Buy Great Eastern; target of Rs 310: BP Equities

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Buy Great Eastern; target of Rs 310: BP Equities

BP Equities is bullish on Great Eastern Shipping Company and has recommended buy rating on the stock with a target of Rs 310 in its August 10, 2011 research report.

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BP Equities is bullish on Great Eastern Shipping Company and has recommended buy rating on the stock with a target of Rs 310 in its August 10, 2011 research report.

"Great Eastern Shipping Co. Ltd. (GESCO) consolidated revenues in Q1FY12 increased 21% Q-o-Q to Rs 7,280 mn on the back of increase in total revenue days to 3,391 days in Q1FY12 from 2,850 days in Q4FY11 and due to just one dry docking in the current quarter. The charter rates in the product carriers segment, which constitutes ~50% of GESCO's shipping fleet, increased 4.9% Q-o-Q and 5.4% Y-o-Y which supplemented the company's topline growth. EBITDA margin of the company improved in Q1FY12 by 605 bps Q-o-Q to 45% due to decrease in repairs & maintenance cost by 10.8% Q-o-Q on the back of just one dry docking in the quarter."

"The company expects 10 dry docks for the balance part of FY12 with 4 expected in Q2FY12 due to which, we believe, the repairs & maintenance cost would increase from the current level. Consolidated net profit for GESCO stood at Rs 1,626 mn in Q1FY12 on the back of profit on sale of ships and increase in gain on foreign currency transactions during the quarter. NAV for shipping during the quarter declined by Rs 5 Q-o-Q to Rs 340 per share and the consolidated NAV increased to Rs 445 per share in Q1FY12 from Rs 420 in Q4FY11 due to increase in the prices of offshore vessels."

"The company has an order book of 7 vessels in the offshore segment which would be added to the fleet over the next two years. With increasing asset prices in the offshore market and crude oil prices remaining firmly above USD 80 per barrel, robust growth is expected in the offshore segment, going forward. The company has done well recently by reducing its exposure in the shipping business and focussing more on the offshore market where margins are improving and there is increased revenue visibility."

"With an expected slowdown in world economy due to macroeconomic concerns in US and Europe growth in world trade, we believe, will decline due to which freight rates in the dry bulk and tanker segments will continue to remain under pressure. However, growth in the offshore segment is expected to remain robust for the company with increasing fleet size and health rise in spend on E&P activities by companies. We maintain our "BUY" rating on the stock due to the strong offshore growth and a healthy balance sheet. We have valued the shipping business on NAV basis (FY13E) and offshore business on EV/EBITDA (FY13E) and have arrived at a revised SOTP target price of Rs 310 for GESCO which represents a 31% upside from CMP," says BP Equities research report. 

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To read the full report click on the attachment