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Sunday, June 2, 2019

Positive on the Shipping sector:-

Positive on the Shipping sector:-

After manufacturing here comes another sector(though cyclical) which after doing a lot of scuttlebutt,we are pretty convinced is going to soon make a lot of money for the investors. The perfect way to play the Sector is by betting on something which has been in existence since last 70 years and kept its head still while others winded up. Great eastern shipping  is your evergreen giant which is an amazing capital allocator, remains the best pick in the sector. The last man standing in quintessence is deploying massive capital in the business after a gap of 10-11 years. The Annual report is a fantastic read too. Pls don't look at the accrued crap basis of pat accounting but a cursory look at the OCF will tell one the reality..Its Close to 2-year lows and down 37% this year, in line with the mid cap debacle, but mostly because of some Rs.500 cr of Impairment Charges (on selling old ships and rolling over into new ships). Plus another Rs.500 cr over 2 quarters of Re depreciation (notional accounting charges, because the asset appreciation is not accounted but the Derivative losses are booked. Also, gains from Re depreciation in Freight is not accounted), which have depressed PAT, but don’t affect cash flow. 

Just like manufacturing co this co too posses huge operating leverage. With little capex and inevitable grand cash flows,easy to assume it will repay/prepay debt which will further boost profit. Tailwinds signs are visible after long long time. Ballast water treatment+IMO 2020+ the bigger picture which is India has 4.5% of world GDP, about 7% in PPP, and its biggest Shipping company is at 4000crs (only 4 Shipping companies in India, only $ 8 bn of Freight carried is under Indian flag). In every long cycle (Japan, China and earlier Greece/ Norway), a long growth cycle creates huge Shipping companies. India has only GE Shipping as a major bankable player.Indian freight growth is at 2.5 times worldwide merchant volumes growth. This will continue. Company though May not move for 3-6 months but it would be hard to lose money from this amazing co.Happy investing guys.

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