| The Great Eastern Shipping Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of The Great Eastern Shipping Company Limited (GESCO).
The rating continues to factor in the established business risk profile of the company, supported by its young, technologically - advanced and diverse fleet across the dry bulk and tanker segment. The company has a seven-decade-long track record of being able to successfully withstand business cycles and headwinds in the industry.
The rating also takes comfort from the healthy financial risk profile, despite cyclicality in business operations. This is majorly contributed by its conservative risk management policy, wherein a stress test is conducted on a quarterly basis to ensure sufficient cash availability to meet the debt repayments in the coming three years, under a stressed earnings scenario.
These strengths are, however, partially offset by volatility in the operating performance of both the shipping and offshore oilfield services business. While the shipping industry is cyclical in nature, charter rates earned from the offshore oilfield services are susceptible to fluctuations in crude oil prices and availability of offshore oilfield equipments in the market.
CRISIL Ratings has noted the Government of India’s plans of divesting its 63.75% stake in Shipping Corporation of India (SCI). While there are no concrete details in this context yet, CRISIL Ratings has not factored any scenario of the stake being acquired by GESCO. Any meaningful event that occurs in this regard would be a key monitorable factor. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of GESCO and its subsidiaries, given the strong financial linkages amongst the entities.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Three generations of the promoters, currently led by Mr K M Sheth, have been involved in the business and have successfully steered the company through business cycles in the past seven decades. They are supported by an experienced management, which has a sufficient track record of being able to withstand short/mid-term headwinds in the industry.
GESCO maintains a young and technologically advanced fleet, which has better functionality and operating efficiency than older vessels. It has a diversified fleet profile in the shipping business, wherein it owns and operates 45 vessels (31 tankers and 14 dry bulk carriers) with a combined capacity of 36 lakh dead weight tonnage as on March 31, 2022. Through its subsidiary, GESCO has also established its presence in the offshore oilfield services industry, wherein it owns and operates 18 offshore-support vessels and four jack-up rigs. The average age of ships (13 years), offshore support vessels (11 years) and rigs (11 years) is significantly lower than their useful life.
The financial risk profile of GESCO is driven by comfortable gearing and adequate liquidity. As on March 31, 2022, outstanding debt and net debt (normalized) on the consolidated basis was Rs 5042 crore and Rs. 1137 crore respectively, resulting in gearing and net debt to equity of 0.63 times and 0.14 times respectively. Despite cyclicality in the operating performance of both the shipping and offshore oilfields business, the financial risk profile of GESCO is expected to remain comfortable. The conservative risk management policy the company follows, has enabled the gearing to remain below 1, over the past 3 years.
Weakness:
Performance of the shipping business is inherently cyclical, mainly caused by timing mismatch between fleet demand and its supply. While charter rates were healthy prior to 2009, overall rates have fallen with additional fleets entering the market over the years. Since then, while rates have been comparatively low, operating performance has remained comfortable, as the charter rates earned have been sufficient to enable healthy margin generation of ~55-60%.
In fiscal 2022, the performance of the shipping business was better than previous expectations, despite a fall in crude carrier charter rates; with the overall growth supported by a spike witnessed in dry bulk carrier rates. Average crude carrier charter rates declined to USD 11661/day in fiscal 2022 against USD 24695/day in fiscal 2021 while the dry bulk charter rates rose to USD 26,995/day in fiscal 2022 when compared to USD 10907/day in fiscal 2021. The rise was driven by various events globally such as floods in Brazil (ships were stuck), congestion in China (which is the largest buyer of dry commodities which is following the zero Covid policy), the Russia-Ukraine crisis etc.
Profitability and cash flows in the offshore business depend on offshore charter rates, which are influenced by offshore and deep-water expenditure by oil majors. Offshore and deep-water block investments, which are larger than investments in onshore blocks, are highly sensitive to crude oil prices. While oversupply of oil rigs in the market had resulted in fall in rig rates in the past few years, rates have subsequently rebounded with a revival in the budgeted exploration & production (E&P) capex. |
Liquidity: Strong GESCO, at a consolidated level, had adequate cash and equivalents of Rs. 3,905 crore as on March 31, 2022. CRISIL Ratings expects the company to generate cash accruals of around Rs. 1100-1300 crore each in fiscals 2023 and 2024, to be sufficient to meet its annual repayment obligations of Rs.900-1000 crore. Liquidity is expected to remain comfortable considering the cash management policy followed by the company, wherein adequate funds are reserved for meeting the cash outflow requirement prior to undertaking any future capex. |
Rating Sensitivity factors Downward factors
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About the Company Incorporated in 1948, GESCO is the largest private sector shipping company in India. It mainly operates under two main businesses, tankers and dry bulk carriers wherein it owns and operates 45 vessels (31 tankers and 14 dry bulk carriers) with a combined capacity of 36 lakh dead weight tonnage as on March 31, 2022.
Through its wholly owned subsidiary, Greatship, GESCO has also diversified its presence in the offshore oilfield services industry. Along with its subsidiaries, Greatship provides services in the offshore energy E&P domain, and has presence in the offshore oilfield logistics support, offshore construction and offshore drilling services segments. |
Key Financial Indicators*
*Based on normalised consolidated financials reported #Provisional figures |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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