The Great Eastern Shipping Company Limited

G. Shivakumar

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G. Shivakumar

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G. Shivakumar

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Abhishek Nigam

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Abhishek Nigam

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Bharat Sheth

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Bharat Sheth

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Himanshu Upadhyay

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Bharat Sheth

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Bharat Sheth

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Our market is quite difficult to forecast, and therefore, we don't make forecast of our earnings.

— G. Shivakumar

As you know, we also normally present what we call the normalized financials, which strips out the impact of the exchange rate movements on our results.

— G. Shivakumar

And again, because of weakness in the iron ore trade which has been compensated to some extent by the Minor bulk, that weakness in the iron ore trade explains why the Capesizes have been so weak.

— G. Shivakumar

We think at this stage that if this market were not to pick up and this market has a much greater bearing on some of the recessionary trends we have seen globally, particularly a lot of the real estate construction levels that have come up in China and if, therefore, markets were to remain weak for, let's call it, another 6 months or so, it is possible that values could drop another 10%, 15%.

— Bharat Sheth

In our thinking, even if the war were to come off, I think Europe is unlikely to go back to the energy dependency that they had on Russia previously, I mean pre the war and from whatever we are reading, people are going to be a lot more cautious.

— Bharat Sheth

But if there was a real concern of an event that could very significantly negative play out and that to for a meaningful period of time, not for 1 week or 2 weeks or 3 weeks or something like that, we may think of fixing out.

— Bharat Sheth

Eventually, even if you are willing to trade Russia, but if the market is weak, why would the asset value remain strong?

— Bharat Sheth

While I can understand that the scrapping on the tanker side is weak because we've got a super earnings cycle.

— Shivan Sarvaiya

Again, I've often said that it's very difficult to give outlook because things turn on a dime.

— Bharat Sheth

I repeat that it's very, very difficult to forecast markets for the next 30, 60 days, 90 days.

— Bharat Sheth

Q

Thank you. Good afternoon, everyone, and welcome to the results presentation for Q2 and H1 FY '23. Thank you for joining us today. Let me go through quick highlights that we try to present. We have Mr. Bharat Sheth, our Deputy Chairman and Managing Director here with us. I won't take up too much time on the presentation, so that we can get into Q&A. Let's go forward. Standard disclaimer. Our market is quite difficult to forecast, and therefore, we don't make forecast of our earnings. Or what we're trying to do is explain what has gone into the past performance and what are the various factors

Management

Q

Just coming to the tanker markets, so we've seen very good rates and the fundamentals look very supportive. My question was based on your understanding of the market, what are the main 2 or 3 risks or rather events, as you like to say it, that you as management are most mindful of which could take freight on a sustained basis, back to the levels that we saw for much of 2021.

Bharat Sheth

So, we don't think that should happen again because, as we know, Cal '21, the average for the year was at a 31-year low. So, that's unlikely to happen. Can the markets downward correct? Yes, they could. And what could drive that downward correction? Although I don't believe it's going to be anywhere close to the Cal '21 numbers, but some corrections can always take place. And it all depends on, I guess, the level of possible demand destruction on recessionary fears and on what can happen on interest rates and the whole impact that on demand for some of the products, particularly on diesel oil.

Q

So, my first question is on the US plan to impose a price cap on Russian oil and eventually sort of move away completely from Russian oil and oil product imports. How do you think is that going to impacting demand and supply? And could there be further upsides? That's my first question.

Bharat Sheth

Yes. As I've said, we are now at a 90-plus percent utilization level, both for crude oil as well as for petroleum products. Now once you hit these levels of utilizations, even the slightest uptick in demand or the slightest uptick in trading patterns, can lead to a pretty meaningful uptick in freight rates. Once you hit 90-plus percent, anything can happen to this market on the positive side, right? And that is precisely one of the reasons why we would like to keep whatever we have now pretty much in the spot market. And even a lot of people have asked us this question before, I might as well

Q

So, our tankers, raw crude and product, if you can just broadly help us understand that in which trades are they currently deployed? Is it like it is to India or which trade our vessels, our anchors are currently deployed?

Bharat Sheth

So, basically, sometimes they get deployed into India, sometimes they get deployed internationally. But broader aspect, if you see about 75% of our revenue, approximately, between 70%-75% of our revenue comes from international trade and the balance comes from India. Okay. So, largely it is our international trade companies. Yes. So, we will try and optimize. So, there will be certain months when we get better remunerated on Indian trades. There are certain months we can better remunerated on international trades. And we try and keep an exposure across regions because each region, so let's say

Q

So, my first question was, earlier we used to have a philosophy or a thought process that the cash on balance sheet would be equal to what principal and interest and OpEx will be required in case of tough time and some cash for the acquisition, if the opportunities that come up there. With balance sheet becoming more of net cash of it, what amount of cash you would like to have on balance sheet or build cash for the opportune and what would be the guiding principles for that? Will it be in fact number of ships as we can expand or how would be your thought process now versus historically, when

Bharat Sheth

I have understood the question. So, we don't keep a target for how much cash should we have on the balance sheet, right? With the current availability of cash and the fact that we are net debt zero or in fact, negative and that we have capability to leverage, we will leverage at the right time with 2 objectives in mind. Clearly, one is to modernize the fleet. As you know, we do have an aging tanker fleet, and there is a need to modernize it. And of course, we wish to grow the business. Now I mean, growth or when I'd say grow the business means grow the number of assets that we currently operat

Q

I have a few very short questions. So, I will just like some data points like, how much lower is the time charter rate compared to the spot rate in tankers?

Bharat Sheth

So, when you say time charter rate, it all depends on the duration you're talking about. And therefore, there is no one answer. The longer the duration, the steeper the backwardation, right? And the shorter the duration, the narrower the backwardation. So, there is no easy answer to this. And also, I mean, if you had very, very modern tonnage, if you had a new building, for example, you could probably fix for 5 years, on a 10-year-old ship or a 7-year old ship, can you fix for 5 years, most unlikely. So, let me put it this way. Like usually, when you fix your ships for time charter in one of y

Q

So, in any way, can this EU ban on Russian oil, both crude and other products can turn out to be negative for the tankers, sir? Can you visualize any scenario that this can happen?

Bharat Sheth

At the moment, no. Actually, if it turns out to be effective, completely effective, then obviously, some of the oil and products will go off the market and the tankers deployed in that region might come to the rest of the region. So, don't you think that demand-supply might incrementally turn negative in that case? No. So, basically, Russia has to find oil for the market, right? And there are a number of owners who will be happy to continue sharing Russian crude, Russian products because it's not as if Russia supply completely goes off the market, where will those countries get their supplies

Q

My question is like GE Shipping is trying to maximize its shareholder value by giving dividends and by doing buybacks. Most of the other players in the world are also doing the same. They are also doing buybacks. They are giving dividend. No one has done a significant CAPEX till now. Also order book is very low for tankers worldwide. So, what is your outlook in the medium-term rate? I like the approach GE Shipping is going on. But what if everyone is using the same approach in the same manner?

Bharat Sheth

No. So, first of all, I think if we just break it up, your one point was buybacks and dividends, right? Now overseas people have a lot more flexibility on buyback than we have in India, right? In India, as you know, between 2 buybacks, there's a gap of pretty close to 18 months. But overseas, you don't have that restriction. So, there are regular buyback programs running. And one of the reasons why shipping companies tend to buy back is not because they don't wish to acquire tonnage. It's only because paper is cheaper than steel. So, today if we buy a ship for $100 and the equity markets are s

Q

Sir, just 1 question on the scrapping. While I can understand that the scrapping on the tanker side is weak because we've got a super earnings cycle. But what explains the weaker scrapping on the dry bulk side because these rates are like one of the lowest level seen. So, just some thoughts on that, sir.

Bharat Sheth

So, even on the dry bulk, earnings are still well above operating costs. And an owner does not like to scrap their ships until there is a sustained period of time when earnings are below operating cost. I think I explained this earlier also in one of the earlier investor calls that every trading day that is left in the ship is basically like a free option, right, because markets can turn on a dime. And therefore, why would somebody want to scrap a ship when they are earning more than operating costs. See, even at today's earnings, there is a meaningful EBITDA contribution. So, sir, at what lev

Q

Thank you very much to all of you for joining this call and the discussion that we had today. Please feel free to reach out to our team for any further queries that you may have. And, of course, the transcript and the audio link of this call will be on our website in a couple of days. Thank you very much.

Bharat Sheth

Thank you all. Thank you.