India’s largest private sector shipping company, GE Shipping, may soon see a structural change. By the end of 2012, its wholly owned subsidiary Greatship India Ltd (GIL) is likely to overshadow the parent company in terms of assets value, even though the latter started operations in 2006.
Prior to that, a unified GE Shipping had its own offshore division, Great Offshore. It was hived off as a separate company in 2005 after the promoters, the Sheth family, split their empire into two.
This, however, is part of a bigger industry trend, where shipping companies are increasingly changing their business plans and diversifying into newer segments, including offshore, logistics and even coal trading, as shipping demand is at an all-time low.
GE Shipping at present has a fleet of 35 ships with an average age of eight years. This includes 25 tankers and 10 dry bulk carriers. The current market value of these ships is estimated to be $900 million.
In comparison, Greatship has a smaller fleet of 19 and operates in three main business lines — offshore logistics, drilling services and sub-sea solutions. Its current fleet includes two operational rigs that are being deployed in India by the Oil and Natural Gas Corporation on long-term charters. But the company has a capex plan of $450 million lined up for the next two years, which will take its total fleet size to 27 by FY13.
With this additional capex, the company expects the market value of Greatship’s asset to go upto $1.2 billion. And considering GE Shipping has no similar investments lined up, the subsidiary is likely to overshadow the parent.
From a profitability point of view, Greatship is also inching closer to its parent. In 2010-11, Greatship’s revenues from its various offshore segments stood at Rs 913 crore, less than half of GE Shipping’s Rs 1,834 crore. But Greatship’s PAT (profit after tax) was Rs 200 crore versus that of GE Shipping, which was at Rs 266 crore.
The trend continued in the first quarter as well. The revenue from the offshore segment stood at Rs 246 crore versus Rs 538 crore of shipping revenues. GE Shipping’s PAT was at Rs 101 crore, while the PAT from offshore business has been around Rs 60 crore.
With more assets coming on stream and revenues from getting clocked in, the gap between the two is likely to narrow further.
Shipping rates on an average are down 50-95 per cent in the last two years across different segments. But the tough times for the sector are likely to continue even going forward. Currently, most shipping companies are not being able to cover their operating costs, leave alone make profits.
In comparison, oil rigs are attracting daily rates of $120,000, enough to recover their operational and other financial costs.
GE Shipping had postponed its plans for an IPO for Greatship India due to the volatility in the stock markets.
GE Shipping has been derisking itself for a while by even redeploying cash by selling its old vessels to focus more on the offshore segments. In the last two years, GE Shipping has sold at least six vessels. It has also sold its contracts for three new very large crude carriers (VLCCs), which are to be delivered between January and April 2012. The sale will get affected as and when the ships are delivered from the yard.
Greatship along with its step down subsidiaries on the other hand is diversifying to offer the entire range of offshore services which includes drilling, logistics and even sub-sea solutions with a young fleet of an average 2.5 years. GIL has entered into alliances and partnerships with global service providers to in-charter rigs and offshore supply vessels of diverse types to service prospective requirements in India.
The sub-sea solutions vertical is increasingly becoming a key focus area for the company as offshore oil and gas exploration opportunities open up more in India as well as Latin American countries like Brazil and new markets like Australia.
