ICICIDirect recommended hold rating on GE Shipping with a target price of Rs 325 in its research report dated May 09, 2016.
ICICIDirect's research report on GE Shipping
Gesco’s results for Q4FY16 were significantly lower than our estimates. Revenues remained flattish YoY (down 8% QoQ) to | 877 crore (I-direct estimate: | 990 crore). Revenue for the quarter was adversely impacted by lower offshore revenues that were flat YoY (down 9% QoQ) to | 418 crore. Shipping revenues grew 13% YoY (up 3% QoQ) to | 552 crore. Revenue days for shipping and offshore segment were at 2659 days and 1918, respectively. EBITDA for the quarter grew 20% YoY (down 17% QoQ) to | 424 crore (I-direct estimate: | 535 crore). EBITDA margins were at 48% (I-direct estimate: 54%), mainly hit by lower utilisation levels & re-pricing in offshore segment. Benefit of lower bunker cost was partly offset by marginal increase in stores, spares, repair expenses. PAT for the second consecutive quarter was adversely impacted by exceptional impairment charge of | 145 crore in Q4FY16 (| 16 crore in Q3FY16). Accounting for the same, reported PAT was at | 58 crore against our expectation of | 299 crore. Adjusting for the exceptional loss, PAT for the quarter was at | 235 crore. For full year FY16, revenues grew 10.7% YoY to | 3805 crore, with EBITDA of | 2028 crore (up 54% YoY) and PAT of | 1039 crore (up 39% YoY).
Gesco’s fleet profile majorly consisting of tankers has to an extent managed to offset the glut in dry bulk and offshore segments. The company is looking to manage the assets on time charter yield rather than on a spot basis. We continue to believe the current year’s performance would be difficult to replicate as the company underwent dual benefits of higher tanker prices and lower bunker costs. However, as the current year higher base catches up, the incremental growth rates would be difficult. Hence, we continue to value Gesco at P/BV of 0.5x on book value of | 650 and maintain HOLD rating with a target price of | 325.
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