Essar Shipping expects to sail smooth with $25-m order book

A R Ramakrishnan, managing director, Essar Shipping says he expects revenue to grow in FY13 for the company. He also says that Brunei and India land rig contracts provides fairly substantial revenues and good EBITDA margins business to the company.

He, however, says that the market is little subdued in freight business, especially, in the bulk carrier segment. The tanker market, especially the VLCC, has improved a bit in the last few weeks and things should continue to grow towards better proposition.

Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.

Q: How does the order book and revenue stream looks in FY13?

A:  In Essar Shipping, we have three operating lines of businesses namely, main-sea transportation, oilfield services, and drilling & logistic. We expect revenue to grow in FY13.  We are seeing growth in some geographical areas especially India and China for related commodity movement growth. There is a good potential for us to grow our business and we are fairly comfortable and positive about it.

Q: Are you expecting improvement in day rates on both shipping and drilling side?

A: Essar Wildcat, the semisubmersible rig, is doing a good business of USD 2,85,000 per day day rate. We are probably at the top of the market for that class of rigs.

Brunei and India land rig contracts provides fairly substantial revenues and good EBITDA margins business. The drilling business is looking quite positive. Crude oil price is ruling where they are, exploration activity is going strong.

In shipping business, we have locked-in into certain long-term contracts, contracts of affreightment, and some on time-charter which is hedging us through these difficult times.

Going forward, we expect to retain our ability to do long-term contracts, which will be more comfortable in terms of steadiness of revenue stream and profitability.

Market is little subdued in freight business, especially, in the bulk carrier segment. The tanker market, especially the VLCC, has improved a bit in the last few weeks and things should continue to grow towards better proposition.

In calendar year 2013, the new building deliveries will fall and there was rush of orders, which have happened in the last two-three years. Therefore, the market should come back to a stable equilibrium.

Q: How much better would FY13 be in terms of percentage, EBITDA or profit?

A: I personally expect both EBITDA and profits to increase substantially. The drilling business is growing well and it will show good revenues compared to last year. Wildcat was at a much lower rate of earnings, and therefore now there is much more substantially higher rate of earnings. Offshore drilling and land rig business is a high EBITDA margin business compared to shipping business. Revenues may grow at a certain percentage, EBITDA will show much better impact and so would the profit thereafter.

Q: Do you see a slowdown in logistics business keeping in view the current domestic economy?

A: We see good opportunities in logistics business. In the steel sector, Essar Steel, is ramping up its capacity from 4.5 million tonne to 10 million tonne of production. A lot of movement needs to be done for raw materials or finished products. Other companies which are in expansion mode will also add to our business.

Huge amount of imported coal which has already started coming in for some other power plants, handling the coal at the ports, trucking them down or rail freighting them down to the plant sites and handling at the plant sires. This activities will help us to increase our business.

Apart from project cargos, in which we are a very substantial player whether it be movement of over-dimensional cargos or large equipment for the steel plants and the power plants and the refinery type of things.

I see scope for growth in shipping because large movement will take place in terms of crude procurement from the Middle East to Latin American countries.

Refineries like Reliance and Essar which have capability to crack dirtier crude will look for resourcing more from the Latin American countries, which means a longer howl for the tankers and therefore more tonne-mile demand and therefore I see good opportunity in shipping.