DWT)by paying a price of RS 7,740.84 Crores (which translates into a value of Rs 180 crores per ship or Rs 26692.55 per DWT). Also consider that all the shipyards of the world already are running a backlog in terms of orders & GE Shipping already has an order book of 12 vessels with a capacity of 0.85 Mn DWT. Now based on existing capacity of 2.9 mn DWT, sales value for 2008 FY per DWT comes to RS 9897.Based on an optimistic sales sceneraio, sales for next year at average yearly shipping realisation rate of 2008 FY & after taking into account the full capacity addition will come to RS 3711 Crores- growth rate of 29%. Further consider, that Baltic Freight Index and crude is at its all time highs. People can counter me by saying that I have taken the whole capacity addition to my sales scenario but they must also consider that i have not assumed any price increases in Shipping rates and that should be enough to counter the delay in capacity addition. NPM in 08 FY was 47.27 %. If i take a NPM of 45% for 09 FY, likely NP on a sales of RS 3711 Cr should give me a profit figure of 1669 Crores translating into an EPS of Rs 110 per share. Based on CMP, the PE comes to 4.68. Just decide for how long can anyone value GE Shipping at 4.68 multiple on a forward EPS of 110. Just a very high conservative estimate of 10 PE multiple should be enough to add at least 100% to the current market price. There are all the reasons which suggest that GE Shipping with a possible growth rate of 29% in sales & 23% in profits do deserve a higher price. Leave aside all the tecnicals and focus on value. In the long run, value will determine how technicals will play out.
Thanks Alok
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