The Hindu Business Line : Shipping cos feel the global heat

Kolkata, Dec. 4 A sharp correction in demand and movement of commodities, particularly crude oil and oil products, world over in the recent months has brought about a matching correction in the related markets of shipping, rigs and offshore drilling support services. As rates have corrected, the revenue visibility has also dipped for the companies.

Local listed companies in these spaces have also been beaten down substantially despite intrinsic insulations against revenue loss. According to analysts, apart from sentimental reasons, relatively much lower scale of operations than their international peers and limited presence or absence at various points down the value chain have put them in the same boat. Based on FY-09 and FY-10 estimated earnings, they are currently discounted substantially against their international counterparts.

Mr Rajesh Kumar Ravi of Pinc said that major shipping companies such as Shipping Corporation of India, GE Shipping, Mercator Lines, Varun Shipping and Essar Shipping are more less insulated against the vagaries of rate fluctuations in the international markets because of limited fleet exposure to spot market; most of them primarily depend on long-term time charter, which gives not only steadier, but also higher rates. More over, a very significant part of their fleet caters to the needs of the local market, somewhat captive in nature. Additionally, their fleet strength is tilted more toward oil tankers or LPG carriers than dry bulk, which has witnessed sharper correction than the tanker rates.

Analysts also point out that in a slowing commodity movement scenario in the international waters, Indian shipping companies will be proportionately less hit as the country’s crude oil and some oil product imports are unlikely to go down substantially.

According to Mr Ravi, SCI, which has revenues and assets skewed in favour of oil tankers than dry bulk also enjoys a captive market of sorts. It also depends more on time charter than spot-rate contracts.

GE Shipping also has 25 per cent of its fleet in the dry bulk segment. “From the current 11, it is further reducing three more by the end of this fiscal from the segment,” Mr Ravi added. While all the 30 odd oil tankers are on long-term charter, in the dry bulk segment 50 per cent is only subject to spot rates.

In case of Mercator, of its 13 oil tankers, around 60 per cent are engaged in short-term charter. It also has one dry bulk carrier. In case of Essar, both of its tankers are on time charter and with group companies.

Varun, which has four LPG and oil tankers, is also insulated to the extent of around 60 per cent by long-term contracts.

Spot tanker rates

Analysts and industry insiders said that while spot tanker rates this year has corrected by at around 70 per cent on an average across various asset sizes, dry bulk rates has fallen 90 per cent internationally from their peaks this year.

Interestingly, the time charters, which ended tenure recently, have not adjusted downwards more than 35 per cent.

According to Mr Syed Sagheer, also of Pinc, in the rig and oil exploration support services, Aban Loyd is the pure rig player.

“Though revenues are protected by long-term contracts, because of its very high leverage, it has been fetching a lower P/E,” he added.

The two mainly support services companies – Great Offshore and Garware are also enjoying long-term revenue visibility.

“But they are not integrated and can hardly be compared with international players even though they are relatively less leveraged.”

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