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Great Eastern Shipping Ltd. – Stock Alert

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Great Eastern Shipping Company Limited (GE Shipping), established in 1948, is India’s largest private shipping service provider with a strong global presence. The company operates two main segments: Dry Bulk Carriers and Tankers. GE Shipping manages a fleet of 43 ships and 23 offshore assets, with a total capacity of 3.41 million deadweight tons (dwt) and a nearly 100% utilisation rate. The fleet includes 29 tankers (6 crude carriers, 19 product tankers, 4 LPG carriers) and 14 dry bulk carriers (2 Capesize, 8 Kamsarmax, 4 Supramax). With a solid balance sheet valued at USD 2 billion, GE Shipping is a significant player in the maritime industry.

Investment Rationale

Favourable market conditions drive robust financial performance and debt management

GE Shipping has shown strong financial performance, improving cash flows and debt management. In FY23, the company’s revenue and EBITDA increased significantly due to high charter rates in the crude/product tanker segment, influenced by trade changes from the Russia-Ukraine conflict. GE Shipping’s consolidated net debt is now negative, thanks to large cash reserves and smart liquidity management. By FY25, the company expects to generate Rs. 3,500-4,000 crores in free cash. With a low Debt to Equity ratio of 0.08, GE Shipping can manage its debt effectively while maintaining strong coverage. The company’s financial health is further highlighted by an impressive operating profit-to-interest ratio of 16.01 and a nearly threefold increase in PAT margin over two years (FY22-FY24).

Strategic fleet management catalyses market competitiveness and growth potential

GE Shipping has effectively managed its diverse fleet, ensuring top-notch operations and market competitiveness. The company maintains a low average age for its vessels, which strengthens its position in the product, crude, LPG, and bulk shipping segments. All LPG ships are on time charters, benefiting from a strong spot market. The tanker segment is expected to see continued high charter rates due to rising US oil exports and global oil demand. The offshore division is set for increased profitability, with the entire fleet expected to see daily rates rise by $40,000 per vessel in the next year. GE Shipping’s high-quality operations and leverage allow it to benefit from strong freight markets. The company’s return on equity is 21.1%, and its stock has generated a 43.9% return over the past year, showcasing effective capital allocation and growth potential.

Valuation and Outlook

GE Shipping is a strong investment due to its solid financial performance, smart fleet management, and favourable market conditions. The stock is fairly valued with a price-to-book ratio of 1.3x and a PEG ratio of 3.7x. Over the past year, it delivered a 43.9% return with a return on equity of 23.1%. High charter rates in the tanker segment, driven by geopolitical tensions and rising oil demand, benefit the company. GE Shipping’s focus on a diverse and young fleet, combined with good liquidity and risk management, positions it well for growth. The offshore division is set for increased profitability, with daily rates expected to rise by $40,000 per vessel soon. The company projects generating Rs. 3,500-4,000 crores in free cash flow by FY25, strengthening its balance sheet and allowing for future investments. We recommend a “BUY” rating with a 12-month target price of Rs. 1,347 per share, offering a 16.3% upside from the current market price.

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