GE Shipping: Choppy waters
Freight rates to consolidate: Oil demand is likely to grow at 1% in CY12 while seaborne trade is likely to grow at 3% in CY12 . However supply is at a record high with order book in the tanker segment at 8% and 6% of the fleet size in CY12 and CY13, respectively and 16% and 7% of the fleet size in dry bulk segment in CY12 and CY13, respectively, thereby keeping freight rates under check. The company believes that freight rates will consolidate at the current level, as demand will take atleast a year to catch up with supply.
Offshore continues to remain strong: Firm crude prices, higher E&P spending and strong demand, especially from East Africa and Southern America, is creating better demand‐supply scenario for offshore vessels. GES expects utilisation to remain at higher level as most vessels are on long term charter and estimates day rates to remain stable going forward, thereby driving growth.
Eyeing second‐hand market purchase: Excess supply with declining freight rates has led to around 15 25% correction in second hand asset prices both in dry bulk and tanker segments . The company’s current consolidated net debt–to‐equity stands at 0.5x, which will provide enough headroom to tap the second hand asset market in case any attractive opportunity comes
Outlook: With record high supply,freight rates are likely to consolidate at current levels. However offshore will drive growth given stable day rates and most of the vessels are on long term charter, providing high visibility. Currently Edelweiss does not have a rating on the stock.
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