Great Eastern Shipping : 1QFY2024 Earnings Call Transcripts

"The Great Eastern Shipping Company Limited's

Quarter Ended June 30th, 2023, Earnings Conference

Call"

August 03, 2023

MANAGEMENT: MR. G. SHIVAKUMAR - CHIEF FINANCIAL OFFICER, THE GREAT EASTERN SHIPPING COMPANY LIMITED.

Page 1 of 13

	The Great Eastern Shipping Company Limited
	August 03, 2023
Moderator:	Good evening, ladies and gentlemen. Welcome to GE Shipping Earnings Call on Declaration of
	its Financial Results for the Quarter-ended June 30th, 2023.
	At this moment all participants are in the listen-only mode. Later, we will conduct a question-
	and-answer session at that time, if you have a question click on the raise hand button on the
	toolbar at the bottom of your screen.
	I now hand over the conference to Mr. G. Shivakumar - Chief Financial Officer at The Great
	Eastern Shipping Company Limited to start the proceeding. Over to you, sir.
G. Shivakumar:	Good afternoon, everyone, thank you for joining us for this quarterly conference call, to discuss
	the Q1 FY'24 Results.
	I will now take you through a quick presentation on the results and what's being happening in
	the markets. First standard disclaimers applied.
	The highlights are that we once again had a very profitable quarter and most of the profit came
	from the shipping business. Our NAV moved up in line with the profit, there was not much
	change overall in the fleet value in shipping. Our crude tankers went up a little bit and so did gas
	carriers. Bulkers and product tankers came down a little bit. So, overall the fleet value stayed
	the same so the NAV went up to the extent of the earnings.
	The dividend that we paid up, we have declared an interim dividend of Rs. 12.90 per share which
	includes Rs. 7.50 per share to commemorate the 75th Anniversary of the Company which falls
	today.
	I won't go through the P&L. You would have gone through the P&L, I am sure. So, I won't take
	you through the P&L in detail. And we have the normalized financials as well and you would
	be familiar with the difference between the normalized financials and the reported financials and
	the adjustments that we do to arrive at the normalized financials.
	On the net asset value, one thing to note is the net asset value I mentioned so between March
	and June is up by little over Rs. 30 per share again reflecting the earnings which have come in
	as for standalone. And for consolidated as well it's up about Rs. 40 per share. And at consolidated
	at the midpoint we are at about Rs. 1,200 per share. Again, I won't go through the key ratios,
	these are the earnings etc.
	Let's see what happened to the markets:
	These were the TCYs. So, we saw from the very high levels of Q4 we have come off a little bit
	for the tankers, the LPG carriers of course continue to be on time charter, and dry bulk were at
	very weak levels in Q4 FY'23. They have gone up from there versus a year ago, the story is very
	different, dry bulk was quite strong last year. And last year you would remember that in Q1 all

Page 2 of 13

The Great Eastern Shipping Company Limited

August 03, 2023

the sectors were doing very well, you can see the averages across all the sectors were between $25,000 and $29,000 a day. Dry bulk was much weaker this year versus the previous year. And crude tankers specially were much stronger and of course product tankers also had been strong. And they sort of cancelled each other out in the P&L when you look at it on a Q1 versus Q1 basis.

So, this is how our standalone NAV moved over the last one year. So, we went up by about Rs. 260 per share of which Rs. 200 per share is contributed by cash profits, Rs. 88 is contributed by fleet value. And this question comes up often that what happens if your fleet value drops? Yes the NAV might drop, will drop if the fleet value drops, but remember that there is cash coming in all the time which helps to improve the NAV. So, it's not just the paper improvement in the net asset value. And of course, last year we paid out Rs. 28.80 in dividend over the last 12 months. So, that's also reduced the net asset value. And this is the movement over the last five years. This is from March 2018. So, some Rs. 360 per share to just under a Rs. 1,000 per share. This is standalone.

On a consolidated basis the story is sort of similar except that on the offshore side there is a most significant contribution coming in from the change in the market value of the offshore assets, because that market is picking up, we have seen repricing of assets and asset contracts which resulted in significant increase in the market value of offshore rigs and vessels.

Looking at what's happened to the shipping market, we have seen that in April to June we had lower levels than we had in January and March for Suezmax earnings. We also had further lower levels in July. Last time we had mentioned that typically the summer months tend to be a little weaker for the tankers sectors that is both product tankers and crude tankers and that's what panned out. However even at these levels the ships are at very profitable levels, for instance that $40,000 a day which is the Suezmax average for July. It is still extremely profitable at more than $20,000 a day, which you can see for the MR, it is a still a very profitable level.

And again, you will find that even within strong cycles you will find individual months, quarters where earnings are not very, not as high as they used to be, but these are normal, seasonal things and these are ups and downs to the cycle. And the market is pretty volatile so we have seen pricings ranging from $10,000 a day for voyages to $40,000 a day for voyages cost for MR for instance.

So, what led to these to the slight weakness, so it's again relative compared to what we have seen earlier in the year. We had OPEX plus crude production cuts and we had refinery maintenance, which normally happens during Q1 and Q2 of the financial year. So, overall, the trade grew but that growth slowed down a little bit and therefore the earnings levels were slightly lower as compared to the previous quarter. Trade disruptions led by the European conflict continue to boost tanker tonne miles and we have seen crude and product supply growth at about 3.5% and 2.5% year-on-year.

Page 3 of 13

The Great Eastern Shipping Company Limited

August 03, 2023

Asset prices remain strong. They are at their strongest since 2008. Order book is building up a little bit now. Crude tankers is building up to 3% and product tankers about 9.5%. So, we are seeing orders coming in for crude and product tankers, but still at pretty low levels.

Looking at dry bulk, dry bulk obviously has been significantly weaker than the same quarter of last year as I mentioned earlier. But it's been for at least for capsizes slightly better than it was in Jan and Feb. So, you see in Feb that we were down to around OPEX was slightly lower than that in the orange line in February of '23. But it's recovered from there but still nowhere close to the levels that we saw last year. And for the smaller size vessels like the Supramax for instance, which you see on the right, rates are much weaker than they were last year.

Now what's led to this, we have seen increased tonne miles demand, we have seen Chinese coal imports increasing by 90% that's for the quarter over the same quarter in the previous years, basically because hydropower generation has been poor. They are having El Niño like condition, so less water means less hydropower generation and which have been substituted by coal, which has been imported. So, Chinese iron-ore imports, coal imports were quite good at the end of last quarter though their iron-ore seems to be coming off at the end of the quarter.

Last year one of the things which boosted the dry bulk market was the COVID related congestion which absorbed 3% to 4% extra of the dry bulk fleet. Now that has been completely reversed. And that's added to the effective tonnage in the market and that's also contributed to the weakness. The negative is that the grain exports from Ukraine don't seem to be happening because the deal with Russia seems to have fallen through. And therefore, that grain is lost from the market which is less cargo for the market.

Order book here continues to be close to all time low. There are orders going in all the time for dry bulk also, however still the order book has not built up to any significant level. I must mention, if you go into order a tanker today you will probably have to go middle to end of '26 at the larger yards. In dry bulk it will also be sometime in 2026. You will have to be very lucky to get a slot before 2026 for building a new bulk carrier.

LPG in the markets continue to be strong. Our ships are on time charter, but the spot earnings continued to be strong and much higher year-on-year. This is again resulting from very strong exports from the U.S. and drought in the Panama Canal, which is led to water levels falling, and which means that there is more congestion at the Panama Canal which also then leads to ships taking the long way around which is the Cape of Good Hope. So, they do, it comes the long way around which means that you need more ships. And all of you would understand that's more tonne mile, which is good for the business because it makes the market tighter. The order book is still elevated in a historical context. So, we are in excess of 20% order book for the gas carrier fleet. So, this is where we are in the order book currently for the different sectors I have already mentioned earlier.

Page 4 of 13

The Great Eastern Shipping Company Limited

August 03, 2023

So, what's happening to asset prices, crude tanker seems to show that there has been a small drop-off in prices, this is very marginal, they are at very elevated levels and these are based on assessments of the market. So, prices are still very high. And you could have a million here and there on the margin depending on the specific condition of that ship. But prices are extremely high and you can make out because what was 100 to 110 a year ago or a half ago is now at about 160 for crude carriers and 140 to 150 for product tankers as well.

Dry bulk has come off by about 10% to 15% over the last three months, they are still above the levels that we saw in January. In LPG prices continue to rise, these are I think the highest prices that we have ever seen for LPG ships. So, those prices continue to rise because the markets have been so very strong.

Scrapping has been non-existent because the market has been so strong. There is no reason for anybody to scrap a crude or product tanker in this market, even dry bulk has seen very minimal scrapping.

Looking at the offshore business, there is no change really in the fleet supply. So, there are a lot of rigs and vessels which are over age and they continued to be there and we have had some cold stacked vessels and rigs as well. There hasn't been any new excitement in the market, there has been no higher pricing, it's about a sideways market marginally higher in rates maybe, but we haven't seen any recent pricing in our local market.

There is a gradual increase in utilization but not a huge amount. So, as I said market is at firm levels, the rates are good. But there has been no further tightening since in the last three to six months. We have re-pricings coming up; we have five vessels which need to be repriced in the course of the couple of months. And then we have four further vessels which need to be repriced. In the rigs we have one rig to be repriced in the first half of next FY. And we have one rig to be repriced in the second half of FY'25.

Just a summary, the strong cashflows have basically led to our, we had $360 million of net debt at peak in less than five years ago, which is now net cash of $200 million plus, this is standalone. And this is what the business does in good years. It enables you; it produces such strong cashflows and remember this is after paying out a lot of dividends over the last couple of years.

The share price to consolidated net asset value - we have the consolidated NAV is about Rs. 1,200 per share at the midpoint of the NAV. So, we trade at about 33% discount which is a consolidated net asset value. And again, these are our CSR partners. That brings me to the end of the presentation. We are very happy to take questions.

Moderator:Thank you very much. We will now begin the question-and-answer session. We have our first question from Abhishek Nigam from B&K Securities. Please go ahead.

Page 5 of 13