Shipping industry looks to future with confidence

By Ramnath Subbu

MUMBAI, MAY 6. Having emerged out of a prolonged phase of slackness, the Indian shipping industry is poised to resume the growth path. The revival in fortunes has happened largely on the back of dramatically improved freight rates, which in the last one year have gone up by over 50 per cent in the tankers segment.

The shipping industry is cyclical and its fortunes are linked directly to the level of activity in trade - global or domestic and the shipping tonnage. More than 90 per cent of India's external trade is by sea and the major products include crude oil, petroleum products, iron ore and foodgrains.

There have also been changes in the Indian production pattern of oil and petroleum products - one of the major clients of shipping companies which has turned around the industry position.

The sharp rise in oil refining capacity in India has lowered the demand for product tankers bringing petroleum products. This would be made up by demand for crude tankers to cater to the increased refining capacity. India imports about 70 per cent of its requirement of petroleum crude.Shipping companies are also poised to reap the benefits of the growing demand for natural gas. Already, the demand for gas is far outstripping supply and the government is considering the option of allowing transport and import of liquefied natural gas (LNG).

LNG is a very lucrative business and India is expected to become a major importer of LNG over the next few years. Also, LNG terminals are being set up in places like Kochi, Dabhol and Pipavav.

The tankers segment has seen players concentrate on acquiring specialised vessels for carriage of specific products such as edible oils and acids. In fact, Shipping Corporation of India (SCI), which turned out a sterling performance in 2000-01, owes its showing in part to the performance of this segment.

Besides, the huge addition to refining capacity with Reliance's Jamnagar refinery operating and expansion of the public sector refineries is likely to require significant movement of tankers.

SCI announced a net profit of Rs. 401.59 crores for the year 2000-01 against Rs. 161.61 crores in the previous year.

According to SCI, the performance owed its credit to the buoyant shipping market and certain pragmatic initiatives taken by the company, namely, the starting of new services, redeployment of existing resources in more lucrative sectors, disposal of non- performing assets, alliances with major players in the field to pool resources and share expenses.

SCI has, in association with its Japanese consortium members, been selected as the preferred bidder for the prestigious $400 million Petronet LNG contract for transportation of five million tonnes of LNG from Qatar to Dahej.

SCI would be forming one JV each for both the LNG vessels to be built at Daewoo Shipyard, South Korea. The Time Charter Agreement (TCA) for both the vessels covering a period of 25 years had already been signed by the consortium with Petronet LNG.

With the implementation of `Corporate Transformation' project under way, SCI wants to emerge as a leaner, more profitable, quality conscious and quintessential shipping company of international standards in future.

Great Eastern Shipping Company (Gesco) has registered a 66.2 per cent rise in its net profit at Rs. 177.40 crores in 2000-01 against Rs. 106.76 crores in the previous corresponding period.

Gesco is going in for a second round of share buyback, up to Rs. 100 crores at a price not exceeding Rs. 42 per share from the open market through the stock exchange. The earlier share buyback which concluded formally on April 18, resulted in Gesco's paid up capital falling to Rs. 215.91 crores. Of this, 19.70 per cent is held by its promoters, 16.03 per cent by financial institutions, 6 per cent by foreign institutional investors, 8.29 per cent by IFC, 4 per cent by GDR holders and 46 per cent by others. At Rs. 42 per share for the second round, it is expected that the promoter's share would further grow to 22.5 per cent.

The company has three Aframax tankers worth $37 million each due for delivery in 2002-03 and two Platform Supply Vessels costing $12.5 million each due by current fiscal end. While refurbishment of an existing drilling rig is likely for $8 million, Gesco's board also concluded the second hand purchase of a 1996-built 44,000 dwt product tanker for $24 million.

The total capital expenditure plan for the company together with Rs. 700 crores earmarked for capacity expansion over the next 18- 24 months, is estimated at Rs. 1,500 crores.

Varun Shipping Company ended 2000-01 with an 81 per cent increase in its profit after tax at Rs. 16.21 crores against Rs. 8.94 crores in the earlier year. Income from operations rose 15 per cent to Rs. 211.39 crores (Rs. 183.88 crores).

The company is the largest ship owner of LPG tonnage owning 55 per cent. It has a well maintained diversified fleet deployed in domestic and international cross trade and its asset acquisition and operating costs are on a par with the world fleet.

The company made a rights issue of 3.62 lakh unsecured fully convertible debentures of Rs. 10 at par aggregating Rs. 36.26 crores. The debentures issued at an interest rate of 14 per cent are convertible at the end of one year. It plans to acquire second hand vessels to strengthen fleet and to diversify the gas operations by entering the LNG market. The company had already made a budget of Rs. 95 crores for ship acquisition of which Rs. 28 crores will come from the rights issue.

Essar Shipping, following the spin off of the Vadinar port terminal project as Essar Tankers, is focussing on its core competence in the dry cargo and tankers business. Its net profit for the third quarter of 2000-01 was up smartly at Rs. 20.03 crores against Rs. 3.56 crores in the same period of the previous year. The company benefited largely from higher freight earnings, particularly from its Suezmax crude carriers. Total income in the third quarter also rose to Rs. 117.23 crores from Rs. 104.54 crores.

ESL deployed most of its vessels in the international market, enabling it to capitalise on the rising charter rates in the worldwide market. The company's strong presence in the Suezmax tanker market drives its profitability.

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