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Great Eastern Shipping Company Ltd
Earnings Call Analysis
Q2-2025 Analysis
Great Eastern Shipping Company Ltd
In the second quarter of FY '25, Great Eastern Shipping Company reported a consolidated net profit of INR 576 crores. This figure indicates an increase from the same quarter last year but reflects a slight decline compared to the previous quarter. The company's net asset value (NAV) remained stable, reported at INR 1,184 per share on a standalone basis and INR 1,463 per share on a consolidated basis. The company has maintained a robust dividend policy, paying out INR 7.20 per share for the 11th consecutive quarter, translating to approximately one-fourth of its stock price of INR 340 over the last 2.5 years.
The earnings for the shipping segments were influenced by market conditions. Crude tanker revenues faced challenges with earnings dropping compared to both the previous quarter and the prior year's quarter, largely due to a decrease in crude trade and softness in refining margins, which fell by about 3%. Conversely, the product tanker segment showed resilience, though earnings were still below the peak experienced in the previous quarter. A significant highlight was seen in the LPG segment, where all four vessels were repriced at higher contract rates compared to previous earnings, offsetting some losses from other segments.
During the reported period, crude imports to China dropped by 8%, significantly impacting crude tanker demand. Although there hasn’t been growth in the crude tanker fleet, product tanker capacity saw a modest increase of around 2%. Noteworthy trends include the diversion of larger product tanker cargos due to geopolitical tensions, leading to mixed earnings impacts across segments. The average spot rate for LPG carriers dropped sharply from $90,000 to below $45,000 per day, representing a decline of over 50%.
While the company refrained from issuing specific revenue or margin guidance, the management mentioned that asset prices remain firm. The growth in fleet supply for dry bulk vessels is projected to remain subdued at about 2% to 3% for the upcoming year, with a possible growth of around 6% anticipated for 2026 and beyond. The order books are currently marked at 10% for crude tankers, significantly higher at 21% for product tankers, implying future delivery pressures will remain manageable.
Great Eastern Shipping maintains a strong cash position, reported at around $400 million, which has since improved following the quarter's end. The management remains focused on maximizing returns through fleet upgrades and strategic acquisitions, while also evaluating potential share buybacks if cash flow and market conditions present favorable opportunities. The interest cost linked to recent refinancing has risen due to transitioning from fixed to floating rates, aligning with market trends.
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Good evening, ladies and gentlemen, thank you for standing by. Welcome to GE Shipping earnings call and declaration of its financial results for the quarter ended September 30, 2024.
[Operator Instructions]
I now hand over the conference to Mr. Ji Shivakumar, Executive Director and CFO of The Great Eastern Shipping Company Limited to start the proceedings. Over to you, sir.
Thank you, Yashasvi. Good afternoon, everyone, and welcome to the results call for Q2 and H1 FY '25. We'll do a quick run-through of the presentation. I'm joined by Mr. Rahul Sheth, and we'll be happy to take Q&A after that. Usual disclaimers. We are not forecasting earnings. We have a large exposure to the spot market. So we're also not giving any guidance on our earnings. We had a net profit of INR 576 crores on a consolidated basis for Q2, higher than the Q2 of last year, but slightly lower than Q1 of this year. Our consolidated NAV is at 14.63 per share at the midpoint of valuations. And we've had the 11th consecutive quarterly dividend of INR 7.20 per share for Q2 FY '25. With this, now we've paid out about INR 80 in dividend over the last 2.5 years. And if you consider that our stock price was about INR 340 we've paid out almost 1/4 of that in dividends in a period of 2.5 years.
You've seen the results. I won't go too much through the results. And we'll go through the markets really rather than what the numbers are looking like for the results. Of course, you can always ask questions in the Q&A. We continue to be significantly net cash. We are about $400 million net cash as of 30th September. And after that, we've become even more net cash. The net asset value is around the same levels as it was in June. So we are at about -- we are at INR 1,184 per share stand-alone. And as I mentioned earlier, about INR 1,463 per share on a consolidated basis. I'm not going to go through these numbers.
Profitability continues to be very strong. This is what has happened to TC wise and why we see the difference in performance. While we had crude tankers dropping off versus Q2 last year and versus Q1 of this year. We had product tankers slightly better than Q2 of last year, but significantly below Q1 of this year. A lot of it was made up by LPG, where all our 4 vessels were repriced during the last year or so and have got repriced at significantly higher rates than their previous contracts. So that compensated significantly for the drop in earnings from last year for the crude tankers and dry bulk also was significantly better than in the year-ago period.
Changes in stand-alone NAV, we had about an INR 200 increase -- or a little less than INR 200 increase and INR 200 came from the cash profits that we made during the 12-month period. And of course, we paid out a significant dividend in this period as well. Over the last 5 years, we have seen our NAV move up very steadily and with a CAGR of 23% over the last 5.5 years from March '19 to September 24. On a consolidated basis also, it's a similar story. The increase in the NAV in the year is due to the cash profit and not due to the fleet value and the drop, if any, is due to the dividend and a minor change in fleet value. Coming to what happened in the market, which led to the results you saw -- we saw Suezmax earnings around the same levels as last year. We saw product tanker earnings significantly lower than the year ago period. This is for the 6-month period that I'm talking about. And what -- what was the fundamentals like -- of course, you have in Q2 of the financial year, you typically have a seasonal softness, the summer season in the Western Hemisphere.
Crude trade itself declined by about 3% refining margins were very weak through the quarter. They have now started recovering a little bit in the last couple of weeks. In Singapore refining margins are back to their 10-year averages. So hopefully, that should have some impact on rates going forward. Significant factor, again, was Chinese crude imports falling 8% year-on-year. For the first 9 months of 2024, we are seeing a drop of 0.9 million barrels a day in crude oil imports into China, and that's a significant factor. While of course, the crude tanker fleet hasn't grown it's more or less flat compared to the year ago levels. Product tanker earnings were also weak, as I mentioned, and seaborne product trade did decline.
Again, the same factors refining margins. While the product tanker fleet saw a small growth of 2% year-on-year. What has also happened, and interestingly, we've seen this happening in the last couple of quarters is that while the conflict in the Red Sea contributed to ton-mile growth for the larger product tankers, which typically the LR2s carry diesel from the Middle East or from West Coast of India to Europe, and they had to divert all the way around the Cape around Africa.
We saw now VLCCs and Suezmax cannibalizing some of those cargoes, which resulted in weakness in the product tanker rates. What we are also seeing is that as crude tanker rates move up and these have moved up a little bit, not very sharply, you should hopefully see VLCCs going back to the crude trade and therefore, freeing up those cargoes for the product tankers. Asset prices have remained firm. Order books have increased and we've now have almost 10% order book for crude tankers and 21% for product tankers as the order book. We'll see the delivery profile of those towards the end of this presentation. On dry bulk, we saw the rates for Capesizes doing significantly better than in the previous year. So it was 60% better in the 6-month period than in the previous year. I think the Q-on-Q was even more spectacular in the difference. While the sub-capes were not doing that well, they also did a little bit better than the previous year.
So the main factor driving dry bulk earnings and trade was strong bauxite imports into China, which was growing at about 15% -- which grew at 15% year-on-year in Q2. Iron ore imports also were steady, while not seeing spectacular growth, they grew by 2% during the quarter. Coal did not contribute much, and grain trade also was flat. While dry bulk hasn't had much of an impact from the Red Sea disruption, that whatever small disruption, which was estimated about 2% continued as vessels traveled around the Cape of Good Hope. The fleet grew by 3% year-on-year. The order book continues to be fairly subdued at about 10%. Asset prices for the smaller vessels declined by about 10% to 15% during the quarter, but capes remained steady because their earnings have been supporting asset prices.
LPG, all our ships, as I mentioned, are fixed on the on time charter. The spot market has come off significantly. So you can see that difference in the first 6 months of last financial year, the average spot rate was almost $90,000 and now it's dropped to below $45,000 a day. So that's more than a 50% drop. Asset prices continue to stay at all-time high levels, and the order book is also very high at about 25%. Here, the Panama Canal disruption, which took rates up towards the end of last year and early 2025, has now completely normalized. And so that is no longer a factor.
Coming to fleet supply. We already spoke about the order book here, so I won't go into that. But the significant factor is this, where the -- most of the order book is rear-ended. So there are not too many ships, while the order book, for instance, for product tankers at 21% looks quite heavy -- most of those are coming in 2026 and beyond. The growth in calendar 2025 is fairly subdued. It's about 6% for product tankers. And less than 2% for crude tankers. For dry bulk, again, it's about 2% to 3%, while for 2026 and later, it's about 6%. LPG also in the first year, which is in calendar '25, it's less than 5% delivering during the year. Most of it is delivering 2026 and 2027. Scrapping is -- continues to be very low. All the sectors are making reasonable earnings and therefore scrapping continues to be extremely low, as removals from scrapping continue to be extremely low.
We showed this earlier. So the -- just to give some sense of perspective on the order books versus the old fleet, the old fleet continues to be pretty high, especially in crude tankers. And if you just balance that versus the fleet, which is to be delivered, then you'll see that the order book is not too much of a concern. Looking at asset price movements. Asset prices continue to be strong, but they've come off marginally in the case of crude and product tankers. These are marginal changes in the prices, not significant. In dry bulk, they came off a little bit in the last quarter in the slightly older and in the smaller dry bulk ships that is the sub-capes.
Coming to Greatship, the oilfield services subsidiary. Jack-up utilization globally continues to be okay, though you had a small shock happening in the middle of the year. You can see that downward turn it took in the middle of 2024 after those rigs were off hired by Saudi Aramco. But it's stabilized from there. We, of course, in the last quarter, in the last 2 quarters had those unfortunate situations where 2 of the rigs we had bid into tenders in India, those tenders were canceled. So we have the rigs coming off contract. So one rig has come off her earlier 3-year contract, but she has now obtained business. It's a short-term business with a minimum of 4.5 months, going up to approximately a year. This is in India itself. So that's one rig. The second rig will probably come off sometime in the next 3 months or so. And we will be looking for work for her. There are a couple of businesses that are out. One is a short-term business and 1 is a 3-year business. We will be -- these are both in India. We will be bidding for those businesses.
In the meantime, we are also looking outside, but there is not -- there are not too many prospects as of date that we can talk about that are anywhere close to getting awarded. We also have 5 vessels coming up for repricing in the 6-month period. Our CSR Foundation continues to do great work. We have affected the lives of many, many people through these NGOs that we partner with. For more details, please visit our website. Thank you. That brings me to the end of the presentation. Now we are happy to take any questions.
[Operator Instructions] We will take a first question from Nirvana Laha from Badrinath Holdings. Please go ahead.
Sir, actually, my questions are all regarding Greatship. So the first question is, sir, regarding the 2 rigs, which could not be bidden with ONGC. The first rig that you said that had already obtained work, if you could give us an indication of the day rates there? And for the second one, the 3-year contract that you're evaluating, if you can let us know whether that is with ONGC or with somebody else.
So the day rate on the second one, we won't get into too much detail, but it's around the rate that we last got a 3-year contract from ONGC -- last awarded rate for a 3-year contract with ONGC. That's the day rate at which we are working in the short-term contract as well. Now your question on the other 3-year contract was -- sorry, I didn't quite get that.
So the question was, was it again, ONGC who was taking out the tender? Or is it some other clients?
That is correct.
So actually, I just wanted to understand what you think is happening with respect to ONGC because as with regards to the global market for jack-ups, I think the market continues to remain tight, and there's no -- absolutely no new builds happening. That is my understanding. So what do you think is happening with ONGC in the Indian market? And how do you see utilization of your rig assets, especially going ahead? And would you be exploring international waters as well? If you feel that ONGC is not, for some reason, not working out. So just wanted to understand your views on the overall jackup market and what's happening with respect to ONGC in India?
Yes, we don't know, we are not privy to their thoughts as to what's happening with these tenders and why they got canceled, et cetera. So we won't get into that because that would be speculation. They do require rigs for doing their work. They have quite a few rigs coming off contract. Apart from ours, they will have quite a few rigs coming off contract within the next 12 months. So presumably, if they want to retain that drilling capacity, they will need to come out with tenders shortly. So that's one.
With regard to the international market, yes, in principle, we would like to go international, but it takes time to get prequalified in any of these regions. You mentioned that the market is tight. It's not that tight. There are still quite a few rigs that were suspended from Saudi Aramco contracts, which are there in the Middle East, while some of them have got alternate contracts. There are a few which are still looking for work. So there is some capacity out there. Some rigs are available out there. And always somebody who's always in the region, a rig, which is in the region already is of course, in the front-runner position to land a contract in that region because of the cost of moving and setting up in a new region.
Sure. Sir, final follow-up on that. Those rigs which were in the Saudi area, which are available, they have the necessary fit-outs to start work with ONGC -- or you think that that's a long process. So just trying to understand the supply that can come in.
Yes. Typically, they wouldn't have the fit-outs required. But the spec of the rig itself might be not compatible with what ONGC requires. So every contract requires different equipment. And these are the little nuances of each contract. And so -- but that can be procured. So that is not the constraint really -- it's more on the design of the rig itself. ONGC has a specific requirements when working on the West Coast on [indiscernible] , which is the footprint of the rig. And if the rigs are not able to meet those, and they will not be able to bid into ONGC.
We take our next question from Shantanu Pawar, an individual investor.
So my question is regarding this recent news article that had come out, which was stating a rule requiring international container line operators operating on Indian sea routes to allocate at least 5% of their volumes for domestic operators. So is GE Shipping entering into the container shipping business? And if yes, how feasible is it to acquire secondhand container ships at current prices and in terms of profitability. And lastly, do you think there is any preferential treatment that DSUs could get while getting allocated those 5% volumes.
Okay. One is, I'm not sure how this 5% works. I've seen that article as well. We are not quite sure how that 5% will work. But coming to your question on what we can do -- it's not difficult to acquire a ship. Ships are always transacted. It's not difficult to acquire. Ship prices are pretty elevated now because the markets are quite strong. Containership markets are quite strong. And so therefore, we'll wait for the right opportunity for an entry into the containership business. But on the 5% thing, we don't know how it will work and how it can affect someone who's operating container ships.
And what about the preferential treatment? Do you think the government could perhaps allocate more towards the PSU?
Again, we just don't understand that business enough to comment on how that could work. So I won't get into it.
We take our next question from Mohammed Farooq from Pearl Capital.
Good evening, and thank you for the opportunity. Our company has consistently delivered a quarterly average profit exceeding INR 600 crores for the first 10 quarters. And with over 70 years of experience and solid management and a cash user exceeding INR 6,000 crores. Now the company operates in a sector that has experienced a turnover in the last 4 years. However, despite all the strong fundamentals, company's valuation remain notably low with the PE just of 6. Given this, I would like to understand whether the management views the current valuation is a concern or it is not a priority at this stage. Could you please outline the steps being taken?
So it is -- we don't have a target valuation. We are not experts in stock market valuation. We don't put targets on the valuation. We are not experts in stock market valuation. We have some views on what ships should be priced at, and at what levels one can buy ships. So we focus on that. So as far as taking steps on the valuation is concerned because we don't have necessarily a view on that. We are not going to say that this is to push saying that this is a price at which it should be.
However, we will -- and this is what we endeavor to do in our communication with any investors, is to tell us the -- put our record, as you mentioned it so well, put a record of delivering results and let the investors judge for themselves.
We'll take our next question from Surendra Yadav Individual Investor.
I have some question on the financials. So I could see the quarter-on-quarter drop in other income, and this is on back of increased cash and bank balance. So if you could provide a breakup of this and the reason for a decline in that. I'm speaking of consol financials.
Yes. So yes, -- you're talking about a drop in other income from Q1 or versus Q2 of last year?
From Q1, so INR 127 crores in Q1 and...
Yes. So this is a contribution which comes from our overseas subsidiary, which is in the -- which does investment in various instruments, basically, equity shares of listed shipping companies overseas. This is our chartering subsidiary, and investment subsidiary, which is based in UAE. There, the prices came down, and therefore, their contribution to the results came to the -- other income came down.
Understood. So I mean this is kind of a chunky income. It is recognized whenever the investments are kind of liquidated...
This is recognized on a fair value to P&L basis. So mark-to-market is also -- mark-to-market is also recognized.
Understood. And just a couple of questions on the P&L as well. I could see that quarter-on-quarter increase in finance costs despite, again, a decrease in debt. So has there been any repricing in the debt that we will...
Yes, this is consolidated, you're talking about, I presume.
Yes. On the standalone basis, it seems quite flat.
Yes. So in the offshore business, that's a great ship. We refinanced a loan, which is about $100 million in March of this year. The earlier loan had been partially swapped into fixed rates when rates were low, and therefore that interest cost was lower. Now the entire loan is exposed to floating rates, which are obviously higher than the rates at which we had swapped earlier. And that's why the interest cost is higher versus the last year.
So for instance, just to give you an example, it may have been swapped at 1.5% LIBOR or the equivalent, the benchmark. And that part has gone now. And the current spot benchmark rate is 5%. So therefore the interest cost is higher.
Okay. And I assume the logic would be that we are expecting a decrease in benchmark rates, so probably that would help us going forward.
Yes.
Okay. And just one last question on the other expenses line item. Again, this jump of INR 20-odd crores. So was any dry docking or something like that, which came up during the quarter, which...
No, dry-docking doesn't come into other expenses. What happens in other expenses is when you in charter a vessel that goes into other expenses. So when we take in ships on charter that goes into other expenses. So we took in a ship on charter in the -- during the quarter, and that resulted in an increase in the other expenses line.
Understood. And just one last question, and I'll join back the queue after that. I could see some investment in subsidiary loan to subsidiary in the stand-alone cash flows, some INR 90-odd crores. So could you please provide the details on this, the nature of that investment, and to which subsidiary this was given.
Yes. We set up this subsidiary in the GIFT City, the government has come out with a scheme for ship finance and leasing in the Gandhinagar, GIFT City, which -- under which we set up a subsidiary which has started operations in the last 4, 5 months. Some of it is -- so some of this capital has gone towards capitalizing that subsidy. There was some equity capital. And over and above that, we also put in some debt. Now what is the business of the subsidy. I just mentioned to you that we in-chartered a ship. This subsidiary is in chartering ships -- so it's taken in 1 product tanker on a 4.5 year charter and 1 crude tanker on a 3-year charter.
So that's the business of this subsidiary. And this cash, which has gone into the subsidiary from The Great Eastern Shipping Mumbai is to fund the working capital. One is equity and then there's a loan to fund the working capital.
Okay. So any -- if you could just say the benefit of doing it via subsidiary and not through the...
It is a beneficial tax and regulatory regime, which has been set up in the GIFT City in Gandhinagar . So that's the benefit of doing it through the subsidiary -- so we were actually doing this activity through our chartering subsidiaries in Sharjah and Singapore earlier. And now that these benefits are being given in the GIFT City in Gandhinagar, we decided now to -- instead of doing it from the overseas subsidiaries to do it -- this activity from Gandhinagar.
We'll take our next question from Shivan Sarvaiya from Humiviction Investment Advisors LLP. Please go ahead.
So I had a couple of questions. One was on Slide 12 where you have shown the deals, the revenue days that are done in Q2 versus Q2 FY '24. So there has been a reduction in the offshore logistics segment. So just wanted to know the reason for that. And in continuation to that, on Slide #17, you have shown the MPSVV offshore vessels, having a coverage of only 14% for this quarter. So -- if you can just clarify on that. That's coming to -- should I say all the questions together?
Let me just finish with this. So the revenue days, there are 2 factors there. We had 2 dry docks -- we had several drydock, sorry, during the quarter, which is a reduction in the revenue days. The 2 MPSSVs, one of them underwent a dry dock for a significant part of the quarter. The other MPSSV, and typically these MPSSVs have worked on short-term contracts because that's where we get maximum value. They are extremely marketable in the international market, and we get best value from short-term contracts there. So therefore, we have -- those vessels typically will have very limited coverage at any point in time. However, also this time, -- both of these vessels -- or one of these vessels is operating on a very short-term contract and the other one is awaiting business. She is waiting for a business.
So do we expect this to be like -- so if you could kind of say what has been the average coverage then over the last few quarters? And is this like lower than that? I don't have numbers in front of me, but if you could...
Yes, this is a little lower than that of all our ship types in the offshore business, this always has the lowest coverage. This is lower than the normal. The is lower than it used to be before, again, because there -- one of them is sitting without business. So it has 0% coverage.
And are we expecting anything? As in have we done some bidding or...
We are bidding into contracts all the time. So it's just a question of time. The thing with the offshore businesses, the business only comes when there is an offshore asset in operation and you require the support from the MPSVV. So it's like a project-based business for these high-end vessels, and that's why you have these gaps in between.
Okay. And there aren't any dry docks in this particular quarter and maybe in the next quarter, right? Or are we expecting some more dry docks?
No, we had a little bit of a -- no, we actually have some dry docks coming up now also in the offshore business. This is going to be a fairly busy period.
Okay. So basically, we can expect a better revenue day moving ahead, right?
In the vessels, yes, -- in the vessels, yes, hopefully, yes.
So then, the one rig that is going to be coming for repricing and then in this current half. Are we expecting any idling or it's going to be straight away shift to the next one?
We don't know because we still have to bid in that tender, and we don't know when it will be awarded also. So it's anybody's guess. Yes, anybody's guess.
So the difference between the time in which it is awarded and the time when the current rig goes off charter, do you all get an extension? Are we expecting an extension?
Not between the time -- sorry, I didn't get that. So typically..
You have to just keep in mind that even if we bid and we win in ONGC, the 2 contracts are separate. So it's not like ONGC is going to take the previous contract, extended and roll it into the second. Secondly, between contracts, when the rigs finish their work, they generally -- when they're taken off contract, we generally spend a certain amount of time repairing, upgrading those rigs. It's like similar to a dry docking. So you have to have a gap between the 2 contracts, especially when they are long-term contracts.
Okay. Got it. Sir, and I had another question. We've seen like the asset prices that you all have shown in the presentation, and they have come off a bit in certain categories of vessels, and for certain categories they have kind of plateaued. So like if you could give some understanding in terms of how far or are we in that 15% dollar based IRR return that we keep targeting for in terms of asset acquisitions. And how far or how close are we from that?
If we look at the -- if you remember one thing, when you're looking at what kind of return you can get, it's a function of what you pay for the ship and what you expect to earn and your only expectations will keep changing from time to time, right? So it's not a static number at which one buys ships. However, having said that, the tanker prices have only fallen a few percentage points. So it's a very marginal drop. So there's quite a long way to go. But on dry bulk, we've seen a more steeper fall of 10% to 15%, depending on which asset class it is. Like, for example, on the cape sizes, which are the largest asset class, it's even less than 10% fall. But on the sub-capes, it could be starting to get a bit interesting on the pricing we can see.
Are we looking at assets currently as we speak?
We are always evaluating. But at the moment, there is nothing that we can really comment on.
Okay. And one more question. Like we sold Jag Rani, the Supramax. Now the vintage of that ship was like 13 years around. It was built in 2011. But we already have like an older ship called Jag Radha. So why was that not sold? Why was a younger vessel sold? Any particular reason for that?
One is that we felt like the 2009 -- just the yard from which that ship is built is a better quality yard. So we thought it would be better off to hold on to the '09 versus the 2011. Gap in age. So then we would prefer to go -- 2 years is not a very big difference in age. So we preferred to go -- hold on to the ship with better quality construction.
And sir, just one more question, if I may. This was regarding the other expenses. So if I kind of just do a consolidated minus stand-alone, I see a rise in the other expenses in the rig -- basically, that would majorly be the offshore business -- in this quarter. So what was the reason for that? Was there any, kind of one-off refurbishment expenditure that were taken in this quarter.
No. So it's not in the offshore business. It's in the shipping business itself. I was mentioning to the earlier person that we had -- we have chartered 2 vessels. So that charter hire that we are paying out comes under other expenses. And that's the increase in other expenses that you're seeing.
We'll take some text questions. We have a next question from Shantanu Pawar, an individual investor. Recent articles stating rule requiring...
That question has been already asked. We can move to the next one.
We'll take the next one from Priyam Shrivastava from DK Capital. What is average long-term return on NAV at an industry level?
We don't know what the return is at an industry level. These are not -- it's not like the sector is only with the publicly listed companies. A large percentage of this business is privately owned, and we just don't have access to that information.
We'll take the next text question from Himanshu Upadhyay from BugleRock PMS.
We have seen spot rates for LPG carriers have fallen. Are the period charter rates also falling? And do we have any contracts which is getting over in this FY for LPG carriers.
So firstly, we don't have any LPG carriers coming off in this financial year. And yes, the spot rates have come off and the period charter rates have corrected, but not to a similar extent. We'll have to see over the course of year what happens to the period charter rates.
Thank you. Next question is from Ajay [indiscernible] an individual investor. If further investments in assets don't make sense at the moment because of market cycles. Has the company thought of buyback given the value it can unlock for shareholders?
We do constantly evaluate whether the buyback would make sense or whether it would make more sense to wait on the cash for the asset prices. Our preference is always to invest more in building -- into renewing the fleet and having more ships. So we do evaluate it, but at the moment we have no such plans.
Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, kindly restrict your questions to 3 at a time. You may join back the queue for follow-up questions. We'll take the next question from Jinesh Shah from RSPN Ventures.
So my first question was with respect to the fleet number. So I can see that we had sold out 2 fleets in the current quarter and like we are expected to sell more fleets in H2 FY '25. So I was -- I wanted to ask that, are we like replacing this with younger fleets? Or what is the management planning about it?
Yes. So for most of the ships that we have sold, we have replaced them with the younger ships, either through purchase or in charter. I think only on the Supramax vessel, we have not bought to ship against that sale. But that doesn't mean we won't buy one in the future.
Okay. So by the end of the year, what is the number of fleet that we can expect?
We can't put a number to that, but we keep evaluating because as you can imagine, it takes a bit of time to figure out and negotiate a transaction. So again, it will depend on the price that we are getting whether we buy more or sell more. But we expect to be around these numbers in any case, not a significant variation downward. If we get great opportunities to buy, we may go up a lot.
Got it. Okay. So my next question would be with respect to offshore business. So I don't want a formal guidance, but since we can see that in H2 [FY '24], we have like 4 vessels and 1 rigs that are repricing. So can we expect a better performance in -- a much better performance than H1 in the next half of the year in offshore business segment.
Yes. It is -- as it stands, it is somewhat unlikely, just let me tell you why. In the first quarter, so the first quarter was a very good quarter for the offshore business. All the rigs were working and all the vessels were working also. In the second half of the year, you have one rig, which is currently between 2 contracts, and therefore, we'll have 60 days or so, around 60 days off hire which means no revenue is being earned in that period.
The next rig will come off in the next 2 to 3 months. That rig will also have significant off hire. Even if she gets a contract, she will have off-hires Rahul described earlier, between contracts, you typically have an off higher period. And you also have to spend money on the rig to upgrade for the next contract. So all of those make the profitability a little subdued for -- during that period because it makes a big difference. 60 days of a rig, not earning is a significant amount of impact. So -- but what happens is as soon as you get the contract, then you go back into -- then you get the revenues and everything else.
Got it. So we might see a little bit of subdued environment in this offshore business segment in the next half of the year, right?
That is correct.
Okay. And just one last question from my side since I was newly evaluating this company. I was just understanding the technical jargon of the order book whether my understanding with respect to that is correct or not, that can you just explain that, whether it is like the ship that is to be delivered in next 2 to 3 years or that is the percentage of it? Or how is it?
So the order book refers to all the ships that are placed on order, depending on how full the yards are depends on when the ships get delivered. So typically, we have seen that yards may take up orders up to maybe 3 years in advance. Owners may not want to also build 4, 5, 6 years in advance, right? Even if slots are technically available. So generally, one can assume that this order book is to be delivered within 3 to 4 years.
And the order book, and thanks for asking the question because we'd like to clarify, the order book is, in some companies, the order book is what is their revenue backlog. When we talk of order book, it is of the global fleet. If the global fleet of a particular type of ship is at 100, how many ships have been ordered, which will join the fleet in the next few years. So when we say the bulk carrier order book is at 10%. That means if you -- your bulk carrier fleet is 1 billion tonnes carrying capacity, you have about 100 million tonnes of carrying capacity that has been order -- that has been ordered for delivery over the next 3 to 4 years.
We take our next question from Surendra Yadav, an individual investor. Please go ahead.
Yes. So my next question was with regarding the presentation, Slide #14, the changes in stand-alone NAV.
Yes. So I just wanted to understand when was your transaction for a sale of asset is turned, how exactly does it affect these values. Is it recognized as a profit or like a decrease in fleet value, that would be a...
Good question. It goes into the profit so that profit goes there. So you moved it from the MTM, which is in the fleet value to the realized, which is the cash profit. So all the cash profit that we have recognized in the last 12 months between September '23 and September '24, has gone into cash profit -- and it has gone out of fleet value.
Understood. And the MTM changes in the fleet value, which has not been sold, that is captured in the fleet value changes.
And also the removal of the -- so let's just take one example. Let's say, you had INR 10 per share of profit sitting in 1 vessel, 1 ship. You sold that ship at that price that then gets transferred from fleet value. Fleet value goes down by 10%, which is again -- and it goes to cash profit.
Okay. So the fleet value that we are seeing here, it is a mix of the transaction of ships that have been done and the changes in the value of the ships.
That's correct. In general, versus a year ago, asset prices are up. That's a broad message, but this has happened because it has got transferred from one to the other. So you would have taken a negative entry on the ship, which has been sold. So it's moved from mark-to-market gains to realized gains. So your mark-to-market gain comes down. That's what it means.
Understood. Sir, just one question, if a similar breakdown on a quarter-on-quarter basis can also be provided? I think that would provide a clear picture of what has happened in the quarter.
Fair enough. We'll keep that in mind. Yes.
And my second question was just generally I think the preference, at least in the crude and product segment has been to operate the fleet on spot as much as possible. But what I've been seeing is that same strategy is not being followed on the gas carrier segment. So -- is it inherently due to a different market of gas carrier or just that the values were so high that we thought it would be a good rate to fix in longer-term charters?
So it was just stopped because we thought it was good to take the opportunity and fix out the fleet. But if we believe that the charter rates are not sufficiently good, then we have no problem running them on the spot market. The MGC that we have is different -- the smaller gas carrier. That one inherently needs to be fixed out because the spot market is very limited. But the 3 VLGCs, the larger ones, they can be easily run on the spot market.
Understood. And just one last question. From my I'm assuming that.
Mr. Yadav, I'm sorry to interrupt -- my request you to join back the queue please, as we have other participants. We'll take our next question from Amit Khetan from Laburnum Capital.
Sorry, I joined a little late, so maybe you've already addressed this question. If I look at the offshore earnings for this quarter, they look a little subdued compared to the last couple of quarters. Is there any one-off element here?
Not a one-off. The 2 big vessels, the MPSSVs both had low utilization. One of them actually had a commercial utilization issue, which is she didn't have a contract. She was available, but didn't have a contract. The other one had a combination of a commercial utilization issue and a dry dock. So therefore, the revenue was lower. That was a big difference really in the quarter. And these 2 are the very high spec vessels.
Got it. Second question was -- so in the past, you've talked about possibly evaluating the container segment. Now given the new administration in the U.S. and the commentary around how that's going to negatively impact the Container Shipping segment, plus when you juxtapose that with the massive order book on the container segment in the next few years, it looks like the asset prices there could get very interesting. So have we accelerated our thinking or process in this step?
So the point that you make is quite relevant. The fundamentals do line up to say that maybe the container market could come down. But you should just remember one thing that when COVID hit, every single report and every single analyst thought the entire container market has gone to the next few years. And then you had probably the largest boom ever seen in the container space in like 60 years.
Then again, the container market started coming off because of the order book and then you had the Red Sea attack and again the container market took off. So while what you're seeing is logical, one can't assume that that's what's going to happen. Secondly, we did see this round of tariffs that Trump did in his first term. And there is a way of water always finding its own level. So you found that while a lot of goods didn't directly land up at U.S., they went to Mexico, they went to Canada, they went to other areas, got transshipped, repackaged and moved into the U.S. because eventually, U.S. needs those goods. If they increase the tariffs to a rate where U.S. just starts consuming a lot less, then yes, that's negative for demand. But if it gets rerouted, repackaged and sent back to U.S., you may actually need more ships to do that. So it's very difficult to say exactly the way it would pan out.
But the point that you're making is correct that if the market comes off, then you could get -- we could get good opportunities to buy. In any case, we are ready to move whenever the opportunity comes. You don't have to do too much preparation for that.
Got it. So we are prepared to take advantage in the container side because this is a new segment for us or at least we've not been in this segment for probably maybe 25 years or so.
That's right. That's right. We've not been there -- but we've not been in the sector, but yes.
But we have capabilities of running different segments of shipping. So that won't stop us if we find the opportunity.
And is there a scale requirement here in the sense that it's not enough to just buy 1 or 2 containers and you need to buy a bunch of containerships?
No, you can have a smaller fleet as well. That's fine.
The scale deployment is for the liner operator, which is a completely different business. So we should not discuss that.
Yes, we'll take our next question from Ajay [indiscernible] an individual investor.
Yes. I had a question regarding the buyback. A question regarding buyback.
But it's been asked. Regarding buyback, I think it has been answered by the management.
We'll take the next question from Anuj Sharma from M3 Investments.
Yes. Thank you. Just on the Greatship, -- you said the contract -- the short-term contract is contingent between 4.5 months to 1 year. So is that contingency based on operators' choice? Or is it our choice?
No, it is their choice. It is their choice because typically when you drill a well, it depends on what is achieved during the drilling program.
All right. And post the scrapping of first tender, has the operator had any long-term contracts in the rigs? Or it's been this way for all the contracts then on.
So they've not come out with a new tender. They have just recently, like Shiv mentioned at the beginning of this call that they've recently come out with a tender -- a long-term tender.
And we are participating in that?
Yes, we will.
All right. And one question on the reduction in number of ships. So we have replaced some of them with new buys and in charter, but assume that the asset prices continue to rise, do we -- or have you ever thought of hedging that through a new build contract? And would a -- what would be the typical arbitrage between a new build and a short-term relatively new age fleet or a ship?
So one thing you have to remember that there could be an arbitrage between the new build in the secondhand, but the reason that exists is because if you order a newbuilding ship today, you're not going to get delivery until end '27, '28. And you're going to be paying a relatively high price for that. Now you don't know the market you're going to have 3 years forward, which is why the arbitrage exists. So it's not a free lunch. It's not a good strategy to play on that.
All right. No I completely agree on that logic. Just the small point is, out of the 41 ships in each of the categories, if we had 1 or 2 as a hedge -- would it -- would that still not be a logical strategy because we are really -- if we are in chartering and asset prices continue to rise, we might actually, at the end of third year when the in-charters go, we might have a scenario that the asset prices continue to -- just a scenario, a hypothetical scenario. And we don't have ships at that point of time. Do we -- no, I'm saying that we have always done long-term modeling 20, 25 years in the past. Is that a scenario which we think about?
What you're saying is very relevant. Now we have to also put probabilities to these events happening for a cycle to be that long. Do we need to hedge ourselves against that. So we are switching our assets, right? So our ships that are older, we are replacing them and making sure that a certain amount of capacity does exist. That in effect is a hedge to ensure that if the market does last stronger for longer than we expect, we at least have sufficient exposure to take advantage.
On your second point that new building is that a hedge? If we did want to take a hedge, it's better to buy ships today, be it a slightly higher price from the arbitrage price of a new building and take advantage of the higher spot market. And thirdly, if we do the in-chartering, right? And maybe in chartering in the last 3, 5 years, you always have the option that if the market remains strong at that point in time. You can take in a second in chartering at that time. So we have multiple ways to play if the market does surprise us on the upside. And we do keep this in mind about the amount of cash [indiscernible] that we have because you never want to be on the -- you don't want to take a one sided bet at any point in time, right?
We'll take our next question from Priyam Shrivastava from DK Capital.
What so is the difference between GE and other shipping companies in terms of how we operate ? Aren't like most companies trying to be value buyers.
So no, every company has different strategy. So there are companies which have a strategy of high leverage and high time charter coverage. There are companies which have 0 leverage and full spot. The value buying strategy, at least in the listed space, is not really the preferred one. And we have seen this because there are not too many shipping companies listed in India, but we have seen companies overseas. A lot of companies try to grow on a year-on-year basis.
And so I think we are different in that way. What is also different is between us and international listed shipping companies, again, because there are not many listed in India -- is that we operate in different sectors, which is crude tankers, product tankers, LPG and dry bulk and also offshore. And therefore, we can play these cycles and do our value buying at different points in the cycle of these different sectors. And I think that advantage shows up in the results that we've done over a long period of time.
Sure, sir. So what's -- is it not preferred or what's preventing others from attempting like doing the same -- similar thing?
So it's like in the equity markets, what stops everybody from being a value investor. Everybody just has a different investing style that works for them.
No. And everyone has a different definition of what is value, right? You're buying stocks in the stock market, every single day shares are being transacted. So clearly, there are opposing views for the transaction to take place. The same in shipping or any other business, I assume.
Okay. Fair enough. So my second question was, how do you assess that if the price of an asset is right? Like do you base it on current yield or do projections and predictions?
So we don't do it on a current yield, but you have to always keep in mind of the current state of the market because not all markets are the same. So you can always look at history. But history just gives you an indication. It does not necessarily mean that's exactly what we're going to pan out in the future.
We'll take the next question from Surendra Yadav, an individual investor.
Yes, just a couple of questions. On the dividend payout, like if you could give clarity until we are in a position to make investment and shareholders expect similar level of dividend payouts?
You mean payout ratio or absolute amount of....
Yes, no, sorry.
So we don't have a hard and fast ratio. Eventually is decided by the Board of how much dividend we should pay. And we have to also keep in mind the amount of money we keep aside because it's a function of how much you earn, how much you need to keep aside for fleet renewal and expansion. So there are a multitude of factors that go into it. There is not a single rule.
No. But given that the existing cash balances are kind of enough to serve those requirements, given that we keep 3 years odd of risk capital. So I mean -- because I saw a couple of other listed players outside India heavily increasing their dividend payout. So is that something -- there's a policy out there? Or need to see with each quarter that comes?
So I won't get into individual names. Typically, these companies which have dividend payouts -- very high dividend payouts. And we know a couple of companies which are doing 70% to 100% dividend payout. They have -- I'll remind you that the last time we did an equity issuance was 30 years ago. We don't issue equity, and we don't take it as an option at all. And however, that is not true for a lot of the other companies that operate internationally in the market. And therefore, I would not compare. What also happens is paying dividend and raising capital is not an efficient way of operating in India. You know as an investor that dividends suffer significant taxation year. And therefore, it's not really a great way to operate if you intend to just take the money back at some point.
Understood. And just one last question. Any plans on listing of Greatship India Limited in the future, given that -- it is a substantial entity and there's quite some demand in market for new paper as such. So any plans regarding that, that would definitely unlock some values for both the company and the shareholders?
At the moment, we have no such plans.
We'll take a text question from Shivan Sarvaiya from Humiviction Investment Advisors LLP. Could you provide the current fleet positioning between TC and spot?
So the crude tanker fleet is 100% on spot. The product tanker fleet is about 30% -- about 20%, 25% on charter. The gas carrier is fully fixed down, and dry bulk is on the spot market.
Thank you. As there are no further questions, I now hand over the call to Mr. G Shivakumar for closing comments.
I can see a couple of questions in the text. Yes, there is a question from Amit Khetan. I don't know -- no, it's not been answered. Yes. The question was, how are you thinking about capital allocation? Yes, I'll just read it out -- in the offshore segment. Has there been a change in thought process? No, there is no change as of now. So we'll see how the market goes. As of now, there is no change in thoughts on that.
There is a question from Dhruv Jain of Ambit, which is on asset prices. Asset prices have softened from the peak. Also, you have sold a couple of -- No. So okay, the question is whether we are looking to reduce our absolute exposure to crude and product market? No. Each of the ships that we have sold has been replaced one way or another.
And Rahul mentioned, either we replace with a purchase or with an in-charter. So within the group, we still have that exposure.
Yes, there's one more question.
One is on -- the last question is on guidance. Okay, there is no guidance on margins, and so we are not going to discuss that. The final question is on the insured value of the fleet. The fleet is insured for the -- around the current market.
The market value of them.
Yes, I think that's all the -- yes.
Yes. Sir, any closing comments, sir?
No. I think we are -- thank you for your questions. I don't think we have any further comments that we had to make. I thank everyone. Anjali, you want to have a couple of words.
Yes. Thank you, everybody, for joining, and we will be putting up the transcripts of this call shortly. The audio will be available by end of today and the scripted one will be there in a couple of days. So you may please feel free to reach out to us or -- our all team is here to answer any queries that you may have. Thank you again for joining today.
Thank you, members of the management team. Ladies and gentlemen, on behalf of GE Shipping, this concludes the call for today. Thank you all for joining today. You may now exit the meeting.