Great Eastern Shipping Company Ltd
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Earnings Call Transcript

Earnings Call Transcript
2023-Q1

from 0
Operator

Good evening, ladies and gentlemen. Thank you for standing by. Welcome to GE Shipping earnings call on the declaration of its financial results for the quarter ended June 30, 2022. [Operator Instructions] I now hand over the conference to Mr. Shivakumar, Executive Director and CFO at The Great Eastern Shipping Company Limited to start the proceedings. Thank you, and over to you, sir.

G
G. Shivakumar
executive

Thank you. Good afternoon, everyone, and welcome to the conference call to discuss the results for Q1 FY '22-'23.

Let's run through the presentation first with some basic information. And then, of course, we are very happy to have a lively discussion with all of you with your Q&A. First of all, forward-looking statements. We don't know what the markets are likely to be like. We are not giving guidance on markets. So please take it in that way.

So let's look at the results for Q1 FY '23, compared to last year, which is the corresponding quarter, and the immediate preceding quarter, our profitability has been much, much higher. And we can see that in -- when we look at the TC wise, we'll also look at the reasons for why the market -- why we made so much more profit than the previous quarters.

So let's move forward. I'm sure you would have had a chance to look at these numbers already. Normalized, you would have the numbers. You would have seen the numbers, which are there in our presentation. So they were a little better than our reported numbers, still a multiple of what we did in the same quarter in the previous year.

Important and significant factor is the change in the net asset value in March. So that's just a quarter ago, our net asset value was about INR 617 on a standalone basis, INR 617 or INR 618. It has now gone up to INR 732. We'll also look at the journey of how we got there within that 1 quarter.

Key financial ratios, EPS on a normalized basis. So the EPS is INR 32 on a standalone basis and INR 35 on a consolidated basis. Most important and we keep saying this over and over again, shipping is a very strong cash flow business. So in profitable years, it produces a huge amount of cash flow. So we have, in the last quarter, earned INR 48 of cash profit per share.

Management commentary, this is something that we thought we should put new. Just to give the highlights and the main takeaways. So all 4 shipping sectors have done very well in Q1, and you will see that in the [indiscernible] wise, you would have seen it in the [indiscernible] as well that we earned.

And having a large part of our fleet in the spot market, which helps us to take advantage of the strength in the markets and therefore, earn superior [indiscernible] strong cash flows from the business, as I already mentioned, and coupled with an increase in net asset values. So ship prices have gone up significantly during the quarter and resulted in a significant increase in net asset value.

A long period of underinvestment in the oil fields, in oil and gas production seems to have caught up with the oil market, and there's much more activity coming up in certain areas, and that's boosting demand for rigs and vessels. This makes us believe that we are possibly past the worst of the offshore market, but let's see how it goes in the next year or 2.

Importantly, we must recognize that there are recessionary pressures building up, thanks to the increase in inflation and central banks moving to increase interest rates. And the impact of this is quite difficult to assess as we stand today.

Looking at the time charter yield, and this is what has driven our performance, and we have rarely seen this kind of performance, where all ship categories have earned more than $25,000 per day on average during the quarter. This includes whatever part of the fleet was on time charter or on the spot market.

So across the board, all 4 sectors have done in excess of $25,000 per day in the last quarter. And you can see how it compares to the previous quarter, which is Q4 FY '22 and Q1 FY -- and Q1 FY '22, which is the corresponding quarter in the previous year. And huge outperformance has come from the crude and product carriers, which have doubled or more their earnings of the previous periods.

Looking at what led to the changes in standalone net asset value, we had the INR 618 going to INR 732. INR 41 of that change came from the cash profit per share. INR 79 came from the increase in fleet value. This also includes the impact of the depreciation of the rupee versus the dollar, as we have mentioned many times. Though this does not come into our P&L, our assets are all priced in dollars and our earnings also are in dollars.

When the rupee depreciates, our assets move up in value in rupee terms and that's part of the impact, which has gone in here in the fleet prices. Therefore, we paid out a dividend of INR 5.40 in the previous quarter, and that's reduced the NAV to that extent.

This is the highest NAV -- standalone NAV since our inception. And over the last 5 years, this has moved at a CAGR of 16%. Again, very high numbers, and we are not saying that this is something which is going to continue forever, but it's just the performance which has happened over this period.

It's also a testament to the way that we have done investments over this period. A quick word on the buyback. We completed the buyback or we closed the buyback in early July when the 6-month period was completed. We managed to do just under 60% of the buyback of the amount that we had targeted for the buyback.

So we spent INR 132 crores. And we also spent about INR 30 crores on the buyback tax. So a total of about INR 162 crores, INR 163 crores at an average price of INR 316 plus the tax. So that's completed now.

Let's look at what happened to the shipping markets in the last quarter. First, the tanker market. You will see the tables at the bottom, which give the YTD, this year and previous year, and you can see the few hundred percent change because the markets were very weak.

And they have turned around largely as a result of the conflict in Europe, which has disrupted the normal functioning of the market and by bringing in inefficiencies into it. So let's look at the reasons. And what happens when you have these inefficiencies which come into the supply chain is that the rates just take off. And when the market is otherwise quite balanced, all it takes is a couple of percentage points change in the demand-supply balance. Should take rates from $10,000 to $25,000 per day.

We have mentioned this in the past, and you can see how it played out last -- in the last quarter. The recovery in the spot earnings in product tankers was mainly due to supply tightness in the Atlantic market, which means that you needed long-haul carriage of refined products from the East to the West, which took up more product tankers. Refining margins were very high. And therefore, refineries were running at close to full capacity, which also results in improved demand for tankers.

While the crude and product trade actually remain 4% and 1% below the pre-COVID levels. So we have still not reached the levels of 2019. We hope that this will -- gap will get made up soon. Again, this is subject to how the macroeconomic spans of whether we enter a recession, et cetera.

Another factor which helped the market for increased congestion and something called the stationary fleet and again, ships waiting for cargoes or possibly waiting and one of the theories which is going around is ships which are waiting to transship Russian oil, either crude or refined products and that has tightened the supply of ships.

The dry bulk market was [ Capes ], performed significantly worse than in the previous year. So versus 31,000 they've got 21,000. Again, I must clarify these are market averages. These are not our averages. These are market spot averages. So they were significantly worse while the Supramaxes actually did a little bit better than in the previous year.

And this has been a picture of the last couple of quarters where the smaller-sized vessels have done much better than the cable size vessels. Again the margin of iron ore and coal movement not being very strong, in fact [indiscernible] quite strong. Again, 32,000 versus 42,000.

So quite strong. Our ships, of course, are not on the spot market, our ships are all on time charters. Looking at fleet supply and we've spoken about the order book report. We are at very low levels of the order book. We thought we'd put it in graph form to represent how low we are.

So the tanker order book is just about 5%, the bulk carrier order book. So when I say tankers, I'm talking about crude and product tankers. The dry bulk order book is about 7%. In all of these, the median order book over the last 20-plus years that we have data for has been between 15% and 20%.

So we are very, very low by historical standards. Asset prices have done well, as you would expect. Crude and product tankers' prices have gone up significantly in the last 3 to 4 months. Dry bulk continues to remain strong, while LPG also continues to be strong, marginally going up during the quarter.

Scrapping has not been happening. There's not been much scrapping. In the first half of the year, we had less than 1% scrapping in crude and product tankers. Again, markets have been reasonably strong for crude and product tankers. So no reason to rush into scrapping.

And dry bulk, of course, the market was very strong through the period. So very little scrapping has happened. Coming to the offshore market, this is standard data. The utilization -- global utilization of jackups has gone up to just about 70% now. So we are starting to get into tightening kind of situation.

We have quite a few rigs which are cold stacked for more than 3 years, which is 10% of the fleet, that possibly may not come back into the market. That's something for us to see as the market strengthens. We have seen lots of new inquiries for contracts, lots of rigs changing hands, especially jackup rigs for contracts in the Middle East between Saudi Aramco and Abu Dhabi have been pulling in many more rigs.

We've seen asset prices for rigs move up 50%, 70%, sometimes even close to 100% over the last 6 months or so. Even the vessels' markets, especially for the more advanced vessels in the international markets, have improved significantly. We've had pricing increases of between -- in the international markets, again, between 40% and 100% over the period between beginning of '22 and now, and that's what really makes us believe that the worst is behind us.

This, I mentioned again, utilizations have come up to -- global utilizations have come up to about 70% for jackups, just under 70%. What is our situation? We have no rigs coming up for pricing till middle of next year. So the rig comes off contracts in the middle of next year, that's calendar '23.

However, the pricing of this rig will happen sometime in the next 6 months, hopefully. There will be tenders out. We will bid into those tenders. And hopefully, we will be able to price that rig and get that contract. Apart from that, we have 6 vessels coming up for repricing in the rest of FY '22.

Again, this is a slide that we show all the time. So we levered up. We have levered down now. We are down to about -- as of June, about $75 million in net debt. Now we are down to even lower numbers, and we are in a position to do CapEx at the right price. Share price to consolidated NAV, this is as of Friday. So we're still at about INR 0.6 price to NAV.

Initiatives on environment. These other initiatives we have mentioned in the past. The first one is that we have reduced our annual emissions by about 40,000 tonnes between FY '19 and FY '22 by investing in various energy-saving technologies.

You can't do much to a ship, because it's the same ship, so you can only improve on the margin by maybe 2% to 6%. This saving we're talking about is overall about 4% for the fleet. We try to fit various energy-saving devices on to our vessels so that we can save on fuel consumption and therefore reduce our carbon emissions.

So that's a constant endeavor that we do. We use the best quality of paint to ensure that friction, when the ship is sailing, is minimized. We're always looking at new things that we can do to reduce the fuel consumption.

Finally, yes, this is the story of The Great Eastern Shipping, which is in our Coffee Table Book. The picture on the left is our first office, and this is our current office. You can read our story of the last 7 decades in the Coffee Table Book, which is on our website. And we are very proud to share that with you.

That brings me to the end of this presentation. And now we're very happy to take questions. Mr. Bharat Sheth, who is Deputy Chairman and Managing Director, is also here, and we'll be happy to take your questions.

Operator

[Operator Instructions] The first question is from the line of Naman Bhansali from Perpetuity Ventures.

N
Naman Bhansali
analyst

Congratulations on a great set of numbers. So my first question is that you've seen a constantly improving NAV for GE Shipping, and a significant part of it comes from high asset prices. So what is the sustainable number for NAV if we assume that the asset prices fall?

G
G. Shivakumar
executive

So there is no sustainable number for NAV. So it depends on the extent of the asset price fall. So I don't have a forecast that we can do for asset prices really.

So I mean, for every -- so let's take a sort of thumb rule. The fleet value, the value of the shipping fleet is about $1.1 billion. For every 10% drop in that value, you would have a INR 50 to INR 55 drop in the net asset value. But we can't forecast what the asset values could be.

N
Naman Bhansali
analyst

Okay. Fair enough. And my next question is as you see good times for options going forward. Are you planning to allocate some capital on this segment or when you're seeing the existing number of an existing recognitions?

G
G. Shivakumar
executive

Yes, we are not planning to allocate more capital from Great Eastern Shipping in that segment. If that company itself is able to generate the surpluses required to grow, then it can do so. They're free to do so and they've always been free to do so. But there -- it's unlikely that there will be capital allocated from Great Eastern as of now.

N
Naman Bhansali
analyst

Okay. Understood. And my final question is that as you have seen that [indiscernible] it's rising all over and there are a series of discussions. And also you have mentioned in your management commentary that it's difficult to assess. Still from past experiences, if you could just throw some light on how would that impact the shipping industry if the recession actually persists?

G
G. Shivakumar
executive

Mr. Sheth, would you want to take that if you were able to hear the question? Otherwise, I can take it.

B
Bharat Sheth
executive

I can't hear a damn thing. What is the question? Let somebody repeat it to me.

G
G. Shivakumar
executive

Yes. The question was, what has happened in the past when there has been a recession? So do we have an experience of what has happened to the shipping industry in the past when there's been a recession?

B
Bharat Sheth
executive

So recessions, historically, again, it depends on the length of the recession, the intensity of the recession, et cetera. Very deep recessions have obviously not been good for the industry because it leads to a demand challenge.

But again, shipping is a business that is determined often by events. So we have seen -- you could get a general recession. There's some crosstalk as well.

Operator

Sir, you may please proceed.

B
Bharat Sheth
executive

Yes. So we have seen that because shipping is more determined by certain events which take place, it has so happened that in spite of recessions at times the markets have done well.

But obviously, with the macro headlines is that recessions can't be on a sustained basis. If it's a deep recession and it is sustained for multiple months or years, obviously, that can't be good for the industry.

Operator

The next question is from the line of Rajesh Khattar, an individual investor. [Operator Instructions] As there is no response from the current participant, we'll move to the next question from the line of Amit Khetan from Laburnum Capital.

A
Amit Khetan
analyst

Congratulations on a very good set of numbers. Based on what you're seeing in the markets today, where do you see the best opportunities to deploy capital?

And given that we are likely to have a problem of plenty when it comes to cash, how are we thinking about capital allocation?

B
Bharat Sheth
executive

So at this moment, asset values continue to remain elevated. Our current -- on basis current prices, we are unlikely to or almost certainly, we will not be in the market to acquire any assets.

And as we build cash, what we are really building is firepower, more and more firepower as and when the asset values present what we think would be a better risk-reward ratio opportunity. So that's one use of capital. And the other use of capital as and when we get optionality, we would look at buybacks.

As you know, currently, we can't reinstate a buyback until August of '23, and then we will see at that time what are the discounts, if any, do net asset value, where the net asset value is and then determine whether we should do more of that.

A
Amit Khetan
analyst

Understood. My second question was on the offshore segment. So we were earlier reporting something like INR 40 crores, INR 50 crores normalized EBITDA. So this quarter, this has gone up to something like INR 85 crores. Is this a number that should be sustainable if the markets hold up?

B
Bharat Sheth
executive

So we are hoping, as I think the CFO just mentioned, as repricing takes place on our assets, we have a rig that reprices in the next few months. We have certain offshore supply boats that reprice also in the next few months.

And we do believe that we will be in a position to reprice at higher and higher points. So logically, if that was the case and there was no other operational challenge, the answer is yes.

A
Amit Khetan
analyst

Got it. Got it. And lastly, how many of our dry bulk and tanker ships would be on time charter currently? And have we taken any new time charters in the last quarter?

B
Bharat Sheth
executive

We have taken some time charter more recently on the tankers, not on dry bulk. As the CFO just mentioned, some of the tankers are at elevated price earnings level. We are doing it cautiously.

But one of the ways to protect net asset value and to protect on earnings is to take advantage of these high spot earnings. So consequently, we have -- at these more elevated prices, we have begun a gradual process of fixing vessels for up to 12 months.

But please do remember that the 1-year rates are in backwardation to the spot rates. And so we are doing it in a very, very gradual manner because there's a big disparity between 1-year rates and where the spot market is.

And at the same time, just to let you know, we had some vessels which we had fixed at the much lower price points of the market and they come up themselves for repricing. So basically, we are balancing. Something comes out from lower levels and something is going in at much higher level.

A
Amit Khetan
analyst

Sure, sure. But what would be the mix of time versus what today? And is that higher towards time today compared to, say, 2 years back or so?

B
Bharat Sheth
executive

No. It is -- today, we are on balance, still more inclined to spot. But as I said, we will -- we keep watching where the 1-year rate is. We are not going much beyond 1, yes. So we are not going down 2 and 3 years, also partly to do with the age of some of our ships.

As you know, we have a fair number of tankers in particular which are 14, 15, 16 years of age. They become very challenging to fix for very long periods of time. So there we are fixing for 12 months. And we will keep looking at every opportunity that comes.

But it's difficult to give a precise answer as to -- we don't have a policy that we must have an X percentage of our fleet operating in fixed -- in the fixed market as it were. So it's always going to be a function of how we -- where the spot market is today, what is the backwardation, who is the customer. So there are multiple variables that go into our decision making.

Operator

The next question is from the line of Abhishek Nigam from B&K Securities.

A
Abhishek Nigam
analyst

Congrats on very good results. So first question on the dry bulk side. It seems to be an interesting space. Limited supply growth really, but also risk of recession, slower growth in China. So how are you thinking about this? On volumes, are you more positive or are you slightly mixed outlook over there?

B
Bharat Sheth
executive

So if you see the data that has been made available from Jan to July, we have had less total cargo that has been traded in dry bulk as opposed to Jan-July of '21. Having said that, we have seen that the supply side is obviously very limited. We've also seen congestion at times build up. It sort of builds up and then it wanes again and then it builds up again, et cetera.

We've seen weather disruptions too, which are both good and bad for the markets, depending on the duration of the weather disruption. So there are simply too many moving parts to say that the future direction of how the market will behave, it's obviously come off from the months of May and June.

But these things can quickly reverse again. So we are personally not too concerned. We remain predominantly in the spot market as far as dry bulk is concerned. And I guess, another indication of the general confidence in the dry market is that asset values have not really corrected that much in spite of a 20%, 30%, 40% drop in some of the earning levels that has been achieved in the market today with what it was, say, 1, 1.5 months ago, 2 months ago.

And I guess that -- the fact that asset values are holding pretty well. There seems to be a general confidence in the market overall, particularly because the net supply growth is very limited. We also must remember that there are regulations that kick in from end this year, early next year, which may have a consequence of vessels trading at lower speeds, which then effectively pulls back the supply of ships.

So that is again positive. You might have read that there is -- in fact, the first shipment of grain is out from Ukraine. And potentially, there is 20 million, 30 million tonnes of grain that could possibly be shipped from that area, assuming all goes well.

And I believe that if -- once that full 20 million, 30 million tonnes of cargo come into the market, that is also market positive or freight rate positive. So there are some factors that are positively inclined to the market, some less so. So let's see how -- where the freight rates eventually -- there's just simply too much volatility, which will continue.

A
Abhishek Nigam
analyst

Question on the offshore side, so your day rates remain locked, but that segment is sort of -- it's kind of seeing some [ infliction ] on the supply chain side and energy costs and salaries [indiscernible]. So how should we think about margins for the offshore segment going forward?

B
Bharat Sheth
executive

I think we just mentioned -- I think the CFO just did mention earlier in this call that the worst seems behind us in the offshore sector. And as our assets come up for repricing, we said there's -- we've got a rig that comes up for repricing within the next few months.

Although the rate will be effective in the second half of next year. And then we've got boats that come up for repricing now and more so in the first half of next year. So as they come up for repricing, we are confident that each repricing will be at a higher point. So we remain pretty confident at this moment of the market -- of that market, sorry.

A
Abhishek Nigam
analyst

Fair enough. Last question for me, just a bookkeeping question. Your press release mentioned some insurance claim of about INR 44 crores. So just to be clear, that will flow through in the P&L in the second quarter, right?

B
Bharat Sheth
executive

That's right.

Operator

The next question is from the line of Himanshu Upadhyay from O3 Capital.

H
Himanshu Upadhyay
analyst

Yes. So my first question was, when we look at the NAV and try to compare, even the offshore values have increased, okay? But because of buyback and the other things, it is not very clear.

Can you tell how much would be the increase in the NAV or the value of offshore fleet? Needs just some understanding on that. And what percentage of increase would it have been there on that?

G
G. Shivakumar
executive

Yes. Let me just take that. So Himanshu, the values have gone up. It stayed within the range, that we traditionally get a range of values from the broker for the offshore assets because they are not as liquid and they don't get priced as often as the shipping assets.

So what has happened is that the values were tending towards the lower end of the range. Now they are tending towards the upper end of the range. So for instance, now it is INR 780 to INR 830. I would say it is probably -- earlier, it used to be closer to INR 780. Now it is probably closer to INR 830.

H
Himanshu Upadhyay
analyst

Shiv, what I'm trying to understand is if I take the slide, Q1 FY '22, the NAV on standalone was INR 540. So this included the value of ship plus the book value of offshore vessel? And the other side was INR 567 -- net-net, it was INR 27 to, let's say, over the book value, okay, great from that.

Right now, it is some INR 732 and INR 779. So INR 49 or INR 48. So if I take INR 832, it would be much bigger.

G
G. Shivakumar
executive

Yes, I got your question, Himanshu. So the -- it's not because of asset value increases. It's because of 2 things. One is their earnings approval. So every dollar of PPI PBDT accrues to the NAV, right?

So the exchange rate change has improved it. So it is not because of -- from a year ago, the prices haven't changed. The ranges have remained more or less the same, including from a year ago.

H
Himanshu Upadhyay
analyst

So it would not be...

G
G. Shivakumar
executive

Might be just only due to earnings and to exchange rate difference.

H
Himanshu Upadhyay
analyst

Okay. Okay. And one more thing, on the assets side, means on the offshore side itself, how much would be the approximate change in the drilling and offshore rates because the number of deals have changed in both the things so it's very difficult to...

G
G. Shivakumar
executive

Yes, so last year...

H
Himanshu Upadhyay
analyst

On the fleet, if you can see -- so let's say, drilling services, rates have changed by this much percentage and offshore logistics rates have changed by this much. So just some idea?

G
G. Shivakumar
executive

You are talking of -- so you're talking of our rates or are you talking about the market?

H
Himanshu Upadhyay
analyst

Our rates have changed by how much on drilling services and offshore logistics Y-o-Y?

G
G. Shivakumar
executive

Okay. Y-o-Y, the big change is that in Q1 of last year, we had 2 rigs, not -- okay, 1.5 rig -- 1.5 rigs were idled through the quarter because of a change of contract. So 1 rig came off contract -- sorry, 2 rigs came off contract. One of them went back on contract at the very end of June.

The other rig came off contract in May and went on contract after the month. So that's the reason between the big jump between Q1 FY '22 and Q1 FY '23.

H
Himanshu Upadhyay
analyst

So rates have not materially changed or...

G
G. Shivakumar
executive

No, rates have gone up. See, rates from the bottom of the market have gone up by 60% in -- I'm talking of Indian period contracts. So those have gone up. They've gone up less than the international market, which have gone up probably 100%.

But based on the last pricing, these rates have gone up about 60% from the lows of the market. But the main difference between Q1 FY '22 and Q1 FY '23 is the volume, which is the number of operating days we had. Last year, we had 90 to 2.5 rigs, 90 days into 2.5 rigs. This time, we are 90 days into 4 rigs.

H
Himanshu Upadhyay
analyst

Okay. And on the -- just some thoughts on the market side, okay. So when we look at the presentation, we have shown the order book being one of the lowest, okay?

And what we also understand is that people are not ready to give so much orders because of change in energy regulations, which can be there by 2030, okay? And this is what we read in -- I may be wrong, but this is what we read. There are a lot of changes which are happening in the energy.

So can we have a scenario where the order book remains low and the market remains high for 2, 3 years? Or you think it will mean reward because of new orders will start coming. Just some thoughts on that?

And how do you then play out if the scenario is that because of regulations, people will not be ordering too much. So can we have a 3- to 4-year good period? And in that case, how do you play the market. Some thoughts on that.

G
G. Shivakumar
executive

I think Mr. Sheth may have probably been in a better place.

B
Bharat Sheth
executive

Well, let me answer. First of all, it is wrong to say that orders have not taken place in -- at shipyards. Shipyards currently are fully -- or when I say shipyards, I'm talking about the Tier 1 shipyards, whether it's Japan, China, Korea, they are all booked until '25.

What has happened is that the bulk of the orders has happened on the container ships as well as on LNG. And because shipyards prefer to take those orders because they're obviously much bigger on a unit basis in terms of value, we are seeing, hello? Can you hear me?

H
Himanshu Upadhyay
analyst

Yes, we can hear you.

B
Bharat Sheth
executive

Okay. Sorry. Yes. So what has happened is the yards have preferred taking orders of the container ships as well as the LNG shift. And consequently, there has been significant reduction in ordering on other asset classes like tankers, which includes crude and products as well as dry bulk.

So it's not that people are not ordering ships because solely, they are concerned on technology. That is a cause as well. But predominantly, you simply can't get an order through possibly now till '25, maybe even '26, right? That's one.

Now if you saw this data of the low order book, the low order book was also there 3 months ago. It was also there 6 months ago. It's not changed, right? So with the low order book that we saw last year, we still had the lowest tanker market over the last 30 years, right?

So the low order book always helps, but cannot be a determinant in where the freight rates are going to play out. So -- what has really happened and if you see what has happened just between the early part of this calendar year and until we had this big Russia, Ukraine challenge, the rates have just gone up considerably. So it is much more at this moment linked to the trade disruptions that have been caused by the conflict.

It has been led a lot more by congestion. That is all -- that has been caused by various infrastructural challenges that terminals are facing globally as opposed to only looking at the supply side of the equation.

So really -- and this is what shipping is all about. We saw it happen in -- at the start of the pandemic in 2020 when we all know what happened to the storage of oil and the Contango that led to.

And we saw the tanker markets going up to 3x in a very short period of time. And today, whilst it's not the Contango that is playing out, it is the fact that there are just multiple trade disruptions, which has caused inefficiency if that is the right word within shipping, and that has led to this big move in markets.

H
Himanshu Upadhyay
analyst

So if the rates remain here, can we expect the order book to start increasing over next 1 year? Just your thoughts and how do you play the market then?

B
Bharat Sheth
executive

So -- I mean, at this -- let's say that if the rates remain elevated, eventually, people will want to order ships for now. I'm talking about the conventional ships, right? So whether it could be crude oil tankers, product tankers, dry bulk, et cetera.

And if people -- if the yard says, look, we can't give you supply until '25 or '26, I think there will be some owners who might say, okay, we'll wait until '25, '26. And some may say, no, there's no point waiting for '25, '26. We'll just buy something in the water today.

So again, different people will act differently. Some people who definitely need -- there are some people who just love a newer fleet in their books or a more modern fleet in their books. They will wait till end '25, '26 and some will not. So difficult to say. What -- ours is a very fragmented industry and what each person does and what drives their decision making it's difficult for us to focus.

H
Himanshu Upadhyay
analyst

Interesting. We had an in-chartering business also from the company, which used to run it. So what are they doing right now? Are they in chartering or they don't have any assets right now?

B
Bharat Sheth
executive

No. So we -- this last year -- or I mean, in the current fiscal year rather, we won a contract to transport crude oil for one of the Indian refiners. It's a fixed price contract. And to service the contract, our overseas subsidiary -- and of course, to take a position in the market.

We have been chartered a couple of Aframax tankers. And since the time, we have been chartered them, the market has moved up. So hopefully, those -- we have just 2 ships for a short period of time. So not -- they have not been taken for a long period. So it has been taken for a short period, but they are in the money.

Operator

The next question is from the line of Vishal Agarwal from LEO Capital.

U
Unknown Analyst

My question pertains to the last time that you are making, sir, that right now, the spike in the rates has largely been caused by the trade disruptions with the Russia-Ukraine war and other stuff. Adjusted for that, once some of those things even out, given that the order books have been weak for the last few years, how does that demand supply situation for tankers and outlook because crude oil demand in absolute tonnage does not seem to be growing at that rate.

So how does one forecast, where are the markets headed in terms of how they're likely to be tight? Or are they likely to be at very low rates?

B
Bharat Sheth
executive

So demand is never easy to forecast. And I think I've mentioned this on multiple investor calls that we have at least given up trying to forecast. And again, had you asked us to give you a forecast of what the tanker markets would have done in March. We would have been very embarrassed by those numbers today because it's gone up 3x, 4x, 5x whatever. So these things become very difficult to forecast.

What we do know, and we know it will help is that the supply side of the equation is very, very much controlled and is at a multiyear low. So any trade disruption, and it could be the word, it could be something else tomorrow, is going to lead to these spikes. Because we have -- effectively, there is a tight market on the supply side.

And whenever there is a tight market on the supply side, any change in demand for whatever be the reason, it will lead to very sharp spikes. If you have an overbuilt market, then the spikes -- whilst there will be spikes, they'll be much more subdued. So demand is just impossible to tell.

U
Unknown Analyst

Understand. And if the current order book level, sir, which is 5% level, is the absolute supply staying flat because as many ships are retiring in the new order book? Or is it increasing or is it flattish?

B
Bharat Sheth
executive

So actually, from the supply, which you see, which is the headline supply, remember there are always a certain number of vessels which are also in dry dock, right? Now in strong markets, people try to defer dockings and then you get a sort of gradual bunching. In weak markets, people prepone dockings.

So the supply side is affected not only by the headline news, which is new ships coming out. It is determined by how many ships are in dry dock, which also we track globally. How many ships are under repairs in dry docks and the statutory requirements, how many ships are in congestion.

And these minor deltas, so it could be a 1% further strain on supply because there's a bunching of dry docks, there's a bunching of ships in multiple ports due to congestion. All that makes a significant difference to the effect or the impact it has on the market.

And I think I have mentioned this before, that just marginal plays on supply demand, leads to this huge volatility. So 1 extra cargo, 1 extra ship is what it takes for the markets to move in both directions. One extra cargo means the market can go up a lot and one extra ship can mean the market can come down as well.

So it's -- eventually, it's all on the margin and sentiment plays a predominant role, I would say, in the market behavior. Remember, this market is determined by thousands of players.

U
Unknown Analyst

Understand. Understand. But given the order book situation and the fact that you mentioned that till 2025, the shipyards are practically booked. Over the next 3 years for the tanker market, will the absolute number of tankers or capacity of tankers go up, go down or will it be flattish?

B
Bharat Sheth
executive

No. So obviously, because there is still a supply growth, the number of tankers will go up. Now what is difficult to determine is what will happen to scrapping? Now how people react to the new regulations that are coming up, and they're coming up very, very quickly. Will also determine whether there will be a net-net supply growth or a net less supply degrowth.

For any reason, if scrapping accelerates or let us say that there are terminals and customers who say, we will not take vessels above a particular age, then automatically those vessels, whilst they may still be in the water are effectively no longer a supply threat? Right? Are you following?

U
Unknown Analyst

Yes. No, I get that. But it -- does scrapping not follow a very clear rhythm that vessel...

B
Bharat Sheth
executive

No, it does not. So scrapping -- so let me explain to you. Last year, if you recollect, that is I'm talking about cal '22, right? We had the lowest average tanker market of 3 decades. And you had a multiyear high of scrap prices. Multiyear high. So what would you have concluded, that scrapping will accelerate, right?

Because on 1 side, you had a multiyear market. On the other hand, you're a multiyear high scrap market and yet scrapping disappointed. And again, this is because for every extra trading day that you can extract from a ship, basically, you've got an option. And suddenly, you get a market like what happens today.

Now think of that owner who deferred his decision of scrapping. He is certainly making a lot of money. So I've said this often enough in the past that -- there are a lot of owners who will take these chances and are agnostic to the age of their ships and would be happy to rate them as much as they possibly can.

Again, these are individual decisions that are taken by a multitude of ship owners across the world and it's very, very difficult. Common sense would have said last year, scrapping should have been at a multiyear high, and yet, it did not happen.

U
Unknown Analyst

Understand. Understand. So I think that is what kind of -- even in the next 3 years, the order book is therefore 5%. So that much more inflow will come in. How much will go out it's hard to forecast because it's tough to forecast.

B
Bharat Sheth
executive

It's very hard to forecast. But what I just feel, and again, of course, I could be wrong, that the way sort of the trade is headed, clearly older vessels, let's say, tankers beyond the age of 20 will find it more and more difficult to trade partly due to the new regulations, partly due to customers placing an emphasis on more modern tonnage and partly due to terminal restrictions -- terminal restrictions.

So a combination of everything points to a net supply growth, much less than the headline news.

U
Unknown Analyst

Okay. Understand. Got it. Got it. And this might be a naive question, but how does 1 compare the NAV, which I believe is calculated based on the current value of the fleet with the [indiscernible] market, so to take. With the cost of a fresh ship -- with the cost of a fresh construction, like are those ships periodically trade above or below their new replacement costs [indiscernible] today.

B
Bharat Sheth
executive

Yes, in strong markets, which we saw in -- I mean, today is a very strong market, but it's not what it was in 2006, '07 and '08. So in 2006, '07 and '08, we had a situation whereby the vessels in the water, older vessels, 5-year-old vessels, 7-year-old vessels, 8-year-old vessels, were commanding numbers significantly higher than newbuilding prices. That hasn't yet happened. It may have happened in the container sector. I am seeing some extraordinary transactions in the container sector where significantly older tonnage is getting, I mean, just seriously off the chart prices because people want to ship today in the water in order to take advantage of today.

Who knows what the market will be in '25 or '26. So we have seen this happen before, but that is not the case yet today.

U
Unknown Analyst

Understood. And for group tankers and dry bulk, which are the segments where we are present, how does the price today compare with the fresh construction cost?

B
Bharat Sheth
executive

So again, it depends on -- are we talking of -- because what has happened is -- so let me -- it's become a little more complicated than answering that in a simple way because you've got different kinds of assets in crude oil. You've got the ecoships, you have the ecoships with scrubbers, you have non-eco-ships, but with scrubbers. And you then have the non-eco non-scrubber ships.

Now each of the price points of these -- so within the crude sector, if you just take 1 sector, the VLCC or [indiscernible] again, in that now you have multiple subsectors. And the price points of these multiple subsectors, there is a great deal, right?

So again, to compare that really with where newbuilding prices are is not making a lot of sense. I mean there's not a simple one-to-one equation or a simple answer to that question. You could have provided it when everything was a lot more commoditized when -- you could compare apple for apple. But now you are not just -- no longer can you compare apple for apple.

U
Unknown Analyst

Understand. But directionally, what's your sense? Is it broadly trading at the cost of fresh construction?

B
Bharat Sheth
executive

No, no, no, no. It is trading well below the cost of fresh construction today. So if what you're really alluding to is, is there a scope for these values to go up? If the freight markets stay at these elevated prices, the answer is yes, values will keep going up.

U
Unknown Analyst

Understood. Because the cost of fresh supply is much higher. So the order of magnitude...

B
Bharat Sheth
executive

More than the cost of supply being higher, you are not getting supply until '25, maybe '26. Now to sit in July of '22 or first day of August in '22 and try and forecast what's going to happen in '25 or '26.

U
Unknown Analyst

Understand. Understand.

B
Bharat Sheth
executive

So who will want to ship today, sorry?

U
Unknown Analyst

There's no supply until 2025, 2026. But hypothetically, if you are to make a booking for that, how much more expensive is fresh supply today versus what an existing ship is trading at in the water?

B
Bharat Sheth
executive

No, sorry. What was that question? I didn't follow the question.

G
G. Shivakumar
executive

He wanted to know how much more expensive is it to order a new ship versus an existing ship.

B
Bharat Sheth
executive

So that existing ship got 4 categories. That existing ship can be eco scrubber plus age. The existing ship can be eco non-scrubber plus age. The existing ship can be nonecoscrubber plus age. So how does 1 compare?

U
Unknown Analyst

I understand the challenge here, sir. My question was more technical. Is there a way to give a directional sense of range being, say 30% to 40% lower?

B
Bharat Sheth
executive

No. You cannot. That's the point that because they are completely different animals, it is just impossible to compare. All -- you see, all I can say is that the ships which are currently in water are going to be much more determined by the 1-year rate, the 2-year rate and the spot rates.

The vessels which are being built at the shipyard, their price points will be determined by the cost of raw materials, the cost of labor and the comfort of the yard in terms of their capacity. Today, the yards are not under pressure because they are booked out until '25.

Now if, let's say, -- and even if, therefore, raw material costs were to come down, say, the cost of steel was to come down or the cost of some other metals was to come down, there is no need for the yard to reduce their prices right now because they've got plenty of business. So all that will happen is their profit margin will go up.

U
Unknown Analyst

Understood, sir. Makes sense. And one final question from my side. You made a comment earlier that in terms of capital usage, your focus on buyback, which is done and you're also waiting for asset values to be more rational before deploying money into vessels.

Can you elaborate a bit more on that, that how does one forecast, what's the right timing on the asset? What are the indicators you are looking for? And what are the segments you are looking at in terms of where you want to deploy cash and assets as and when the opportunity shows up?

B
Bharat Sheth
executive

So we are agnostic. I mean, for the businesses we are currently in, which is crude oil, product tankers, LPG and dry bulk, we are agnostic on whether the money goes in 1 sector versus the other. We don't have a hard and fast rule saying that let's not buy dry bulk, let's buy only a tanker or let's buy only LPG, et cetera. So to that extent, we are agnostic.

Now as far as price points are concerned, we have determined some basis, which obviously we are not going to talk about where we think the returns will provide us on certain assumptions that we generally make somewhere between a 10% and a 15% dollarized return on unlevered capital.

Now whether that return eventually pans out at 8% or as currently, the return has spanned out at 20%. Obviously, at the time when we were buying, we did not expect 20%. We were expecting less, than it has just turned out to be more. So every time we invest, our investment guideline is that we should be able to -- on the risk we take, we should be able to create a sufficient delta on cost of capital.

Even this 10% that we say is not in isolation. It's a function of where interest rates are. So if interest rates were to go back to what they were, let's say, 2% or 3%, let's say, the long-term interest rate went down to 3%, right? We would be happy then to target a 7% or 8% return because you're still creating a significant spread.

Today with interest rates, say, if you were tomorrow, a company like us, if it was to take term borrowing in dollars, I guess it would come in at somewhere between 5%, 5.5%. Now if you're going to borrow money at 5.5%, we should be trying to target a return of minimum of 10.5%. Because I don't want to borrow money at 5.5% and try and earn 7% or 6%. I'm not getting compensated for the risk.

U
Unknown Analyst

Yes. No, that makes total sense. And I really appreciate the way you think about and talk about capital allocation very clearly. So congratulations on that policy and good luck with it. Those are all the questions.

G
G. Shivakumar
executive

Now maybe we can take some questions from the chat. People have been putting in questions there. Shall I read out? So one -- our first question is from Mr. Ghansham Bansal, who's an individual investor. He says, as we are following the value approach and don't buy in momentum, so we need to wait for a few years to deploy our cash flows. So can we expect further buybacks whenever valuation is below 0.6?

B
Bharat Sheth
executive

So as -- if I can answer that, the first thing is we don't know when we'll get an opportunity to buyback shares. It could be earlier. It could be later. We don't know. So we are geared up as and when we get opportunities, we will be there. As far as buyback is concerned, there is no point considering it now because under the current buyback rules, we cannot act on buyback until August of '23.

So closer to that date, we will see what the market is like, what is the liquidity that the company has got? Is there a discount to net asset value? Where is the net asset value at that point of time. There will be a multitude of variables that we will consider. And yes, we do think of buyback as a means of capital allocation, particularly when there is significant discount to net asset value, which is the case today. But I don't know what is going to be in July or August '23.

G
G. Shivakumar
executive

Okay. The next question was from Mr. Rajesh Khattar, who said his mic was not working. He has 2 questions. While you say that you have operational leverage by keeping capacity in hand for the spot market, but you've been selling ships. Can you give me more understanding of this dichotomy? And two, any competitive advantages that you have?

B
Bharat Sheth
executive

Sorry, what is the second question? Any?

G
G. Shivakumar
executive

Do you have any competitive advantages?

B
Bharat Sheth
executive

So the first one is on selling of ships. The 1 vessel, which we are due to deliver very -- I think in the next 2 or 3 days, which is old or an old gas carrier. Because of her age, she cannot be fixed into multiple trades, which would -- or at least the multiple trades that we are focused on, and consequently, her utilization would have been very poor. That's number one.

On the second ship, which we have contracted to sell, we -- the way we internalize that decision, we were sitting between -- the gap between where we are in book value, where we are in terms of the market value of our assets, there is a significant sort of mark-to-market gain of approximately $400 million.

And we said to ourselves that maybe we should take some money off the table. And so we've just taken a tiny percentage of the $400 million potential gain because anything can happen in our markets. And we've seen what happened in 2008. There was a black swan event in terms of Lehman. We are all aware of it, and asset values came off very, very, very quickly.

So there are these black swan events, which come and impact us. And therefore, we felt that -- it was not an easy decision. It was a very difficult decision for us, but we said maybe we should take a tiny percentage of the potential $400 million profit we are sitting on off the table. And that's why we've done the second ship. I hope that -- and on -- you said the second question was...

G
G. Shivakumar
executive

Competitive advantage.

B
Bharat Sheth
executive

Advantage, again, I don't know what competitive advantage we really have versus every player.

G
G. Shivakumar
executive

I think the ability to participate in all trades because of...

B
Bharat Sheth
executive

I was about to make that comment that I think we run the vessels very competitively. I think we probably run amongst the best assets globally. We've -- if you see all the nonfinancial parameters, and it is data which we capture all the time because customers require this data all the time and we go through multiple audits from customers, from Board authorities from our own Indian regulators, et cetera.

And we have had the best year last year for the year ending March '22 in -- since we started the business. So we are very, very focused on the quality of assets that we maintain. And I guess you could argue that gives us a -- and we do it in a very competitive manner. So I guess that is a competitive advantage. Of course, it's very difficult to know what every owner does because a significant ownership of our industry globally is privately held and getting that data from the privately owned companies is not easy.

So our comments obviously is from wherever we can get data, we make these comparisons. And I would say that we are clearly in the top quartile of global ownership.

G
G. Shivakumar
executive

Moderator, maybe we can go back to the voice questions.

Operator

The next question is from the line of Vikram Sharma from Niveshay.

U
Unknown Analyst

And sir, just a basic question. What is the mix of spot and long contracts? And also, I wanted to understand the pricing formula, how do we calculate the spot rate and charge to our clients? How it is linked to index like Suezmax?

B
Bharat Sheth
executive

No, we don't link it to index. So whenever there is a cargo, we have to compete with what other owners are going to offer and it's a negotiation that takes place on the spot, and that's why it's called the spot market.

And sometimes, our price point is -- or the price at which we are willing to carry the trade is higher. Sometimes it matches the customer's requirement, and we are able to fix the ships. So we look for every cargo, we look at what is the competition around us and around that particular cargo and then determine whether we want to undertake that freight or let that cargo go and wait for another cargo.

So it's a moving target all the time. We don't link it to any particular index. So that's -- and what was your -- the first bit of the question was?

U
Unknown Analyst

What is the mix of spot and long-term arrangement?

B
Bharat Sheth
executive

So again -- so it depends on what you call long and what you call spot. Because remember, when you fixed ship spot, it could be fixed for 5 days, and it could be fixed for 90 days. And even when you fix the cargo for 90 days, it's sort of often talked about a spot simply because it's fixed in the spot market, but it just happens to be a longer-term trade, right?

Today, if you look at our dry bulk fleet, the gas fleet is 100% fixed for long. And when I say long, meaning at least for 1 year. On the crude oil side, we have nothing fixed for that period of time. We have all the cargoes of spot, which is 60 days, 50 days, 40 days like that.

On the product side, we have fixed 1 vessel for 12 months commencing September of '22. And we have 2 of our vessels or 3 of our vessels, which were fixed earlier before we saw this big rally in the market. 1 out of the 3 comes for repricing in September of '22 and 2 come up for repricing in December of '22.

So as I said, 1 comes out in September '22, 1 goes back in, but at a much higher price, in September '22. And dry bulk, we don't have anything. I'm getting some crossing. So in dry bulk, we don't have anything fixed beyond spot.

Operator

The next question is from the line of as from Jayesh Gandhi from Harshad Gandhi Securities. [Operator Instructions] As there is no response from the current participant, we move to the next question from the line of Archan Pathak from Centra Advisors.

A
Archan Pathak
analyst

Just wanted to get an idea about what's happening in the shipyard space. As you know, during the 2010 period when the shipyard is to existing high 3-digit number and they came down to lower 3-digit number in the recent time. So are we seeing the revival in the shipyard capacity as most of them are booked for now and the shipyard capacities come back again?

B
Bharat Sheth
executive

We don't think so. Currently, there has been a lot of rationalization in the shipyards in Japan, in China and in Korea because some of the yards went through very, very difficult times. And I think strategically, these 3 big shipbuilding nations I think, will ensure that they don't go back to a situation where you have overbuilt capacity.

A
Archan Pathak
analyst

Okay. Got it, sir. My second question would be, as you know, our average ship has crossed or almost at the age of 15. So is there a possibility that rollover of old ships to new ships can happen by selling few ships at near the top, the higher asset value prices, which we are realizing right now and acquire the younger ones at same or comparatively a little bit higher priced net-net benefiting real costs. Right now how many ships can we offload taking the higher segments which are raising right now?

B
Bharat Sheth
executive

Yes. So we looked at this exercise, whether it makes sense to capture the premium you are today getting on the older ships and swapping it to the premium 1 would need to pay on newer tonnage. And we don't think that makes -- well, the selling makes sense, the buying does not make sense.

And we have seen from past experience that once you buy a very expensive ship, your dollarized returns are pretty substandard. We have done this in the past. It's a strategy that did not work out very well and we would refrain from making that same mistake again.

Operator

The next question is from the line of Himanshu [indiscernible]

U
Unknown Analyst

I had a question. What we are also seeing is the spread between low sulfur and high sulfur has again increased. And we had scrubbers -- or we had orders for scrubbers, but then we decided not to put all the scrubbers on whatever we had ordered. Is there a scope to use those scrubbers and put on the ships? Or do you think the wages will continue with the ships?

B
Bharat Sheth
executive

No. So we have placed scrubbers on all the ships. So whatever we had ordered are now on the ships. So we have no scrubbers, which we had orders which are not on the ships, right? Number one.

Number two, as far as the spreads are concerned, they went up dramatically during the course of the calendar year. I think they peaked around close to $550 or $600 a tonne. And now they are back to $300, maybe a little less. So it's all over the place.

Again, it's very much fluctuating. What all I can say is that the scrubbers, which at one time, looked as a very poor investment, I think now will provide us an in inverted commerce and okay return.

U
Unknown Analyst

So how many ships out of your 45 are having scrubber?

B
Bharat Sheth
executive

6. Am I right, Shiv?

G
G. Shivakumar
executive

Yes, it's right. Yes, it is. We have 6 scrubbers.

B
Bharat Sheth
executive

Yes. And remember, just when you have a scrubber, also the returns are determined by where you're trading the ship. Because there are many trading areas where you're not permitted the use of an open loop scrubber. And therefore, whilst the ship may have a scrubber itself, you may land up in a situation where for multiple weeks or months, you are not getting a benefit of the scrubber.

U
Unknown Analyst

Okay. And one thing, sir, our offshore fleet, there are a number of boats, which can -- which will get released over the next 1 year, 7 or 8. Can we go out of India on lease? Because in the call, also we stated that there has been much higher movement outside India on the offshore side than in India. Or do you think all these boats will remain in India?

B
Bharat Sheth
executive

No, we have already started moving both away from India. We started this process a few months ago, recognizing that there is potential more business globally. So currently, we have an operation going on in West Africa. We have some operations going on -- is it -- I think it in South Korea. We have an operation going on there. And we are happy to take our boats outside as and when they come up for repricing, we will decide where we think the price points are going to give us the best returns.

So we have -- I mean it's not as we are bound to limit our operations to India. And plus I do believe that even in India, the rates will go up. So it will be a function of assessing whether would we get a better rate outside of India? Or would we get a better rate within India.

The one benefit of India is that it is business that you get for a longer duration. So again, it will depend on the rate. And if you get a good rate and you get a decent duration, why not?

U
Unknown Analyst

New contracts which are coming outside India, the rates may be higher. The duration are still small.

B
Bharat Sheth
executive

No. So what we are now finding is the duration is also going up overseas. But it is not as much as it is in India.

U
Unknown Analyst

So generally, what would be the age for boats -- not the age, sorry, the duration of the contracts in outside India?

B
Bharat Sheth
executive

So currently, what happens is outside of India, they run for a few months with some options thrown in. In India, as you know, it is for approximately 3 years. So there is still a big difference between what you see overseas and what you see here.

Now if you are likely or if you believe that these markets will reprice up as time goes on, then you're not that inclined to do the 3-year business and you would rather do the 6-month business at a time and keep repricing. So I think eventually, we will have a mix and match because, again, just like shipping is difficult to forecast, oil and gas or offshore is equally difficult to forecast.

So we will do an eventual mix and match where some assets of us will try and fix out for 3 years and some assets we will run for the shorter duration in overseas markets.

Operator

The next question is from the line of Rajesh Khattar at an individual investor.

U
Unknown Attendee

Hello. Am I audible?

B
Bharat Sheth
executive

Yes, Rajesh.

U
Unknown Attendee

Yes, I have a few follow-up questions earlier my mic was not working and you took my question on the chat. So I have a few very short questions like what is the highest capacity utilization ever achieved by GE Ship, let's say, way back in the full period of 2003 and 2007, what is the highest capacity utilization we ever achieved?

B
Bharat Sheth
executive

On shipping, you mean?

U
Unknown Attendee

Yes, yes, on shipping.

B
Bharat Sheth
executive

No. So shipping, we have always achieved full utilization. We have never not achieved full utilization. So it's -- the issue is not utilization in shipping. The issue is the rate or the price point at which you achieve full utilization.

U
Unknown Attendee

So when you say you have a lot of capacity on spot. So even those ships, you mean to say, are utilized, but for short voyages, is it?

B
Bharat Sheth
executive

That's right. Correct. You're absolutely right. So what -- so let me explain to you, right? Let's say that I have say 5 ships that are available for repricing in the next 1 week, right? Those 5 ships will either benefit or will get it depending on what the market is in that period of time, right?

Now some ships I may fix for 5 days or 10 days because that's the cargo. I can't let -- I can't say I will only take a 50-day business. I will let go the 10-day business, correct? So we will look at what are the cargoes available for that particular ship. And you will then decide, okay, maybe have a 10-day cargo. So I'll take the 10-day cargo. On some other ship you may say that instead of taking all 5 ships on 10 cargoes only, 1 ship I will take for 50 days and 1 ship I may take for 20 days.

So it's a continuous -- it's almost a daily decision. If you look at our data for Q1, we did a 100-plus different voyages. So that means we are pricing some business or the other on a daily basis. Every working day, we are doing some price points.

U
Unknown Attendee

So if your capacity utilization has never been not 100%. And today, you have 45 ships and potentially, the capacity is 45 ships into 365 days. So...

B
Bharat Sheth
executive

No, no, no. Let me come in here. Every year, you have approximately 1/3 of your fleet that has to go through statutory docking, right? Because every 5 years, you've got to do a full docking and then you have what is called an intermediate survey.

So roughly every 15 -- I mean every year, you have 1/3 of the fleet that goes into dry docking. Each of these dockings, let's say, from that -- because you have to even position the ship to the dry dock, right? So if you take the total off-hire time for each docking, i.e. the time from when you have last turn to when you are likely to next turn, could be between 35 and 40 days, right?

So 15 into let's call it, 40, whatever that mathematics is that's out of your revenue base.

U
Unknown Attendee

Okay. So if I reduce 40 from 365, so you're saying that for almost 323, 325 days your entire fleet gets to 1.

B
Bharat Sheth
executive

No. So only the 15 ships, see, you have some ships which you have already finished docking, right? So say you have 45 ships. Out of 45 ships, 15 ships, at an average don't run for 40 days. So that you have to knock out. Now that leaves you with whatever the mathematics is 30 ships.

On 30 ships, sometimes you have what you call unplanned downtime, right, unplanned. It could last for 1 day. Something is not working. Some equipment on the ship is not working and you need to take time off. You might need to take 2 days off, 1 day off, fewer hours off, 5 days off like this, right?

So let us say for those 30 ships at an average, you might take 2 days off in a year, I'm talking. So we calculate everything basis -- on the ships which are not docking, we will take an average of 360, 362 days.

U
Unknown Attendee

Okay. And for the ships -- yes, I understood. So basically, the ships which are getting docked for that, probably 40 or 45 days will be reduced. And for the other ships, you are saying that for the time maybe 2 days or 3 days.

B
Bharat Sheth
executive

About 3 days will be reduced on the other ships.

U
Unknown Attendee

Okay. Okay. Understood. So how many net new ships you have added since 2008? Because you have also been selling a few ships. So what is the net addition since 2008?

B
Bharat Sheth
executive

Shiv, I don't have an...

G
G. Shivakumar
executive

I think the fleet is more or less the same. We went down to 28 at the lowest level. We were at around 45 in 2008. We went down to about 28, and we are back to 45. But of course, we had a lot of ups and downs in between.

U
Unknown Attendee

Okay. So there is no net new addition.

B
Bharat Sheth
executive

No, no. So let me answer this for you in a different way. Don't look at 45 versus 45, that's the wrong way of looking at it. You have to look at the kind of ships. I could have 45 ships, let us say, which have an earning capacity of $3,000. I could have 45 larger ships, which have a earning capacity of $100,000, right?

So what you have to really look at what is the earnings potential in a low market, in a mid-market, in a higher quartile market of these different ships. So just looking at ships has no meaning.

U
Unknown Attendee

So if I then compare the earning potential of 2008 versus a variety of ships that you have today, will it be like 30%, 40% higher? Or like can you give me some percentage like for comparison?

B
Bharat Sheth
executive

See, there is actually -- honestly, you cannot compare because sometimes -- so let me give you an example of a Capesize bulk carrier, okay? This Capesize bulk carrier in 2008, we had 1. That ship at peak earned $150,000 a day, at trough earned $2,000 a day, right?

Now today, we have 2 of those. Will we get the next peak of $150,000? I have no idea. Will we get a trough of $2,000? I have no idea. All that you should really be focusing on. And this is really to everyone listening on this call that this company has built both operational capability and the balance sheet strength to benefit from whichever way the market goes.

If the market is weak, we have tremendous firepower that we have built up to take advantage of it. If the market is strong, with a huge operational exposure to this market due to our standards. So whichever way the market does, this company will benefit.

U
Unknown Attendee

So can I just take this question in a different way, like instead of going by the earning potential of the number of ships, is there a unit like the carrying capacity of the ships, what it was in 2008 versus what it is today?

B
Bharat Sheth
executive

Yes. carrying capacity, we can give you offline. I mean if any case -- on our website. It's on our website. So that's easier. I mean, if you can work it out yourself, then we can get somebody from our -- it is there on the website. So that's not a challenge.

U
Unknown Attendee

Okay.

B
Bharat Sheth
executive

But I mean just one bit of advice, and I guess you're trying to work out our earnings capacity or capability. We can do it and I have not met a single human being who can it. So...

U
Unknown Attendee

I mean all those are...

B
Bharat Sheth
executive

Don't waste time on all these things, right, because nobody can do it. Just try and understand the way the business is positioned. That here is a company that will benefit in weak markets, and that will benefit in strong markets.

U
Unknown Attendee

Okay. And just 3 very small questions, very, very sharp questions, if you can just take them. One question is like what is your inquiry to order conversion ratio? Like how many inquiries you're able to convert to order and how many you end up losing? Like do you have any data on that?

B
Bharat Sheth
executive

No. So we don't have -- there is no data on this that like we track or we are concerned with. All I can say is that since we are much more dependent on the secondhand market, for acquiring ships as opposed to the newbuilding market for acquiring tonnage, we have to inspect a fair number of vessels because sometimes you don't get vessels in a very -- or ships in a very good condition, and then we tend to reject it. And sometimes we get lucky. And the 1 ship you inspect and you want to buy it.

U
Unknown Attendee

Sir, my question is not on you buying the ships. My question was more on you getting an inquiry for carrying of a cargo...

G
G. Shivakumar
executive

Sorry, if I may just take this. See, our market is not like you keep bidding for business like that. It is a market -- it is like asking someone who is an investor in the stock market, mutual fund, for instance, what is your ratio of filling your orders?

We get -- if you take into account that we are there in the market, we look at several options. Mr. Sheth mentioned that we look at several options when we had a fixed ships whether to do a 10-day voyage or to do a 50-day voyage. We look at all the options and decide on which one to take. When we price it, at the end, the price is a function of what the market is paying. We are price takers. So the inquiry, it's not like your bidding for business. It's a tender. Yes, there are some businesses which going to be a tender, but they are very few and far between in the shipping business at least.

Normally, you're just negotiating on a bilateral basis through a broker or directly and that's how the business gets done.

U
Unknown Attendee

Okay. My second last question is, I mean, you have tremendous experience of so many decades in the shipping industry. So why have you never explored diversifying to the adjacent areas like container shipping or inland cargo or any other adjacencies? I mean, I'm sure that if you put your interest to it, you will be able to -- I mean, you have the competencies as a company. So why has it never interested you?

B
Bharat Sheth
executive

I think that's a very good question. We are now in the process. I think we first wanted to build up a lot of knowledge in the 4 sectors. And we build it overtime because if you remember in the -- I mean -- or if you are aware, not remember, but if you're aware, we were a very domestic-oriented business where, I would say, a significant majority of our revenues came from Indian customers.

Gradually, we started trading internationally and for the first quarter, if I'm not mistaken, 80% of our revenues have come from international customers and 20% has come from Indian customers. So we've now got the confidence of being able to build up on our operational expertise.

Having said that, there are 2 areas that we look at -- so it could be containers. Today, we are all aware that container shipping is at an all-time high. It's not just at a multiyear high, it's at an all-time high and prices are obviously very elevated.

So we are building up internal knowledge on that. We will build up knowledge on LNG if an opportunity presents itself, we will look at that. So it is work in progress. I must admit that had we done this exercise 5 or 10 years ago, we would have been in a much better space. But it also means that we would have had to then invest less in our current sectors.

And because we had greater comfort in the current sectors, we focused on the current areas where we have built up knowledge over multiple years. But it's not as if we have built up this knowledge over 7 decades because the first 30, 40 years, we did not trade that much internationally.

U
Unknown Attendee

Okay. Okay. Understood. And my last question now. So you've already answered it partially when I asked you about the competitive advantages, but I could not follow a few things. I think you said something like you provide data -- continuous data to customers. I could not hear that part correctly if you mentioned anything.

So my question is, if a customer has 2 prices, if a customer who is bringing the business, he has 2 service providers, 1 in GE Shipping and there is another who offer the same price and probably the same asset quality. So do we have any competitive advantages if price and asset qualities are same?

B
Bharat Sheth
executive

So if everything is the same, when I say -- so let me give you on a tanker, for example, right? They have -- you have the oil companies and all coming inspecting the ships, and they give you what is called hire report. They will look at your last hire report. They will look at the number of observations when they last inspected the ship, how good has been your safety record.

So there is a lot of data that is spreading to the customer. There is a whole form that gets fed in every time you are trying to do a business and the comfort that you have built with that customer is very important. So if there are 2 ships on the same day, offering the same rate. If the customer saying, we have dealt with Great Eastern, we know Great Eastern well. We know that they are a very reliable organization, I think we will get the business.

If they have a greater comfort with the other customer, then the other customer may get the business. If they have equal preferences to the customers, so say they're agnostic saying we don't care whether it is customer A or -- a ship owner A or ship owner B, then they will decide on whom they wish to support on any given day.

So your operational performance is most important to the customer because the customer does not want headaches. He has said, "I will pay you so much money. I want you on time to deliver this cargo from A to B without any challenges." And therefore, the -- your operational performance and the fact that your vessel is going to perform as described to your customer, that is the key.

U
Unknown Attendee

Okay. So do we measure our on-time performance? And can...

B
Bharat Sheth
executive

Everything is measured. Of course, it's measured. You might have read in the Chairman's statement in an annual report that we have actually made a statement to say that this year on nonfinancial parameters, i.e., for the year ending March '22, we've had our best year ever. That's all operational performance.

Operator

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

J
Jayesh Gandhi
analyst

Sir, my question is on Slide #18. This talks about revenue coverage. Does that mean that out of 90 days ship crude carriers were in revenue generating more deployed only got 15%?

B
Bharat Sheth
executive

No, no, no, no. So this is for the remaining part of the financial year. You have 9 months remaining from July 1, '22 to March 31, '23. Out of these days, which is about 270 days, 15% of that capacity has already been tied up over those days. This is for the future, not for the cost. The cost is 100%. It's already earned. The ships have already earned in that period. How many of our -- how much of our operating capacity of the remaining part of the financial year has already been tied up. And how much is this open.

J
Jayesh Gandhi
analyst

Okay, I get that. And 1 last question. In your crude carriers or products carriers, if I just want to look at the trend in which the prices are moving, is it fair to say that Baltic and clean index will give a fair idea on where the trend is?

B
Bharat Sheth
executive

Sorry, what was the question?

G
G. Shivakumar
executive

He wanted to know the tanker index and the Baltic Dry Index are good indicators of what the markets are doing, right?

B
Bharat Sheth
executive

No, it's a good integration of the -- yes. So let me explain that. It's a good indicator of the direction of the market, but not necessarily a good indicator of what any particular vessel will be earning.

And the reason I say that is because the index is a culmination of various routes across the world. Now you are not going to have a ship across every route in the world, right? So what does happen sometimes is you can get an index going up. And let's say, the index has gone up because, say, some of the Atlantic cargoes or whatever the Atlantic trade that we call them, have moved up. But your fleet may not -- you might have no exposure to the Atlantic. You might be only in the Pacific or you might be in the Indian Ocean.

So this index is only a broad indication, which you can say over a long period of time, means over, say, 12 months, not on a daily basis. But on a 12 months, will give you some indication of the direction of the market. But not on a daily basis, no.

J
Jayesh Gandhi
analyst

Okay, sir. So for understanding your business trend as a crude carrier or product carrier, can an investor look at these to raise or it is...

B
Bharat Sheth
executive

Well, if you are trying to forecast something based on that, it is futile. If you want to know is the business healthy, is it sort of challenged, are the rates strong, are the rates weakening, it's a good exercise. But you try and forecast anything from that in terms of what is this company likely to earn, it's a futile.

J
Jayesh Gandhi
analyst

Okay. Is there any other index which we can track to maybe understand?

B
Bharat Sheth
executive

I'm desperate for me to understand. Maybe you can contact our Corporate Communications department offline, and they may be able to guide you in this as to what sources of information there are about the markets.

Operator

Members of the management, that was the last audio questions, we can move to text now.

G
G. Shivakumar
executive

Yes. There is one text question, which is from Mr. Ghansham Bansal, who asked how many of our ships will get affected from the new regulations that are expected in 2023?

B
Bharat Sheth
executive

The answer is none. We will be -- we have done an internal review across the fleet and we will be fully compliant well in time to meet the new regulations of '23.

G
G. Shivakumar
executive

Yes, somebody has asked what is the market value to NAV of international shipping companies? I think that would probably be between 0.8 and 1.2 in January.

B
Bharat Sheth
executive

Yes. At the moment, it again depends on which sectors you are looking at. Currently, I think the average price to NAV is somewhere closer to 1.1. But again, it varies every day because, as you can imagine, equities change up and down daily, but approximately, it is 1.1.

G
G. Shivakumar
executive

And Mr. Samraj N has asked, what is the impact of rupee depreciation on financial and other expenses?

So I'll take that question. Basically, the interest costs are all in dollars. So when the rupee depreciates, the interest costs go up. So that's the simple answer. Again, just to remind you that this is more than compensated by higher income because our incomes are also dollar-denominated.

He also asked, what is VLCC's spot rate today?

B
Bharat Sheth
executive

Oh, sorry. Just to answer on the rupee/dollar. I guess if we are EBITDA positive, which we are, that means we are long dollars effectively.

G
G. Shivakumar
executive

That's correct. Yes.

B
Bharat Sheth
executive

As far as the VLCC's rates are concerned, again, I mentioned there are 4 different categories of ships at the top end, which is a vessel that is eco as well as scrubber ship. I would say the average earnings because it depends on the route you are in, but the average earning is $30,000 to $35,000. At the bottom end, which means a non-eco nonscrubber ship it will be under $10,000. It will be somewhere between $5,000 and $8,000.

G
G. Shivakumar
executive

I think that brings us to the end of all the questions that were there in the chat.

Operator

As there are no further questions, I now hand the conference over to Mr. G. Shivakumar for closing comments. Over to you, sir.

G
G. Shivakumar
executive

Thank you, everyone, for attending and for asking sort of spot provoking questions. As always, the recording of the call and the transcript will be up on our website in a couple of days.

We are always open for communication with investors who are interested in us. Feel free to reach out the contact numbers of the corporate communications team are -- the contact details of the corporate communications team are on the website. Thank you.

Operator

Thank you. Ladies and gentlemen, on behalf of The Great Eastern Shipping Company Limited, that concludes today's conference. You may now exit the meeting.

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