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Great Eastern Shipping Company Ltd
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Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the GE Shipping earnings call on declaration of its financial results for the quarter ended December 31, 2022. [Operator Instructions]
I now hand over the conference to Mr. G. Shivakumar, ED and CFO at The Great Eastern Shipping Company Limited, to start the proceedings. Over to you, Mr. Shivakumar.
Hi. Thank you. Good afternoon, everyone, and thank you for joining us for this conference call.
Let me quickly first take you through the presentation. We have Mr. Bharat Sheth, Deputy Chairman and Managing Director, is here to take questions. We are very happy to take your questions on the company and what's been happening in the markets. So let's go into the presentation. Again, we might make forward-looking statements. It is not our intention to give any projections or forecast on profitability.
So highlights. For the first time ever, our profits have crossed INR 1,500 crores. Our previous highest was in the super cycle, where we were just short of INR 1,400 crores. So in the 9 months, we have a consolidated profit of INR 1,800 plus crores. Our consolidated net asset value has moved up and crossed INR 1,000 per share. A year ago, this was about INR 600 per share. And that just shows you what can happen in our business. Also, we have declared 3 interim dividends in this financial year, totaling to INR 19.80 per share, again, the highest dividend in our history.
These are the reported highlights. You would have seen this. I'm not going to go much into the numbers, unless we have specific questions. We also have the normalized financials, as usual. They are not too different from the reported numbers. The effect of the currency has not been very dramatic on our results because the business results have outweighed everything else by so much -- by such a great margin.
Yes. So we have the net asset value per share. And I mentioned on a consolidated basis, we are in excess of INR 1,000. Here, on a stand-alone basis, a year ago, that was in December '21, we were at INR 576 per share. Now we are at INR 890 per share. A lot of this -- and we've come to how it's gone up, how the NAVs have gone up, what has caused them to go up in this period. And remember that this growth of INR 300 plus in net asset value is after taking into account -- after having paid out dividends. So -- and we paid out -- between May and November, we paid out about at INR 16, INR 17 in dividends.
These are the key ratios, and we'll leave these aside. These are the EPS, et cetera.
Broad management commentary from Mr. Sheth. So we have our highest -- also, we have our highest ever of quarterly profit. In nominal terms, the previous quarter was higher. But there, we had the advantage of significant profit on sale, which was about INR 115 crores. If you take out that impact, this is -- this quarter's results are higher because the rates have been higher, and we look at that as well. The consolidated net asset value per share, as we mentioned earlier, has crossed INR 1,000 because of -- in offshore, we get a range of values for the assets. It's between INR 1,012 and INR 1,080 per share.
So the markets are well poised -- are interestingly poised. Tankers have had a very good run in the last 3 quarters or so. Crude tankers even more so in the last quarter. The one thing that we've been pointing out for a few quarters now is that the order book is dwindling and therefore, at least one side of the equation that you have to worry about has been taken out. There is not much new capacity coming in, and we look at the order book statistics. So from here on, it will depend on what happens to demand picking up and what happens when China comes back because China is a significant demand driver both for oil and for dry bulk commodities.
On the offshore market, again, this is something that we pointed out for a couple of quarters now, the market is recovering with oil prices continuing to stay at decent levels where oil exploration and production companies can make a profit and can afford to invest at least in production, if not in new exploration. The market has shown signs of significant strength, the effective utilization rate for jack-up rigs, if you take out the rigs, which have been cold-stacked for quite some time, now we are getting close to 90% for the first since 2014 when the oil prices collapsed.
On the balance sheet front, these cash flows have been exceptionally strong, and we've used the cash flows to pay some dividends. We've also prepaid debt where possible.
Just looking at differences between last quarter, that's Q2 and Q3. You see what's happened to crude tankers, 33,000 has gone up to 60,000. Product tankers and LPG have been more or less the same. Dry bulk has dropped off in Q3 versus Q2. But the crude tankers outperformance was so high that it more than compensated for the drop in dry bulk earnings. This is how and why our NAV has changed. This we're comparing versus March. So this is a 9-month change in net asset value standalone. We had a change of little under INR 300 per share, where we've got equal contributions from the cash profit, the cash flows, which have been produced by the business and the increase in fleet value.
Again, the reason why we put this year is that this is different from the NAV from other NAVs that you may look at. So you should not look at it like the NAV of, say, a mutual fund, which if the stock prices fall, you lose what is there in the NAV. Here, we are actually when the earnings are strong, a part of that high asset value is converting into cash flows on a daily or a quarterly basis. And that's what we wanted to show here. It's not just an increase in asset values. It is actual real cash that has come in here. Again, asset value, you never know what happens to them. They could go up further. They could come down, but the INR 147 per share is actual cash, which is accrued to us.
This is the 5-year movement in stand-alone net asset value. In March 2017, we were at INR 337 per share. Now we are at just shy of INR 900 per share. Again, just to remind you, we have been paying significant dividends through this period. On a consolidated basis, the story is somewhat similar. We had an increase of about INR 350 per share in the net asset value, which has contributed about 50-50 between the cash accruals and the fleet value.
Looking at what happened in the shipping markets. Again, we have gone through this many times in the past. We've had very strong product tanker market, exceptionally from product tanker markets since early in the year. So that outperformed for a significant period. The Suezmaxes took some time to catch up, but they had a very good Q4 of calendar 2022.
So this is a commentary, and we can rather than read this commentary or go through it, we can discuss it in the Q&A.
And the main cause, of course, for the tanker markets growing up was the war in Europe, the Russia-Ukraine war, which results in a trade dislocation, which came on top of a fairly tightish market. And that's what really took the markets up in a big way. And it illustrates what happens in our business, which we have said in the past, which is that it takes these events to suddenly take the markets up or down and basically, you need to be positioned with your fleet to be able to take advantage when the markets go up. And that's why we have a significant spot market exposure, most of the time.
Looking at dry bulk, the dry bulk was a different story. We had a very strong period in FY '22, especially for the smaller vessels, which is the Supramaxes and Kamsarmaxes. This year has been quite poor. The Capesizes has covered a lot versus the previous year. And now we have seen over the last few months that even the Supramaxes and Kamsarmaxes earnings have come off very significantly, which is a black market. Again, steel production, which is the main driver of demand for -- the biggest driver of demand for bulk carriers was down, had negative growth. We look forward to it coming back in Cal '23. Unless you have a very significant lower recession, you should have positive steel production growth, which means that you should have some dry bulk trade demand growth.
LPG earnings have been strong. Again, we don't get much affected by the spot market because we are on time charter. So we don't get affected on a day-to-day basis. Of course, if the spot market is strong when our ships come up for repricing, that comes into the pricing that we receive.
Looking at fleet supply. The current order book is at exceptionally low levels. So we are talking of below 5% for both crude and product tankers. We are looking at about 7% for bulk carriers. All of which are historically very low numbers. And as I said, this gives us at least one comfort that the supply side is not challenging. You can see that in 2008, '09, these order books went up in excess of 50%, 60%, 70%. And that was a really worrisome market. At single digits, like this, this is a positive for the market going forward.
As I said, you still need demand to help in the overall equation, but at least one side is taken care. The LPG order book is significantly higher than this. LPG carriers, the order book about 21%. Still -- so not as comfortable as this, but still we have significant trade growth there, which hopefully should take up some of those ships.
Looking at asset prices, obviously, asset prices have moved, and we saw the impact on the net asset value. Asset prices have moved significantly over the last couple of years, especially for the tankers. Dry bulk asset prices have come down by about 20% -- within 20% and 30% from the peak early this year.
Scrapping has been very poor. Again, all of this is creating an overhang of scrapping, which is a little bit of a safety net for us. If the markets are very weak, you have a chance that there will be significant scrapping, which takes out some of the fleet and therefore, brings demand supply back into balance.
Looking at the offshore business, the Middle East has been a big driver of incremental demand, and there are a lot of rigs, which have been going in there. There's a lot of demand for jack-up rigs there, and so Saudi Arabia and UAE have taken in a lot of rigs. They have publicized their targets for increasing production capacity and they're taking in rigs in order to try to meet those targets. So rig utilization is now close to 90% on an effective basis. And when I say effective, I mean if you take out the rigs, which are cold-stacked, and you take into account the rigs, which have already received contracts and are waiting to go into contract.
For instance, today, you have 358 rigs under contract. You have another 35 rigs or so, which are waiting to go into contract. They've already received contracts, and they are -- will go to contract within 2023. So that's a little about 390 rigs. Of the 490 rigs that you have in the fleet, about 60 have been -- are cold-stacked, 45 cold-stacked for more than 3 years, and therefore, will not be really in a position to compete actively in the market, unless the market moves up a lot. And therefore, we say that the effective utilization has now come close to 90%.
It's sort of similar, though not exactly so, for the vessels. It's not at 90%, but you've seen on term contracts that we moved up from the low 40% to somewhere around 54%, 55%. If you take into account again cold-stacked vessels, you are probably up to 70% or more. And we have seen significant pricing improvements for vessels and for rigs recently.
This is just a depiction of the utilization on the chart. We have 2 rigs coming up for repricing, but that's only in next year. So our repricing, we had the Greatdrill Chaaru coming off contract. In this year, she has received a 3-year contract in India. She's been awarded a 3-year contract in India, and she will go onto that contract sometime in probably in the middle of FY '24.
Vessels, we have quite a few coming up for repricing, which is a positive in this market because the pricing will -- when they come, contracts will be better than the previous rates.
What's happening here. Okay, I think there's some problem with the presentation, but we are more or less done with it.
We continue to trade. So our -- in the last quarter itself, we had come down to net cash on a stand-alone basis and also just about net cash on a consolidated basis. Now we are significantly net cash. Here we are. So on a stand-alone basis, we have about $80 million more cash than we have had. On a consolidated basis, this is probably somewhere around $50 million of net cash. While the stock price has moved up, you will see that the net asset value has moved up a lot as well over the last 9 months. So we still continue to trade at a very significant discount to the net asset value.
These are the initiatives on the environment, and you can go into them and then you go into the website.
So that brings me to the end of the presentation. We are happy to take questions.
[Operator Instructions] The first question is from the line of Amit Khetan from Laburnum Capital.
I had a couple of questions regarding the offshore business just to get a better understanding. So I think there was a recent news about our rig getting on contract at something like $80,000 a day. How does this compare with the previous pricing on the same rig and on the average of the remainder of the 3 rigs that we have?
Shiv, you want me to answer that?
No, I'll take that. I'll just take that. Yes. So the -- yes, we have received a contract. We don't comment on the rates, but the contract has been done at a rate, which is about 75% higher than the current contract running on that rig. So the recently awarded rate is twice the rate, which is more than twice the rate at which the other 3 rigs are working. The average of the other 3 rigs.
Got it. Got it. And how should we think about the earnings in the offshore segment between, say, the rigs and the vessels? Like -- I'm sure the rigs are earning a lot more, but is -- could you give a rough sense of the split between the two?
Okay. I don't…
No. I don't think -- there is no correlation on that.
Yes, that's right. Yes.
So all that happens is when the rig market moves up, the board market also goes up. As the CFO has just mentioned that the rig that we have just repriced at 75% higher, we've also repriced certain boats, and those are being repriced depending on the region they're in between 30% to a 60% improvement from their previous numbers, but -- albeit on a lower base. Yes.
The next question is from the line of Abhishek Nigam from B&K Securities.
This is Abhishek. So my first question on the dry bulk side, rates have corrected very sharply. So do you think now it is bottomed or at least there is not significant downside from here on?
So obviously, there can't be much more of a downside because now you're at operating costs across 2 sectors. One is the Capesize sector and one is the Supramax sector. So -- and some of this is seasonal. So it's not as if it was unexpected, very much in line with what was expected. It's typically the time of the year when you have a lot of disruption due to bad weather both in Brazil as well as in Australia, which is the 2 main dominant exporting areas.
Having said that, if you look at what the forward paper is showing, it's in significant contango and therefore, what the market is clearly saying is let the bad -- let the disruptive season get over, and we should see an improvement. The extent of the improvement obviously is going to depend on when China really settles down post these lunar holidays of their's and how much of that improvement is going to be seen through the manufacturing sector as opposed purely to consumption sector.
Fair enough. And on the dry bulk fleet expansion. So where are the asset values now? And do you think now they are at a range where you would want to consider buying a few of those?
So as the CFO said, we've now seen somewhere between a 20% and a 30% drop since, let's call it, the last 9 months, which was the peak of this last cycle. It's still a little away from where we would feel comfortable. Now what -- if, let's say, that there is a little longer duration in Chinese recovery then maybe asset prices may fall off a little further. So it's something we are closely tracking. We have -- we are looking at a couple of ships, but nothing I could say very honestly, that there's nothing that we've got our teeth into yet.
Fair enough. And just last question from me. When are the LPG ships up for renewal? And is it true that the contract you have currently with the current customer, so the current customer has an option to renew the LPG ships at the old rate?
Yes, at the current rate. Yes. We have one vessel that comes off, I think it's between April and May, in which there are no further options left, so that's all done and dusted. So that, I think, will get repriced sometime in the month of March. The other 3 will run because there are options at the similar rate, they will run through for another 12 months.
The next question is from the line of Himanshu Upadhyay from O3 Capital.
Good evening. Am I audible?
Hi, good evening. Yes, we can hear you.
Sir, my first question is, we bought an AHTSV recently, okay? Can you help us understand the rationale means for it? Was there some one-off opportunity to deploy a very lucrative rate or the price itself was very cheap?
No. So -- yes. So basically, Himanshu, what happened was that there was ongoing tender in front of us. We saw that there was likely to be a slight shortage in the number of assets that we're going to offer under the tender, and we got this opportunity to pick up this asset. I wouldn't say it's cheap, but it wasn't as cheap as it would have been, let us say, 6 months or 9 months ago, right, or 1 year ago. But we are pretty confident that we'll get through in the tender and effectively pays back the asset at the end of the contracts, if we do get the contract. So basically it wipes out most of the risk.
Okay and I have a question on this crude carriers and product tankers. Okay, the order book is the lowest, okay. And in crude, we have very old fleet also, some of them are -- 3 are 18, 19 years old. And are we getting opportunity to get good rates for 1- or 2-year charter? Or we will like to be in spot only even if -- whatever time we have with these ships? So any thoughts on that?
So on the older assets, it's very difficult to place it out for long periods of time, simply because of the age. On the relatively younger 2 tankers -- 4 tankers that we have, 2 Afra's and 2 Suezmaxes, we could. But what we have seen again from previous experience that whenever markets are tight, a sudden surge in demand, some cargoes tends to exaggerate the earnings. And obviously, keeping the vessels not that we expected the market to do as well as it has done, but really we have significantly benefited from our overall policy that run everything spot or as much as you can spot. And I think I've mentioned this in the past, that since we have a very conservatively leveraged balance sheet and now indeed, we are net debt, we may as well take risk through the operating leverage because think it -- just think about it that you could have fixed these assets 6 months ago or 1 year ago at very...
[Technical Difficulty]
Hello? The connection got disconnected, I think.
Yes. Yes, we lost you for a moment, sir.
No. So the point I was making -- Himanshu, can you hear me?
Yes, now I can hear you.
Okay. So the point I was making, I'll just quickly repeat it that we could have fixed some of these tankers, let's say, because a year ago, let's say, our 2004 build vessel in the start of '22 was still 18 years old. And we could have fixed it at a remunerative level. But the average that, that asset has earned compared to what we have got for 12 months is almost 2x, right? And that's the thing about shipping that you really want to keep as much of your operating capacity open and balance that out by running a very conservative balance sheet, so that you're never under pressure to take suboptimal decisions on operating -- on fixing the ships out. So I think that strategy has paid us very well, and I think we'll continue to hold on to that.
I have a question on policy decision at the company level, okay? I think this is the first time in last 20 years, we have a net cash balance sheet, okay, and what would be the policy or a process of how much cash you want to have on the balance sheet, okay? And what would be the determinants of -- what percentage of balance sheet should be on cash? And because one of the things is eventually this business is a 13%, 14% ROCE in longer term what we state. And if we want to have a higher thing, we'll have some amount of leverage, but how all these things are playing in your mind? And how is that philosophy or a process of cash on balance sheet, you will decide or what the thought process is there?
So first of all, when you say this is a 13%, 14% ROCE business, it's not. It only is if you invest wisely because if it was, then you would not have so many shipping companies getting wiped out. And there are very, very few shipping companies that have been around 75 years as Great Eastern is. So that's the first point, right? It's not as simple as you're making it sound. The second point is how much cash would we be comfortable with? I mean if our cash reserves were to double and therefore, there would be a larger part of the balance sheet, we would have no qualms about it because the important thing is to deploy the capital wisely, right? So we look at -- for us -- Himanshu, can you hear me? There's a lot of disturbance.
Yes, yes, I can hear you.
I'm sorry to interrupt Mr. Himanshu Upadhyay. Can you please self-mute your line when the management is answering the question because there is a lot of disturbance from the line, sir. Thank you. Management, you may please proceed ahead.
Yes. So basically, the way we look at capital is we only want to deploy it as and when we think we have a reasonable probability of providing -- we said this in the past, dollarized returns and, of course, subject to interest rates, but we must be able to -- on high probability significantly outperform the cost of debt. Today, the cost of debt, let's say, is around 6% in dollars. So unless we see a chance of making 10% to 15% dollar returns, we'd just rather sit on that cash. So we are not shy on how much cash we sit on. And remember, you got to take this capital into 3 buckets. One is just the risk capital, which the company always will keep as cash. One is replacement capital because, obviously, there are ships that are getting old, and they need replacement and then you are just standing still, although you may be modernizing the fleet to an extent. And then the third bucket is the growth capital, which hopefully will take us from 40-plus ships today to 50, 60, 70 ships as and when the time is right. So until we think the time is right, and if in the meantime, we have to build up cash, so be it.
Okay. One last question from my side. See, in offshore, was there some one-off for dry docking experience, dry docking and hence, the EBIT turned negative? And secondly, can you give an idea of how is the average rates for vessels and rigs be for us today versus 2 years back in the same quarter, something like what we give in the average price of ships? How they have -- on a base of 100, how they have moved something? Just to understand where are we...
So basic -- no, so what happens is, it's not right to comparing with shipping because shipping averages are spot averages, right? In offshore, the averages are typically 1-year average or 3 years. So you take the rig business, right? You might have priced it -- every time you price the rig, it's been for 3 to 5 years, correct, unlike shipping, which is spot. Every day, you're doing some fixture or the other. So that's more representative of averages than offshore.
Having said that, if your question is compared to 2 years ago, if you had a rig that you were pricing 2 years ago versus pricing today, it's fair to say that it will probably be about 2.5 to 3x higher, if you are pricing. If you were pricing of boat as well -- and again, the boat is not as commoditized as ships are because they have different features. They operate in different jurisdictions, and they're expected to perform different tasks. So there, again, I would say, compared to 2 years ago, maybe the improvement is 2x, 2.5x.
This quarter's EBIT turning negative, any thoughts?
No. So basically, all that has happened was we had a rig that had to prepare itself for a new contract. So there were 2 hits that you take. One is the rig, obviously, is not earning and that happened for most of October, November and December. And you are also spending money to redeploy her in a new contract. So that's why you take a double hit between contracts. But all that happened is you have deferred it because obviously, you'll have a start date and then you are now committed for the next 3 years. So I don't think too much, and I would recommend to all listeners in not to place too much emphasis to all these quarterly things.
The next question is from the line of Roshan Nair from B&K Securities.
So my question was like the [ VLGC ] trade miles, is it expected to remain elevated for the coming years like tankers?
So on VLGC, the trade miles will broadly be where it had settled in Cal '22. I think the difference, of course, on the VLGCs is that, that's one sector where the supply side is a little ahead of the -- in relation to where the conventional tankers are and where the conventional dry bulk business is. Okay.
And is Russia, big propane exporter?
I'm not sure. Shiv, do you have an answer to that?
I don't think so. I don't think so. Only LNG.
Okay. And my next question is, would you like to give any guidance on offshore breaking even given that it is decidedly in a much more positive environment right now?
So it's very difficult to give forward guidance. I think there was a caveat at the start of today's conference where we are reluctant to give a lot on forward guidance. All we can say is that every access that we are repricing be it the boat or be it the rig are being repriced at higher levels than, let us say, 6 months ago, and obviously, much higher levels than 1 and 2 years ago. So logically, obviously, with some lag, the business will move into a profitable position.
The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.
So you have explained the fundamentals of the business in the presentation, but are you seeing any changes, obviously, apart from the demand any changes which can really affect the product in tankers market, the -- apart from the seasonality? Because I think recently there has been quite a lot of decline in both the clean tanker and the dirty tanker index. So anything fundamental that you're seeing any changes or it's just seasonal and just one time?
So we think it is a little more seasonal, although this season has got a little more exaggerated. But traditionally, if you see Jan and Feb tend to be weaker than November and December, right, because with all the pre-stocking for the winter and all that has already happened. And then -- and also people then also do a lot of refinery maintenance in different parts of the world, typically in Jan and Feb, and then the refiners get back into action for the summer season.
So if you just look at averages over the last many, many years, Jan, Feb are always a little weaker. Now sometimes they have 15% weaker, sometimes they may be 20% weaker, sometimes they may be 10%, 30%. It's all over the place. I think the -- and therefore, I just said it to one of the previous participants that we should ignore these daily and weekly and monthly volatility. I think the important thing is that you've got a very tight market as the CFO has just shown and highlighted on the supply side. And therefore, any improvement in demand can lead to a very quick tightening of these markets because 50% of the equation is resolved.
The next question is from the line of Anurag Jain from Green Lantern Capital, LLP.
Am I audible?
Yes.
Just wanted to understand Slide 18 in our presentation, which talks about the revenue coverage for Q4 quarter. So are we starting to go slightly long on the rates as in covering our ships for slightly longer than what we used to do earlier? Is that how it should be?
[indiscernible] uploading version of the presentation. But Q4 is basically just these 3 months. So it's logical that you will have much more coverage when you only have 3 months left. The base itself is less.
Okay. Okay. And also maybe the fact that...
So when we talk of coverage, basically, what we are talking about is, if we're telling you in July, we're talking about the remaining 9 months of the FY. If we're telling you in October, we are telling you about the 6 months. If we're telling you in January, we're telling you for the last 3 months. And therefore, by definition, same number of days on only 90 days per ship. So it will show a higher number.
Okay. So I mean does that mean that -- I mean, Jan, Feb, we've seen rates come off, but these would have a slightly -- I mean, higher rates will be fixed then for a quarter, something like that?
Yes. some part of it would have got fixed. Normally, you would have -- even if you're on voyages, you fix the 45-day voyage, you are covered for 50% of the quarter, that is your 50% coverage.
The other question was on [Technical Difficulty]
Mr. Jain, I'm sorry to interrupt, your voice is breaking, sir.
Sorry. Is it better now?
Yes, please go ahead.
Yes. So just wanted to understand the other thing in terms of deployment of capital, are we finding opportunities in any segment at all? I mean, for example, containers are down, dry bulk is down. Are there any opportunities at all there for deployment of capital or these are getting tight right now?
So I think the -- we are getting closer to our targets than we were, obviously, 6 months ago as container prices, once they are down 70%, they are still significantly above where they were pre-COVID, right? Dry bulk from the peak of this last cycle is down somewhere between 20% and 30%, but they are still at elevated -- because it's 20%, 30% from an elevated level. But as you can see from both these examples I've given, we are moving closer to our target. Obviously, we don't want to define exactly when we are likely to come in and buy.
Understood. Understood. So is it that for maybe next few quarters or for some period in time, our peak numbers are already there, in the sense, unless rates go up substantially higher from here, our peak in terms of profitability is already here. Is that a fair assessment?
Well, if rates don't go higher, obviously, profits can't go higher.
Yes, because the capacity is still the same.
The capacity is not likely to change, right, at the moment. So on the same capacity, unless the per day earnings go up, how will -- of course, what can happen is like, let's say, offshore will hopefully provide improvement in there on outlook as the repricing kicks in. So -- but other than that, unless you expand the Q, the P into Q can't improve, right?
Absolutely, absolutely. Sure. That's all from my side. And congratulations on excellent set of numbers.
So we have a question from -- in the text box. I'll just read out the question from Mr. Rajesh Khattar, an individual investor. First question is, how much of the profit is contributed by crude carriers?
Mr. Khattar, we don't talk about individual sectors, the profitability. We give the TCYs, what we have earned, the day rates that we've earned for each of the types of ships, and you can work that out from there, but we don't disclose that.
How should we -- the next question is, how should we interpret the operating days coverage mentioned on Page 19?
I've already answered that question just now. It's for the remaining days of this financial year.
Next is maximum fleet is in product carriers, what are the triggers for product carriers?
Mr. Sheth, if you want to take that?
So the basic thing is product is arbitrage-driven business. And it's -- unlike crude, which is not that much driven by arbitrage. So the trade depends on what the margins, the refining margins are, where the refineries are, where are the shortages and therefore, it's a much more trader dominated business as compared to crude oil. And so the real demand for products, both absolute demand and tone-mile demand, is driven by where we see the best -- the best arm going forward. And because the odds are so very uncertain, typically, traders have multiple options when they quote for the business. So it's very difficult to really say what else will drive demand, other than [indiscernible].
And of course, the fact that how is the economy doing because a lot of the products are -- the demand for products like gasoline, gasoil is dependent on transportation demand, it's dependent on manufacturing demand. Jet oil, jet fuel is dependent on people wanting and willing to travel again post COVID. Particularly, we are seeing -- there is a lot of vengeance traveling that the Chinese are talking about. They haven't been able to travel for the last 2 years, and we believe that's going to lead to a lot more demand for jet fuel. So it's -- different product demand is driven by different factors.
Yes. And the last question is, how has January been? I assume what the spot markets are doing in January?
So January, typically -- you mean for products? crude? What is the question?
No, this is in general.
So for January, again, every season, January typically tends to be weaker than -- as I just said to one of the earlier participants, Jan, Feb are typically weaker than November, December. We are seeing a similar trend of that, both in tankers as well as in dry bulk. There is no reason to believe that, that trend will change. And then we start seeing improvement from the month of March. Obviously, we are 1.5 months away -- I mean one full month away from March, but there is no reason to believe that, that trend will not continue.
Yes. Okay. I think we can go back to the voice questions queue.
The next question is from the line of Samraj N from Dwarka Share Brokers Private Limited.
Yes. Can you hear me?
Yes.
Okay. Since Mr. Shiv said that we are very close to OpEx on the bulker side, I just wanted to ask you, sir, if you take the -- if you take the -- I mean, what's the -- basically, what's the all in breakeven, if you take the G&A and just one finance expenses? So can we presume that on the bulker side, we were negative on the net if you take the -- on the net side?
No, we're taking about currently, not last quarter.
No, no. Even if you just take currently, you see you've got to have a vessel that is in the spot market. So if you take -- you have to take average earnings. So there are some vessels which you might have fixed 40 days ago, some vessels you have fixed 6 months ago, some you have fixed 1 week ago like that. So if your question is, is the dry bulk division EBITDA positive? The answer is yes. It's EBITDA positive even today.
Okay. And currently, the VLGCs -- the VLCCs are under pressure to take the AG West Coast route. So is that -- is this also rubbing off on the Aframaxes and Suezmaxes rates?
Not to the same extent as I've just explained to somebody else that January, February, as an average earnings typically tend to be lower than November, December. So each of these sectors average earnings today are lower than what they were in the previous 2 months. We are still at incredibly profitable levels.
Incredibly profitable. Okay. And so -- and my last thing, just on the sideline of the conference since you have such a wide knowledge on shipping industry. Sir, don't you think Shipping Corporation of India is the cheapest shipping stock going on now, especially if you take the cover of its real estate, which is 1.5x more than the current price? And if you take the entire fleet, NAV is coming free of cost. What's your comments, sir, if you could just give a general view on that?
Honestly, I have not studied it, so I can't give you a comment on Shipping Corporation. I haven't done any work on it.
The next question is from the line of Rajesh Khattar, an individual investor.
Am I audible?
Yes.
You have already taken some of my questions from the chat, and I have already written the next set of questions on the chat, but I will just read them out. So one question is on the dividend payout. You have given excellent dividend in this year, which works out to be the highest dividend ever in the history of the company. But the dividend payout ratio works out to 15%. So as a policy, how much payout ratio does the company want to maintain?
Sorry. I think broadly speaking, our payout ratio will be somewhere between 15% and 20%, give and take. That's the current thinking. These things can change. But I think that's where we are at the moment, somewhere in that range. It's always a function also. Obviously, you want to do a 15% payout ratio if you are profit is, just for argument sake, say, INR 10 crores, right? I mean then you'll draw [ on your reserves ] and so on and so forth.
Yes. Okay. My next question is like on the gas carriers. You have the fleet with the highest average age. So when do you plan to sell the older ones?
No. We still have plenty of life on the gas carriers. So there is no immediate plan to sell anything. As you know, gas carriers tend to have a longer life than conventional tankers. So there is no plan whatsoever at this stage to sell any of the gas carriers.
So how much longer life they typically have? Like is it like easily close to 20 to 23 years?
Much more.
27.
So yes, if you see, the company's depreciation policy is 27.
But they go up to 30 also. We have seen ships trade up to 30.
Yes. Yes.
Sir, you are nowhere close to selling of your ships due to aging in any of your segments, right? Or is any of the segment approaching the use by date and you will have to look at selling some of them?
So we don't have to look at selling anything at this stage. But obviously, as time progresses, let's say, 12, 24 months, then some of the vessels will be hitting, not necessarily the end of their life, but what we are now seeing is private terminals and certain ports and customers are reluctant to take very old ships. Of course, in a tight market like today, they all make concessions. But in a more normalized market, then the utilization levels of some of these older vessels come off. But what you should never forget is that these older vessels sometimes give you the best return on capital or on book value, let's put it that way.
Okay. I have just last 2 questions. One is, can you share the e-mail ID for investor queries if we want to reach out between the quarterly con calls, how can we reach out?
Yes, you can find it on our website. You can find it on our website. It's corp_comm@greatship.com, but it's on our website, if we go to the Contact Us page.
Okay. Just can you repeat that, corp underscore?
Comm, C-O-M-M@greatship.com. And if any doubts on it, just go to the Contact Us page, you'll find the same.
Okay. Then you have already explained about the coverage of days, twice you have explained. But I'm still not clear on how to interpret, let's say, if you can give an example, you have mentioned crude carriers coverage is 50%.
Yes, that's right. So there are 90 days. So let's say that you only have 1 ship, okay, and you fix it for -- and let's say that you keep fixing it for 45-day voyages, okay? If you look at it on 1st April 2022 and you're looking for FY '23, your coverage is 45 divided by 365, which is 12.5%. If you look at it on 1st July 2022, it is 45 upon 270, which is 16%, or whatever that number is. So now you're looking at it as 45 or 90, which is 50%.
So that means our LPG carriers are all booked out for the whole...
Are all on time charter. Are all on time charter.
Okay. So okay, this does not indicate whether this is on spot?
No. This is weather spot. So if you have done a 45-day voyage that counts as a coverage.
Mr. Khattar, does that answer the question?
I think we may have lost.
As there is no response, we'll move to the next question, which is from the line of Amit Khetan from Laburnum Capital.
I just had a clarification on the offshore segment. So the rig that we have repriced -- is my understanding correct that it's currently off contract and not earning anything? And this goes to new contract...
No, no, no. It is on contract, right, but it is on the older rate contract. Now there was a tender which allowed us to participate in it. So when we -- when the old contract terminates, which is in the second half of calendar of this year, this calendar year '23, the new rate will apply when it renews its contract. It's earning money.
Okay. So basically, all our rigs are currently earning money. Or is it just that one of the rigs is on the older contracts, if we get repriced in May...
It has already been repriced, but that earnings -- the repriced improved earning will kick in when she enters a new contract. But all the 4 rigs are running now.
The next question is from the line of Anurag Jain from Green Lantern Capital.
Yes, thanks so much for the opportunity, again. Just wanted a quick thought -- your thoughts on this. So somebody did ask about SCI as a company. Would this -- would SCI be a good asset and it's on the divestment list? So would that be an asset you would evaluate for buyout or something?
No, we are not in contention. So we didn't put in that expression of interest. So we are not...
Is there something of an asset that you don't like? Is that why? Is that so...
No, we had multiple reasons, which we don't obviously want to discuss on the call, but it was a decision that was collectively taken that we'd rather grow on our own.
So we have a text question -- sorry, we have a text question from Nikhil Jain of [indiscernible]. He says, why do you think product rates have fallen so much? The next question is what will be the impact of the ban on Russian clean products on tone-miles? And third question, is China buying a lot of Russian crude, thereby reducing tone-miles? The first question is, why do you think rates have fallen so much?
So typically, again, I've said this before, January just is always weaker than December. It's typically the time of the year when there is a lot of refinery maintenance going on. And a lot of the [indiscernible] gets filled up between November and December in anticipation of the winter season. So then there is a less immediate requirement for requiring the products, especially the heating end of the product. And it's just a few less cargoes that then determine what happens with the markets. Markets tend to exaggerate. And I think we have seen in the past, we've seen data which tends to support that every incremental cargo increases the rate by between 10% and 20%. And every one less cargo reduces the rate by then. But you just have a few less cargoes and then ships quickly build out and so on and so forth.
But these things turn on a dime, and we have seen this happened in October of '22, where between October and November, on average, the average of October and the average of November, the market went up 3x in just 30 days. So again, I think I said with one of the other participants, seriously ignore these daily, weekly, monthly earnings.
The next question was on what could be the impact on the ban on Russian clean products?
So the band that kicks in on the 5th of February, we've got to see whether there is a market for the Russian products. Obviously, unlike crude oil, where India and China were the big beneficiaries and were the big purchasers of Russian crude, that's not going to be the case for products. But there is talk in the marketplace that the product would find itself to Africa, where there is a product shortage. It could find its way to Latin America, where there is a product shortage, but we don't know yet because the absolute date hasn't kicked in. Obviously, if the Russians fail to find a market for its products, it means they will almost certainly get compelled to reduce their refining runs. And once they've used the runs, then obviously, there's less product to move. So that too can happen. So we'll just have to wait and watch.
Your last question was, is China buying a lot of Russian crude thereby reducing tone-miles? Probably referring to either pipeline or Eastern?
No. So basically, China has been buying a lot of Russian crude throughout. It's not as if they're buying more now and they were buying less earlier. And in spite of China buying Russian crude, we've seen close to a 9% year-on-year improvement in ton-mile demand for crude oil. And this is in spite of China buying Russian crew. So I wouldn't say that, that is -- obviously, they were not buying the Russian crude through pipelines, then the 9% would have gone up even further.
Yes. I think that's all the questions and texts. Yes.
Yes. Are there any further questions on audio?
We don't have any more questions in the queue, sir.
Great.
Would you like to give any closing remarks. Mr. G. Shivakumar?
Thank you. Thank you, everyone. The transcript and the audio of this call will be uploaded on our website in the next couple of days. As always, we are available for your queries. Contact details are on our website. So please contact us if you have any requirements.
Thank you all. Thank you.
On behalf of The Great Eastern Shipping Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.