GE Shipping: New charter

Fleet capacity ramp-up should help keep operational costs under check.

GE Shipping transported an enhanced volume of freight on a y-o-y basis in the June 2007 quarter, but higher operational costs put pressure on its operating margins.

As a result, core operating profit (excluding foreign exchange gains, interest income and sale of ships) grew 34.1 per cent to Rs 312.7 crore in the last quarter, while its freight and charter hire income grew 46.9 per cent to Rs 637.1 crore. Its operating profit margin also declined 460 basis points y-o-y to 49.1 per cent in Q1 FY08.

Spot average freight rates in the key tanker segment during Q1 FY08, had weakened considerably on a y-o-y basis - for instance, in the case of VLCC it was $30,553 per day in the June 2007 quarter compared with $34,583 a day a year earlier.

To offset weak spot tanker freight rates in the last quarter, GE Shipping typically has long term contracts with its customers. Dry bulk spot freight rates have been strong on a y-o-y basis in the last quarter, owing to a strong demand from the Chinese metal industry.

Meanwhile, the company highlighted that the tonnage (carried on its own ships) increased 12 per cent y-o-y to 3.22 million dwt (deadweight tonne) in Q1 FY08, compared with 2.87 million dwt in the previous year.

The company also used in-chartered vessels ( ships owned by third companies) in the June 2007 quarter to leverage strong demand conditions, but that resulted in the total expenditure jumping 61.6 per cent y-o-y to Rs 324.44 crore in the last quarter.

Going forward, spot freight rates in the key tanker segment continue to be weak on a y-o-y basis. However, the company is ramping up its fleet capacity, which should help keep its operational costs under check over the next few quarter. At Rs 338, the stock trades at an attractive 5 times estimated FY08 earnings.

Jaiprakash: Concrete step

Jaiprakash Associates was able to report an improved performance in the June 2007 quarter, thanks to an improved performance of its key cement division.

Its other large business, namely construction division saw a decline in segment profit on a y-o-y basis in the last quarter. Nevertheless, operating profit grew 13.3 per cent y-o-y to Rs 239 crore in Q1 FY08, while net sales grew 3.6 per cent to Rs 927 crore.

Operating profit margin also improved 220 basis points y-o-y to 25.8 per cent in the last quarter. An improved performance by the company has not gone unnoticed by the Street - the stock has gained 35 per cent over the past three months as compared to an 8 per cent rise in the Sensex.

In its cement division, the company's despatches were 1.67 million tonne in Q1 FY08 as compared to 1.63 million tonne a year earlier, point out analysts at domestic brokerage house.

Also, its realisations were estimated at Rs 3,095 a tonne in the last quarter, a growth of 22.9 per cent y-o-y.

As a result, profit of the cement division grew 65.7 per cent y-o-y to Rs 174 crore in the June 2007 quarter. However, Jaiprakash's construction division saw profits decline by 17.3 per cent y-o-y to Rs 86 crore in the last quarter as projects were in a ramp-up phase.

The company is currently implementing a 160 km greenfield six-lane access Taj Expressway between Greater Noida and Agra on a BOT basis, where it also has a land bank of over 6,000 acres.

Also, in its cement division, the company is scaling up its capacity from 7 million tonne to 20 million levels by FY10. To part-finance these projects, Jaiprakash Associates is raising $1 billion overseas. However, at 24 times estimated FY08 earnings, the upside is limited.