GE Shipping races ahead

In the corporate shootout between Great Eastern Shipping and the Shipping Corporation of India (SCI), the former seems to have a slight edge. Its return on equity at 30.62 per cent (excluding extraordinary items) in FY04, is higher than that of SCI, which was 26.15 per cent.

Although there is no noticeable difference in their valuations, the little edge is seen in their price-earnings ratios "" Great Eastern trades at a price earning (P/E) ratio of 6 (trailing 12 months' net profit), while its nearest rival trades at 5.

Great Eastern's perceived advantage lies in its ability to respond much faster to changes in market forces in terms of expanding its capacity.

For instance, Great Eastern utilised its substantial cash generation to ramp up its capacity by approximately 1.2 million dead weight tonnage (Dwt) in FY04, vis-a-vis its rival, which expanded only by approximately 0.48 million Dwt.

The slower pace of acquisitions at SCI could be attributed to the inevitable bureaucratic procedures for public sector enterprises. Great Eastern's current capacity for the energy sector is approximately 2.43 million tonnes Dwt vis-a-vis its rival, which is estimated at 3.32 million tonnes.

Also, recent large acquisitions have helped Great Eastern "" its average age for its fleet is 13.9 years vis-a-vis approximately 15 years for the SCI.

Its younger fleet has helped Great Eastern to get a significantly larger number of approvals from global oil giants vis-a-vis its rival. And this has helped Great Eastern grow its net sales by 41.4 per cent in FY04 vis-a-vis 30.4 per cent for the SCI.

While freight rates in the bulk segment have dropped by approximately 30-35 per cent from their peaks in March-April 2004, it has not had any serious impact on either of the two companies in the last quarter, given their focus on the energy market. Great Eastern's current dry bulk capacity is estimated at 0.35 million Dwt, while that of the SCI is approximately 1 million Dwt.

Also, both companies have utilised their capacity to tap the opportunities in a relatively new segment of the energy market "" to transport refined oil exports from the country, which helped to minimise the impact of weaker dry bulk freight rates. Exports of refined oil from India had shown a growth of 50 per cent in 2003-2004.

This focus on the energy sector helped Great Eastern's operating profits grow 48.8 per cent (excluding exceptionals) vis-a-vis its rival, which saw a growth of 27.2 per cent in the June FY '05 quarter.

Freight rates in the energy market are still strong, such as that of the Suezmax segment, which are currently hovering at approximately $37, 000-$38,000 a day, a year-on-year growth of approximately 15 per cent. And for both the shipping companies, it would be a key factor that would drive profits higher.