Great Eastern Shipping Company Ltd

NSE:GESHIP

Earnings Call Transcript 2023-Q4

[Operator]

Good evening, ladies and gentlemen. Thank you for standing by. Welcome to GE Shipping earnings call on declaration of its financial results for the quarter and year ended March 31, 2023. [Operator Instructions] I now hand over the conference to Mr. Shivakumarji, Group CFO at GE Shipping to start the proceedings. Over to you, sir.

[G. Shivakumar, executive]

Thank you, Sandi. Good afternoon, everyone, and thank you for joining us for this conference call to discuss the results for Q4 FY '23. We'll do a quick run-through of the results. And after that, we look at what's been happening in the markets. I think I need to have the control for the presentation.

[Operator]

Yes, sir. I have passed on to you right now.

[G. Shivakumar, executive]

So highlights, highest ever net profit of INR 2,575 crores, beating our earlier record which was in 2018, which was under INR 1,400 crores, beating that by a huge margin. Also, our consolidated net asset value has moved up by almost 70% in FY '23. And we look at the components of that also. Thanks to these results, we have also announced our highest ever dividends, 4 interim dividends totaling to INR 28.8 per share. Today, we declared -- the Board declared 4 things that in dividend of INR 9. So including that, we have announced a dividend of INR 28.8 per share.

Going through the results. We have declared a net profit, standalone net profit for the quarter of INR 632 crores. On a consolidated basis, we have had a profit of INR 722 crores. Cash flows have been strong. We've gone into a net cash situation. So let's go through the numbers in detail. We normally look at what we call normalized financials, which removes the effect of currency on revaluations and the derivatives [indiscernible].

So let's look at that. It's not very different. On a stand-alone basis, our net profit is higher to the extent of INR 30 crores. So we are at INR 662 crores. On a consolidated basis, we are at INR 699 crores for the quarter. We mentioned here what's happened to the net asset value. The stand-alone net asset value, which was INR 618 per share in March 22 is now at INR 962 per share. So that's gone up more than 50%. The consolidated NAV has also gone up very significantly. We were at a midpoint of about INR 678 per share. Now we are at about INR 1,160 per share, which is almost 70% increase.

I won't go into the ratios here. These are things that you can work out yourself and we spend our time on more value adding things. Market commentary. We continued our strong performance. Tankers continue to be very strong as they have been through most of the financial year. As we had expected and in keeping with seasonality, dry bulk markets were quite weak in the Jan-March quarter, and they recovered towards the end of March.

Tanker asset prices are now at their highest level since 2009. Even bulker values despite having a low spot market has gone up during the quarter and this is probably due to the optimism caused by the low level of the order book, and we'll look at the order book later.

The consolidated NAV, as I've mentioned it before, has reached INR 1,164 per share at the midpoint of the asset values. And this rise is due to both increase in asset values and very strong cash profits.

The offshore market has also strengthened during the year and recent contract pricing have been at significantly higher levels than the previous contracts. So we are waiting for vessels to come up for repricing and these tenders come up not very frequently. It's not like you have a daily pricing like you have in shipping, but recent pricing points have shown significant increases in price.

And of course, at the end, while we continue to enjoy the strong rates in the market, you must keep in mind that recessionary pressures may be building up in some advanced economies. You can see it in oil demand, gas oil demand specifically, that is risen, that seems to be suffering a little bit. And you can see it in the refining margins as well.

Just looking at the performance and look at the table at the bottom, which shows you the difference between the earnings in FY '22 and FY '23. Crude carriers earned about $35,000 per day more than in the previous year. Product tankers earned about $23,000, $24,000 a day more on average. LPG ships, which are typically on time charter were about the same. And dry bulk ships were a little lower because the market was weaker. But it just shows you how much impact -- so just to give you an idea, this increase in the crude tanker rates and we are talking about 25 ships, as of -- tankers as of date. And with $25,000 per day on average increase means more than $200 million in a year.

Just 25 ships constitute somewhere between 8,500 and 9,000 operating days in a year. And that has huge leverage in terms of the results. And as you all know, the cost base remains the same. It's just operating expenses because we are measuring this after fuel expenses. So that shows you the power of the operating leverage and changing in the P&L.

Now let's look at how the stand-alone net asset value has changed. We started at INR 618 ended at INR 962, INR 200 of that change was from cash profits. So that's actual cash, which has come into the -- into our bank. It is not a mark-to-market increase in value of the assets. That's INR 168 per share. That's a fleet value increase. So INR 200 has actually come into the bank, of course, which has helped us to become net cash from net debt at the beginning of last year. And of course, we have minus 25, which is the dividends which have been paid out during the last financial year, which then takes us to INR 962 per share of net asset.

The CAGR over the last 5 years has been 22% in the net asset value. We started at INR 357 per share, and this is now at INR 962. Similarly, in consolidated net asset value. Our cash profit was about -- again, between the cash profit and fleet value, each of them are about INR 250 per share and minus the dividend, which takes us from INR 692 to INR 1164.

Let's look at the shipping markets and see what they've been doing. So the left graph is the Suezmax crude tanker. Obviously, the FY '23, graph is much stronger than the FY '22 graph. And FY '24 started off stronger than FY '23 started. So this is where we are. We average -- and this is the market averages, these are not our averages. The market, which averaged less than $10,000 a day for a Suezmax tanker. This year, that same measure averaged $57,000 a day. For an MR tanker, it went up from $7,500 a day to $36,000 per day.

Again, what led to this? Specifically, let's look at the quarter, crude and product tankers spot earnings continue to be elevated. The -- on Q4 year-on-year, the trade -- the crude trade, which is in ton miles grew by about 11% and product trade grew by about 9% year-on-year. That's Q4 FY '23 versus Q4 FY '22. So at the other end, on the supply side, the crude supply growth was only 4%, and the product supply growth was only 2%. The EU embargo and Russian imports for crude, it kicked in from December 5, 2022. And for products, it kicked in from Feb 2023, further boosted ton mile growth. Asset prices, we've already mentioned that we are now at the strongest level in the last 14, 15 years.

The critical thing is that the order book for crude tankers is now at 2.5% of the existing fleet, which takes away a lot of or rather, it's a big positive because the future supply is very constrained. And therefore, you need only a very small increase in demand in order to keep the market tight. In product tankers, this also was at a low number, probably around 5% when we last met. It's been building up recently. So it's now currently at about 8% of the fleet.

On dry bulk, we had a softer market in Q4, which, again, is a typical seasonal pattern, which picked up towards the end of March and is at a reasonable level. So we are at around 40 sizes were at around the same levels we were last year. For the smaller ships. And last year, remember, the smaller ships outperformed the larger ships for a large part of the year. The smaller ships are doing much worse. So the Supramax is -- which you can see on the right side graph, which were at almost $30,000 a day in April last year are somewhere in the $10,000 to $15,000 particularly in this year.

So basically, the COVID related congestion, which unwound released a significant part of the fleet into the market. The demand side was quite strong. So Chinese steel production, iron ore imports were all up during the quarter. Coal imports into India and China both continue to increase. So the main factor was that the release of capacity from congestion, which weighed down the supply-demand balance.

LPG continued to be strong, but we had a very strong fourth quarter of last year. And the first -- I mean, the fourth quarter of 2022 calendar, and it came off from those highs but still at pretty strong levels at about 70,000. Again, our ships are all on time charter. So we are not exposed to the spot market currently. So -- but the markets have been strong. U.S. LPG exports are up 20% year-on-year, which is a spectacular number. In this sector, this is the only one of all the ship types that we have and the VLGC order book is the only order book, which is really a high level in the historical context in excess of 20% order book.

So yes, we looked at fleet supply. And I mentioned these numbers earlier in the orange, you have the crude tanker order book. The blue is the product tanker order book and green is a dry bulk order book.

Looking at asset prices, all asset prices have gone up. I mentioned that even dry bulk went up in value despite earnings being low. So there is a lot of optimism around shipping markets. So yes -- so asset prices are looking quite elevate.

In scrapping, there hasn't been much scrapping because markets have been quite strong. So you see calendar '22, there's very minimal scrapping here. All of this is building up at some point, these ships have to go.

Looking at the offshore business, and this is almost a repeat of what we had said the last time. The Middle East is a big driver of incremental demand. And it's expected that Saudi Aramco will have 85 to 90 units on term contracts -- of the jack up rig on lead on term contracts. And that's a big number, which is absorbed. And a lot of those contracts have already been awarded, they're just waiting to go into the contracts. So the utilization of rigs which went down to low 60s in 2016, '17 is probably close to 90% now or an effective utilization basis, which we have seen reflecting in the pricing, we had a very significant increase in the pricing in the last tender that we priced in India. So let's see how the next tender prices from now.

And of course, supply side, nobody has been ordering rigs or supply vessels for the last 6, 7 years ever since the price of oil dropped from around 100 to around the 30s in 2015. So it's unlikely -- a lot of the yards have gone out of business. And so it's unlikely that there will be significant capacity coming into the market.

Looking at just the fleet supply. The current fleet is just under 400 of jack up rigs. The fleet under contract is 344. And we have -- so all these rigs, basically about 430 rigs are actively marketed. The others are more or less stacked or are likely to be marketed. Of those -- so out of the rig fleet, which is existing, 344 are already on contract and about 40 to 45 have contracts and are due to go into contracts. So that means that you'll have 385 to 390 rigs working or of a effective total of 450 rigs, which means about a 90% utilization of the rig fleet.

In the vessels, it's not as tight, but a lot of the vessels have been stacked for a significant amount of time and are unlikely to come back into the operating fleet. This is utilization and the utilization has been pretty strong, has been strengthening over the past couple of years.

We have -- repricing is coming up and -- which is good because all the repricings are happening at higher levels than the previous contracts. The previous contracts were fixed in 2017 to '19, which was a trough of the market. So in the first half of this year, we have 5 vessels to be repriced. In the second half of this financial year, we have 4 vessels to be repriced.

Then in the first half of FY '25, we have 6 vessels to be repriced, and we have 1 rig which comes off contract around this time next year. And then in H2 of FY '25, we have 1 more vessel, and we have rig which needs to be repriced. We had bought a vessel an 80-ton anchor handler in the month of February, we took delivery in March. That vessel has already been delivered to us and is already working and also got a 3-year contract in India.

Looking at broad financials. Again, we levered up between 2016 and '19. And then strong cash flows enabled us to reduce our leverage. In fact, we are in net cash now. This is share price to consolidated NAV. We are at about 0.5 to 0.6. So that brings me to the end of the presentation. We are happy to take any questions.

[Operator]

[Operator Instructions] The first question is from the line of Abhishek Nigam from B&K Securities.

[Abhishek Nigam, analyst]

Just 2 questions from me. Number one, what is driving the sharp improvement in profitability in the fourth quarter?

[G. Shivakumar, executive]

Okay. So are you referring to the shipping business or the offshore business?

[Abhishek Nigam, analyst]

Sorry, the offshore business. Yes.

[G. Shivakumar, executive]

So the offshore business basically had a tax write-back. We won a case and appeal. And so there was a tax write-back for the offshore business. So that's one of the largest factor. There was a INR 45 crore write-back of tax.

[Abhishek Nigam, analyst]

But that impact comes before the operating profit line. Is it? The write-back?

[G. Shivakumar, executive]

So you're talking about PBIT level?

[Abhishek Nigam, analyst]

Yes.

[G. Shivakumar, executive]

So the increase in profitability will be just that we were just repricing because we went -- we were off contract and then we went on to the contract. We were -- we had rig off-hire days, which is now got removed. The rig was working through the quarter. We had all our 4 rigs working through the quarter where we had a rig which was not working up to October, November. And we've had -- so in the international markets, we've had improvements in pricing as well. But that's 3 or 4 vessels. So it will not really move the needle much.

[Abhishek Nigam, analyst]

So this kind of EBIT run rate for offshore, this is kind of sustainable over the next few quarters, right?

[G. Shivakumar, executive]

Yes. We have -- okay, I don't want to make a focus, but yes, we should be in a position to maintain whatever we are doing on an operating level.

[Abhishek Nigam, analyst]

And on the OSV fleet, is it possible to give us a sense of where the day rates are? So for example, if I look at Tidewater, then I think they are closer to that $10,000 to $13,000 or so range. In Asia Pacific. Is that where we are or are we on a slight discount? Or if you can just give us a sense, not an exact number?

[G. Shivakumar, executive]

So it's very difficult to compare these things because the operating expenses in different regions are so different. But recent pricing even in India are $10,000 and above, for supply vessels. And again, I don't know what kind of vessels you're referring to with the -- for Tidewater and whether it's just a blended of all their vessels because they also have some high spec vessels. But recent pricing for term contracts in India also have been around $10,000 or higher.

[Abhishek Nigam, analyst]

Last question from me. So there is an order book of 20 jack up rigs for -- in your presentation for the offshore segment. I'm just wondering if these are credible orders? Or are these very orders which customers...

[G. Shivakumar, executive]

These are all ancient orders. So these are rigs which are half is almost waiting for delivery. I don't -- we don't know if they'll ever come into the market, but a lot of them got reactivated last year. Some people went and bought them, put them into the -- put them into Saudi Aramco and ADNOC contracts.

[Abhishek Nigam, analyst]

Yes, I remember Keppel has placed a couple of these with customers globally. So okay. So these may or may not come through eventually?

[G. Shivakumar, executive]

No, no. Yes. Correct. These will typically be some Chinese rigs, I suspect. I think Keppel is more or less out of all their rigs. I think it does include that next write-back. So you shouldn't take this as the run rate going forward.

[Operator]

The next question is from the line of Amit Khetan from Laburnum Capital.

[Amit Khetan, analyst]

So I had a very industry-related question. Just wanted your perspective on a tail event. So there's a very large and growing dark fleet, which is transporting Russian oil. These are mostly on variable tankers, which should ideally have been scrapped, right? Now the risk of a major oil spill which would have been miniscule earlier has probably increased exponentially. How do you guys think about this risk? And based on historical experience, what's your sense of how the industry might be impacted if there is a major oil spill in the high seas?

[G. Shivakumar, executive]

So typically, if there is a significant oil spill -- by the way, there was an accident, luckily not on a leading tanker of Singapore, Malaysia last week, on a tanker, which there was an explosion on it. But typically, if you have an oil spill, it leads to much more regulation. Now these ships are already outside regulation, the dark fleet. So I don't know how it will impact.

But yes, there will be a lot more urgency with regard to the dark fleet. And maybe there will be a clampdown on those ships going forward. It's tough to say what could happen if there is an incident. But yes, certainly, if there is a -- because an oil spill is such a public thing and which really affects a lot of people, there will be a regulatory clamp down potentially if there is an oil spill from one of these ships.

[Amit Khetan, analyst]

So it's fair to assume there would be an acceleration in scrapping if that happens?

[G. Shivakumar, executive]

If that happens, then there is -- there's a clampdown on the dark fleet, yes. But then a lot of things that can happen then because it's not going to happen by itself. If the dark fleet is removed, then that oil gets -- how does that oil get transported, the Russian oil, if that just removed from the market because then if that's removed from the market, then what happens to the oil supply-demand balance for oil itself. So there are a lot of things that go into that equation that we have to consider.

[Amit Khetan, analyst]

Secondly, again, I've asked this before as well, are you seeing any opportunities for capital allocation right now?

[G. Shivakumar, executive]

Unfortunately, in terms of ships, no. As I mentioned that the dry bulk market was weak, but asset prices did not come up. They went up a little bit. In fact, they've gone up a little bit even after March 31 a little further. So no prices have -- are not yet at attractive levels. And tankers, of course, are 14, 15-year highs. So not yet any opportunities for capital allocation, unfortunately.

[Operator]

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

[Himanshu Upadhyay, analyst]

Hello. Am I audible?

[G. Shivakumar, executive]

Yes, Himanshu. Yes, you are.

[Himanshu Upadhyay, analyst]

Congrats on great set of numbers. I have a question, okay. Historically, our thought process has been that whenever we are around 50% or down any way we would like to do a buyback of those things, okay? And the -- means around INR 500, INR 550 used to be the NAV and the stock used to be around 300, you would do a buyback. Currently, the NAV is around INR 1,200, the stock is around INR 650, INR 660. Do you think you will use the same metrics or you will say, no, the stock is expensive? Or how do you think about it? Because a lot of things have changed, but the discount rate remains similar. So will it be make sense to buy more shares or?

[G. Shivakumar, executive]

So a couple of things, one is, if it is INR 650, the price is not INR 650. The price to us is INR 800 because of the tax, though that changes the equation significantly. The buyback tax, right, which is 23%.

[Himanshu Upadhyay, analyst]

But debt was at INR 300 also, the last buy back?

[G. Shivakumar, executive]

That's right. So -- yes, correct. But you'll have to think of it as -- so it was there the last time that we did it. It was not there the previous time that we did a buyback which was at 2019. So this is a factor to keep in mind. So when we are looking at 50%, 55%, which you mentioned, you had 50%, 55% without any additional costs. And now you have a 23% transacting cost. So that's one.

The second is, you will have to see it versus what opportunities you have to deploy capital in ships that's the other opportunity that we have. If you think that you can get potentially opportunities to deploy capital in ships at reasonable prices, then we would like to do it. Again, the NAV by itself, you need to look at NAV in the context of what are the ship values that have gone into it. So we will look at that also when we decide on when we have to think about whether to buy the paper or not. But the 23% cost is a very significant factor here. I'd just like to emphasize that.

[Himanshu Upadhyay, analyst]

And secondly, my question would be we are seeing a lot of offshore companies or vessel companies are going for offshore wind farm type of servicing contracts and all those things. Is it a viable business for us also? And can our ships also go into that business? Or what is your thought because you keep on evaluating various other opportunities. How do you look at these type of services which are coming up globally?

[G. Shivakumar, executive]

So one of our vessels, one of our MC vessels, which is the 2 most advanced vessels in our fleet, which are operated out of Singapore. One of those vessels actually operates doing the wind farm support, helping in a wind farm installation work. Again, it's not a wind turbine installation vessel, but it works supporting the wind farm project.

But the typical vessel for the wind farm work is very different from ours. Maybe you can do some modifications. I'll check with our people. What is -- what the situation is on that. I know that there are purpose-built vessels which are for servicing wind farms. But I don't think you can use the standard OSV -- the AHTSVs in that kind of work.

[Himanshu Upadhyay, analyst]

Is there something which hinders us from entering that business over a period of time? Means can we just buy an asset and start servicing in that market? Or there is some qualification required for that business? What would be the IRR you will...

[G. Shivakumar, executive]

Yes, we haven't looked at those numbers at all, Himanshu, so I just won't be able to reply. See the thing -- but on the qualification, I think that the fact that we have a track record operating internationally with different kind of vessels, including some advanced vessels, we even operate wind well stimulation, diving support vessels, so pretty advanced vessels. I don't think we'll have a problem qualifying necessarily, but I don't know what kind of IRRs can be made on this because I just don't know what that market is.

[Himanshu Upadhyay, analyst]

One thing, the crude tanker what we sold. So the prices have gone up, okay? But the proportion of our assets on the crude side is pretty low. And currently I think only 7 ships are now remaining. So how are we thinking on that side? Because the order book, the lowest seems to be on the crude side. That effectively means oversupply in that space, will it take further timing more? It may take much longer. And hence, the segment can do well much for a longer period of time, and we have the lowest percentage of -- we sold one of the ship. Just some thoughts on that? Or how are you evaluating the market?

[G. Shivakumar, executive]

Yes. It's possible. And not 7 is what we have today. It's going to go down to 6 after we deliver the ship. So because we sold the Lavanya, the Jag Lavanya and she's due for delivery by June. So we'll be down to 6 crude carriers. Obviously, we are not very happy with that situation. We would like to rebuild that fleet. But we'll wait for an opportunity. Yes, we would have liked to have more. I think 5 years ago, we probably had 12 crude tankers. Now we're down to 6. But yes, we would like to rebuild that fleet at an opportune time. And we are hoping we get that opportunity someday.

[Himanshu Upadhyay, analyst]

And last question on cash on balance sheet, means earlier when our balance sheet had debt, so we used to keep some cash, means principal and interest payment and all those things also, we have cash for that. But with net cash on balance sheet, do we really require some amount...

[G. Shivakumar, executive]

Yes, you need to do it because the net cash, you'd still have debt repayments every year. So you will still have to keep the risk capital to ensure that you keep that if you are able to meet those repayments even in a bad market.

[Himanshu Upadhyay, analyst]

No, if we repay the debt, so there will be a net cash?

[G. Shivakumar, executive]

But we are not repaying the debt, right? We are not repaying the debt. There is so -- let's say, that's $370 million of debt as of March 31, and there's $510 million of cash. But the debt exists and it's due to be repaid next year or the year after that and the year after that and so on and so forth. So you need to meet the reserves for -- out of your cash, it's only carving out a part of your cash notionally as risk capital. So out of the $510 million, part of it is carved out as risk capital.

[Himanshu Upadhyay, analyst]

But will we be still raising debt in the market?

[G. Shivakumar, executive]

No, we're not raising debt currently. There's no reason to raise debt. There's no reason to raise debt, but we have repayments next year. And if there could be a shortfall in cash flows in a risk case, if there could be a shortfall in cash flows, that amount of cash will have to be kept in the bank without investing it, without being available for investment. So just a hope, It's just that you can't invest that money. In any case, we are not investing currently. And it's under your $500 million, you will carve out, say $100 million and say this is for risk capital. It doesn't change our actions.

[Himanshu Upadhyay, analyst]

And are we doing any chartering activity from our Gulf subsidiary or?

[G. Shivakumar, executive]

Currently, nothing. We did that one transaction last year, but currently, nothing. There are no opportunities currently.

[Operator]

The next question is from the line of [ Chris Noronha ], shareholder.

[Unknown Attendee]

Good evening. My name is [ Chris Noronha ]. I just like to get your thoughts on the capital allocation process. It's just not a -- I'm talking to you in the perspective as a shareholder. Is this a good time to think -- I'd like to get your thoughts on issuing bonus shares because after looking at -- I know the 28%, 29% dividend. But after tax and inflation and currency where I'm talking from, the yield is pretty low. So is this not a good time to think about and/or perhaps I'll ask you to give your thoughts on issuing bonus shares where the shareholders could acquire paper instead of steel?

[G. Shivakumar, executive]

I don't get the logic of that because the bonus share is simply an accounting entry, which splits shares into the 1 share into more than 1 share. So how does it really add value? Dividend adds real value by putting cash in the shareholders' hands? Or you're just talking of the tax arbitrage of capital loss?

[Unknown Attendee]

Not necessarily in -- with the -- I'm assuming that the company is going to develop over the next 5 years. So those bonus shares will also grow in value.

[G. Shivakumar, executive]

But it's just an accounting entry. We have INR 14.3 crores shares today. And let's say, hypothetically, we double it to INR 28.6 crores shares. It's the same amount of net worth, it's the same amount of cash. It's the same number of ships. How does it clearly help? I haven't understood how it helps. And it's not even a capital allocation. That INR 28 per share, which we are paying out is real cash, which has gone out, which is almost INR 400 crores, which is gone to the shareholders. So I've not got the thing of -- I know that a lot of companies like to issue bonus shares. But I don't know how it adds real value and maybe it creates better liquidity, et cetera. But it's not a capital allocation thing as such.

[Unknown Attendee]

Well, in terms of -- well, I'm talking about what your options are right now in terms of capital allocation? Cost of -- as we have been discussing over the past few minutes, the cost of acquiring new ships is fairly high. So your capital allocation is not efficient. The shareholders, whilst we accept the 29% dividend after tax and inflation, it doesn't work out in terms to a very great yield. So we are working on the basis that these additional shares, which you give to shareholders will, over time, create additional value?

[G. Shivakumar, executive]

But it's since an accounting entry. Sorry, I'll come back to you, it's just an accounting entry of splitting shares. Maybe we can take this discussion offline because I think we might be boring some people. Sorry. Sorry, did you have another question?

[Unknown Attendee]

No.

[Operator]

The next question is from the line of Archan Pathak from Centra Advisors.

[Archan Pathak, analyst]

Congrats on great set of numbers. Just wanted to know, would it be possible for you to share the selling price of the Jag Lavanya?

[G. Shivakumar, executive]

No. We don't share -- as in sale and purchase transaction prices. These are generally bound by confidentiality clauses.

[Archan Pathak, analyst]

Second question would be, as we are witnessing the higher TCY for the product and the crude carriers because of the change in macro factors in the crude industry. Going forward, can you just throw some light on the crude demand? And how do we see that panning out in the next 1 year or so? Because I read somewhere the refineries are experiencing a downgrade on the margins, so that could lead to a subdued demand for crude. So can you throw a light on that?

[G. Shivakumar, executive]

Yes. So what you've read is sort of correct and the conclusion is also correct. So again, it's led by poor demand for the end product, which in this case, is gas oil or diesel. So there's been -- the demand for gas oil and diesel has been quite poor. The demand growth, which is probably a reflection of industrial activity because diesel is more an industrial commodity. And like gasoline, which is more a retail community.

And because of that, the refining margins are poor, if refining margins are poor, as you have said, refineries are less likely to increase their crude inputs, which means less demand for crude tankers. And if they are producing less refined products, there's less demand for product tankers as well. Yes, that is the situation currently. We are also in the middle of a little bit of a refinery maintenance season, and this, in any case, this period is traditionally the lull period for tankers.

Typically, Q4 and Q1 of the calendar year, which is H2 of our financial year, tend to be stronger for tankers. So that's when you really see tankers strength. So yes, the fact that demand is not picking up is a little bit of a worry. It's a macro worry. And you can see it in the oil prices, where the crude oil prices as well. So we hope that this will pick up.

We've seen the high-frequency data that you see coming out of places like China with regard to flights resumption. The data which you see coming out of OECD countries with regard to inventories, which are quite low. All of it seems to point in the direction that activity has to go up, crude oil demand has to go up, refined product demand has to go up.

However, it's not yet happened. But still tanker rates are pretty strong as we speak. So let's see what happens. And it's very difficult to call this because you don't know what's happening necessarily in some of these economies. But if the economy has come back, then you should have pretty strong growth in demand, end user demand, which means that you will definitely have movement by ship.

[Operator]

The next question is from the line of Roshan Nair from BNP Securities.

[Roshan Nair, analyst]

So I just wanted to understand when are the gas carriers coming off contract?

[G. Shivakumar, executive]

Yes, we have one coming up towards the end of the year. We have a midsized gas carrier, which is coming up for repricing in end of May to June, okay, within the next 1 month. So we have bid for a contract in India. And yes, hopefully, we'll get that. We are and one is just going through the process. The other ships are going to come out between H2 of FY '23 and early -- FY '24 and early FY '25. So basically after September, the other, the VLGCs will come.

[Roshan Nair, analyst]

And does the buyer have the option to renew at the same rates?

[G. Shivakumar, executive]

Sorry. Does the charter you mean?

[Roshan Nair, analyst]

Yes.

[G. Shivakumar, executive]

The charter of these vessels? No, this is -- yes, this is after the exercise of all options.

[Roshan Nair, analyst]

And where are the time charter rates currently versus the contracted rates for gas carriers?

[G. Shivakumar, executive]

So time charter rates are probably a little higher than the current contracted rates, $3,000 to $4,000. Maybe again, it depends on tender to tender some tenders -- it depends on how many people are bidding in a particular inquiry, but probably slightly higher than their current contract rates, maybe 5,000 to 8,000 also on the VLCCs, I'm referring to. In the MEPC, we are actually seeing improved pricing from the previous contract.

[Roshan Nair, analyst]

Okay. And for product tankers, the order book-to-fleet ratio is currently 8%. It is at very low levels. So at what level would you think that the outlook for day rates will be negatively impacted by order book to fleet being high?

[G. Shivakumar, executive]

Yes, definitely not at 8%. But remember that the day rate thing is a very short-term thing while the order book is in the long term. So the reason why we always keep looking at the order book is that, that is the only thing that you really know but the day rates are affected by what happens literally on a day-to-day basis. How many ships are available today to load a particular cargo. And therefore, what price can they demand.

So that is very short term and in a very position driven and doesn't get affected by the order book. And you've been following us for some time. You know that for the last 3 years, we have been talking about the low order book. and it's been 10% -- around 10% for quite some time for tankers. But nothing happened for 1.5 years between middle of '20 until early 2022. Though the order book was really low. It only happened because something happened and trade -- the market strengthened because some event happened and trade took off. The demand for tankers took off.

So the order book in the long term, it's a comfort factor. But in the short term, not really, it doesn't make a difference really to what our ships earn this month, 6 months down the road, it doesn't make a difference. Unless there is a big delivery. So for instance, in VLGCs, you have a 10% fleet delivery within the next 12 months. But otherwise, it doesn't really make a difference.

[Operator]

The next question is from the line of [indiscernible], Individual Investor.

[Unknown Attendee]

Congratulations, sir, on a good set of numbers. Sir, I just want to ask that we have a lot of cash on the books. Are we planning to foray into the different business verticals like if we are interested in entering the dredging business?

[G. Shivakumar, executive]

No, we are not. We are content with the businesses that we do which is the shipping business and the oilfield services business. Within the shipping business itself, there's a lot that we can do, and we will stick to those places where we think we can, we have some competitive advantage, we have some knowledge that helps us to do well. So that's what we focus on.

[Operator]

We have one text question from [ Ashish Kotam ], individual investor. The question is, can you tell us about the outlook on the shipping cycle for the financial year ahead? And what are you going to do with the cash proceeds from the sale of ship in this quarter?

[G. Shivakumar, executive]

Yes. So first, the outlook is really difficult because we don't know. And that's the honest answer. We don't know what the market is going to do, the market happens to be -- the tanker market happens to be reasonably strong now, continues to be strong. Dry bulk markets are okay. Gas carrier markets are also very strong. We don't know if that will stay true for next month or next quarter.

I always say is that it depends on what happens to oil demand or the world economy is going to go into a recession or are we going to see a quick recovery in the economies, which then will have a corresponding recovery in commodity demand, so that's one thing. The one thing is that the supply side is not a worry. So all we need is for demand to do its job, and then we can have strong markets.

Coming to the second question on what we're doing with the cash -- the sales proceeds of Jag Lavanya, I will come into the treasury, and it will be invested in safe instruments, as always, or it will just stay in the bank otherwise waiting to be invested in the business.

[Operator]

Thank you. There's one more text question from Subahu Sanghvi from Winshine Financial Services. Can we prepay debt to reduce interest burden as we are cash surplus?

[G. Shivakumar, executive]

Yes, we did do that. Good question. We did do that last year. We prepaid over $50 million in debt in the last financial year to reduce our interest burden. We saved a couple of million dollars by doing that. Wherever possible, we will look to do it. There are regulations with regard to this. So wherever possible under the regulations, we will look to prepay debt. It's a good idea, and we will look to do that where we can.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to Ms. Anjali Kumar for closing comments.

[Anjali Kumar, executive]

Thank you, everybody, for joining in today and all those interesting questions. As usual, the transcript of the call will be on the website. The audio transcript will be there by tonight. And the written transcript will be there in a couple of days. Also, please feel free to reach out for any queries. Our team is always there to help you. Thank you so much.

[Operator]

On behalf of Great Eastern Shipping, we conclude this conference. Thank you for joining us, and you may now exit the meeting.

[G. Shivakumar, executive]

Thank you.