The Hindu Business Line : `Ship-owners have greatly benefited from tonnage tax' — Mr Karan Paul, Chairman, Apeejay Surrendra Group

ONE year ago, Mr Karan Paul, Chairman of the Rs 1250-crore Apeejay Surrendra Group, resolved to invest Rs 1000 crore in a similar period to boost all his businesses — shipping, tea, hotels, real-estate and financial services. He has more than kept his word. He invested close to Rs 1150 crore in the past year on acquisition of ships, adding to the tea business and setting up new hotels and a shopping mall (still under construction). His group's financial services and retail businesses recorded significant growth during the period. In a free-wheeling discussion with Business Line, 35-year-old Mr Paul dwells on various aspects of his group's shipping activity.

Excerpts from the interview:

How big is your shipping business?

The shipping business now accounts for 15 per cent of the group's turnover. Earlier, when the turnover was much lower, it used to be 30 per cent. The drop in share is due to recent acquisitions in tea business. But the shipping division, known as Apeejay Shipping, has been the most profitable division of the group for the past couple of years.

There have been acquisitions in shipping also...

Yes. We've just taken delivery of two ships, both bulk carriers — the 1990-built 71,037-DWT geared Panamax vessel, Suryavir, and the 2002-built 52,454-DWT Handymax, Jad, both named after my newborn nephews.

What did they cost?

The two vessels together cost a little less than $50 million.

Is it the first time your group is going in for second-hand acquisitions?

No. This is the second time. In 2002,we had acquired a second-hand vessel, a Panamax bulk carrier. I find no harm in acquiring second-hand tonnage. Our current acquisitions have been at the right time, when the index was low. We got them about 20 per cent cheaper.

We are still looking for additional tonnage. There are good ships available in the market but at a price. The market is rather hot. The index has again moved up since we closed the last deal.

What is your total tonnage now?

An estimated 3,63,000 DWT comprising seven vessels — two Handymax, two Handysize and three Panamax. With the latest acquisitions, our tonnage has jumped a whopping 52 per cent while the average age of ships in our fleet has dropped to less than 16 years. I believe this is quite good.

Any plans for tanker...

Not immediately. Our focus will continue to be on bulk carriers for some more time.

Which means your future acquisitions too will be in bulkers...

The plan is to achieve a tonnage of half a million DWT as early as a possible. But that does not mean we've closed the option of acquiring a tanker. Much will depend on the opportunities, that is, the availability of right kind of vessels at the right price, and also the condition of the market.

How is the bulker market?

The peak of late last year and early this year is over. But, on the whole, the market continues to be buoyant and the earnings are good. We expect the market to be even stronger from now on till early next year. We have reasons to be optimistic. Both Indian and Chinese trade are strong.

You're also in coastal trade...

Yes. Two of our vessels — APJ Sridevi, a Panamax carrier, and APJ Akhil, a Handymax vessel — are deployed on the east coast for transportation of coal for the Tamil Nadu Electricity Board. We have been in this trade for the past quarter of a century or so.

With several power companies deciding not to rely on domestic coal but go for imports, how hopeful are you about the prospects of the trade?

Much will depend on the TNEB and its requirements. True, the demand has not moved up nor has the size of the trade grown as expected. But, as of now, we've not felt the pinch. We will rework our strategy depending on how the situation develops.

The oldest ship in your fleet is on the coastal route...

Yes. Sridevi, operating on the coastal route, is the oldest — 1977-built.

Any plan for scrapping...

Not really. Much will depend on the market. If the market continues to be good, we'll perhaps try to operate the vessel as long as possible.

Are you happy with the rates you're getting on the coastal trade?

Nothing much to complain except that the tendering and evaluation processes are often delayed, are time-consuming and tough.

What has been the benefit to your company from the tonnage tax?

Ship-owners have obtained significant advantage from the tonnage tax, and the Indian fleet, I'm confident, will grow steadily with this enlightened step by the government. But a matter of concern is that the profit from the sale of ships continues to be taxed at the normal corporate rate, which is hefty.

The shipping industry, in general, has been hit by the shortage of skilled personnel. How do you fare?

We've initiated several steps to cope with the problem. We are now one of the best paymasters among the Indian shipping companies. We've introduced several incentive schemes to retain people. We have also taken several soft measures to make life comfortable for crew on board. But I would like to draw your attention to another problem facing the industry — shortage of ship-building and ship-repairing facilities in the country.

The demand for ship-repairing facilities in the country is huge while the facilities available are inadequate to meet the demand.

The demand will only rise in the coming days. Fortunately, some of the Indian companies have started paying attention to it. This is a development I whole-heartedly welcome. The opportunities in this field are huge.

What is your biggest headache?

Acquiring the right kind of ship at the right price at the right time.

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