BUSINESS

ECONOMICS PROJECT
GE Shipping Co. Ltd.
Amity Global Business School, Hyderabad.

P.V.S.SANJEEV 57
KUMAR
BIPIN KUMAR SINGH
NANDITA SADANI
AKSHITA GUPTA 01
ROHIT REDDY
A.VENKATA SURESH
M.VENKAT RAJU
G.ANUSHA
THE GREAT EASTERN SHIPPING CO. LTD.

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 CAPITAL EXPENDITURE PLAN

GE-Shipping is India's largest private sector shipping company. It

started as a sea-logistics support shipping line six decades ago for a family
trading business (owned by the Sheths and the Bhiwandiwallas). Later it
diversified into areas like offshore oil field services. GE Shipping has earned
the status of being a preferred shipping service provider in the country.

BACKGROUND
GES was promoted by the Mulji (Sheth) brothers and Bhiwandiwalla
family who started their own shipping line with one ship (SS Fort Alice) to
help expand the reach of their trading businesses. It got incorporated on 3rd
August 1948 and over the past 60 years it has become India’s largest
private sector shipping company.

Responding to the demands of the oil industry, GES ventured in

offshore services in 1983 with the purchase of Malaviya One – India’s first
offshore supply vessel. In Oct’06, the company demerged its offshore
operations into Great Offshore Ltd. as part of its business realignment
exercise. In the same year, Greatship (India) Ltd (GIL), a wholly owned
subsidiary took delivery of its first asset Greatship Disha, a platform supply
vessel.

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 On a consolidated basis, it owns and operates 41 marine vessels
aggregating 2.85 mn dwt and 6 Offshore Supply Vessels (OSVs). It also
operates various in-chartered assets in both these segments.

MANAGEMENT PROFILE

The Great Eastern Shipping Company Limited came into being in 1948.
The Chairman of the company was Mr. A.H. Bhiwandiwalla, while Mr. Vasant
Sheth, was the Managing Director. Mr. Sheth handled and managed the
company, assisted by Kanaiyalal Sheth. Bhiwandiwalas have withdrawn and
the management now solely rests with Sheths. Mr. K.M. Sheth is now the
Executive Chairman of GE Shipping. Mr. Bharath K. Sheth is the Managing
Director and also the Deputy Chairman of the company.

OPERATIONAL STRUCTURE

G E Shipping’s two major areas of business are:

Shipping division: Transportation of crude oil, petroleum products, gas and

dry bulk
commodities.
Offshore division: Offering wide range of services to oil companies including
carrying out
offshore exploration and production activities by
providing exploratory drilling
rigs, offshore support vessels, tugs, construction barges,
etc.

Both the shipping and offshore divisions have been awarded the ISO
9001:2000 standard certification by DNV. With more than 60 years of
experience, a large and diversified fleet and strong financials, the company
aims to capitalize on the opportunities in marine logistics, in the energy
sector and offshore oil field services also.

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Subsidiaries

The Company’s subsidiary, Greatship (India) Limited, has achieved

significant size of operations and has added Rs.44.7 crores to the
consolidated net profit to the Company. The coming year is likely to see a
much bigger contribution from them as they take deliveries of 9 new state-
of-the-art vessels and a newly built 350 feet Jack up Rig.
GE Shipping’s subsidiary, Greatship (India) Limited has three subsidiaries:
1. Greatship Global Holdings Ltd., Mauritius.
2. Greatship Global Offshore Services Pte. Ltd., Singapore.
3. Greatship Global Energy Services Pte. Ltd., Singapore.

GE Shipping also has subsidiaries, located in the strategic regions of London,

Singapore and Fujairah (Sharjah):
1. The Great Eastern Shipping Co. London Ltd.
2. The Greatship (Singapore) Pte. Ltd.
3. The Great Eastern Chartering LLC (FZC).

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 The international operations of the company have been largely aided
by these subsidiaries, which provide a window to the latest developments in
the shipping sector in a global arena and help in the deployment of vessels
in cross trade.

CORPORATE STRUCTURE

BUSINESS MODEL

• Shipping Division:

The shipping division owns and operates 41 vessels aggregating 2.85

mn deadweight (dwt) at an average age of 10.6 years. About 76% of the

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company’s tanker dwt is double hulled. The company along with its
subsidiaries also operates 9 in-chartered ships.

The product mix of assets includes 30 tankers with avg age of 9.7
years. These vessels are equipped to carry crude oil, petroleum products
and LPG. The fleet also includes 11 dry bulk carriers with an avg age of 13.8
years. These vessels cater to the shipment requirements for bulk
commodities such as grain, coal, iron, and other minerals. In addition, the
company has also in-chartered 4 tankers and 5 bulk carriers of various sizes.
The clients’ list includes oil majors, SAIL, Oldendorff, K-Line, etc. The direct
and indirect operating expenses related to the shipping revenues range
between 50-55%. These include direct operating costs (15-20%), staff cost
(8-10%), other expenditures (5-10%), repair & maintenance costs (5-10%),
in-chartering costs, etc.

• Offshore Division:

The Offshore segment provides support services to the offshore

exploration and production activities through an asset base of 4 Platform
Support Vessels (PSVs) and 2 Anchor Handling Tug cum Supply Vessels
(AHTSVs). These vessels are fixed on time charter with an average duration
of 2.1 years. Presently, these vessels are operating in North Sea, Gulf of
Mexico and in the Indian waters. Additionally, GIL also operates 3
inchartered assets - 1 AHTSV and 2 PSVs. The operating margin in the
offshore services is slightly better than that in the shipping business. It
ranges between 60-75% depending on the asset, its sophistication and age.

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FINANCIAL PERFORMANCE

GE Shipping has consistently posted strong growth in total shipping

business. For FY 09 on a consolidated basis, income from operations
increased 14% to INR 4123.93 Crores as compared to INR 3615.4 Crores in
FY08. Company’s profit after tax slightly decreased 3% from INR 1407.7
Crores in FY09 as compared to INR 1453.51 Crores in FY08 mainly due to
increase in operating expenses to INR 2061.04 Crores in FY09 from INR
1616.6 Crores in FY08. The Company’s Net current assets increased 49% to
INR 1615.73 Crores in FY09 from INR 1080.62 Crores in FY 08.

On a standalone basis in FY09, GE Shipping had a debt-equity ratio of

0.62. GE Shipping’s
Interest coverage ratio in FY09 is 12.96 and better than its peers. In the long
term we expect GE Shipping to maintain its credit metrics at comfortable
levels though they are likely to get affected in the short term owing to the
current global economic crisis leading to pressure on its
margins.

GE Shipping has maintained a substantial cash reserve was INR 2575

Crores as on 31st July 09 as compared to INR 2217.67 crores in FY2009 on a
consolidated basis. The outstanding capex commitment is USD 437 million
out of which USD 106 million is already paid thus the net
committed capex stands at USD 331million which is comfortably covered by
company’s existing
cash reserves.

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 • Performance of Subsidairies:

Greatship (India) Limited, a G E Shipping subsidiary achieved a profit

of INR 50.63 Crores in FY09 on a standalone basis and INR 44.72 Crores on a
consolidated basis in FY09. The Net worth of the GIL was INR 1283.76 in
FY09 as compared to INR 688.45 Crores in FY08. The Great Eastern Shipping
Co. London Ltd another subsidiary incurred losses of INR 32.9 Crores in FY09
as compared to INR 1.09 Crores in FY08. The other subsidiaries of GE
Shipping have no significant impact in terms of revenue and profit/losses.

• GE Shipping’s performance vis-à-vis other companies:

There is no other shipping Co. in the private sector in the country

which has matching operations. The only significant competition is from
Shipping Corporation of India, which is essentially a Govt. controlled
company.

GE Segment wise Breakup: Revenue and Profit

The Company’s segment wise breakup of revenue and profit are as

follows:

Rs. In crores 2008 2009

Revenue 3203.51 3364.74
Tanker Business 1986.18 2254.38
Dry Bulk 1217.33 1110.36
Profit 1374.69 1356.73
Tanker Business 673.598 800.471
Dry Bulk 701.092 556.259

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 GE Shipping has consistently posted strong growth in total shipping
business. For FY 09 on a consolidated basis, income from operations
increased at a rate of 14% to INR 4123.93 Crores as compared to INR 3615.4
Crores in FY08. However the Company’s profit after tax decreased slightly to
3% from INR 1407.7 Crores in FY09 as compared to INR 1453.51 Crores in
FY08 mainly due to increase in operating expenses to INR 2061.04 Crores in
FY09 from INR 1616.6 Crores in FY08. The Company’s Net current assets
increased 49% to INR 1615.73 Crores in FY09 from INR 1080.62 Crores in FY
08.

In FY09, G E Shipping’s tanker business accounted for around 67% of

the net revenues and 59% of the operating profits. The company’s tanker
earnings derived from spot market was 64% in FY09. The crude tankers,
including ‘spot’ and ‘period’, earned an average Time Charter Yield (TCY) of
$ 41200/day in FY09 as compared to $ 300000/day in FY08. The product
carriers,
including ‘spot’ and ‘period’, earned an average TCY of $ 23700/day in FY09
as compared to $20250/day in FY08.

The company had a tanker fleet of 31 tankers aggregating 2.38 million

dwt, with an average age of 9.9 years as on 31st Mar 2009 as compared to
33 tankers aggregating 2.35 million dwt with an average age of 10.53 years
in 31st Mar 2008.

In FY09, the company’s dry bulk fleet business contributed 33% of the
net revenues and 41% of the operating profits. The dry bulk vessels,
including ‘spot’ and ‘period’, earned an average TCY of $ 39800/day in FY09
as compared to $ 38400/day in FY 08. However, in FY09, second-hand value
for modern and older tankers witnessed a drop of 40-60%, while modern and
older drybulk carriers saw a drop of 60-80%.

The company’s dry bulk fleet stood at eight vessels aggregating 0.50
million dwt, with an
average age of 13.3 years as on 31st Mar 2009 as compared to 13 vessels
aggregating 0.72 million dwt with an average age of 14.48 years in 31st Mar

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2008. The Company’s order book comprises of nine new vessels aggregating
0.92 million dwt, in crude, product and dry bulk carriers segment and
expected to be completed in 2011.

CAPITAL EXPENDITURE PLAN

Total planned capital expenditure of USD1.6bn
over the next 4 years..

• Shipping Division:
The present fleet of 41 ships has an average age of ~11 years. With
investment of ~USD780mn over the next 4 years, GES plans to add 12 new
built vessels by end FY12. This should increase fleet size by 10 vessels to 51
with total dwt of 3.8 mn and avg age of 9 yrs.

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 • Offshore Division:

In a bid to increase its market size and capacity in the offshore services
segment, GIL has committed ~USD815mn to acquire 21 assets over the
next 4 years, including a jack up rig. Additionally, it has also in-chartered a
Jack up Rig on bare boat charter (BBC) from Mercator, Singapore. The rig is
in-chartered for 3 years and would be joining the fleet by Mar’09.

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 The capex will be financed through a mix of debt and internal accruals in
the ratio of 2.3:1. GES’ Peak DER would be ~1.2:1. The debt will be arranged
phase wise ~6-8 months prior to its requirement.

With the merger of GAL Offshore Services Ltd., the offshore division
commissioned of 3 distinct activities viz. (i) operation of tugs, comprising
offshore supply vessels, harbour tugs and
anchor handling tugs
(ii) Oil drilling and
(iii) offshore constructions.

Capital Expenditure: Year on Year

Great Eastern Shipping Company Ltd (GE Shipping) has announced

that the Company has signed a contract to sell its single hull Very Large

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Crude Carrier (VLCC) Ardeshir H Bhiwandiwalla. The 1992 built - 2,65,955
dwt VLCC was acquired in June 2004. The ship is scheduled to be delivered
to the buyers during the third quarter of FY 2007-08.

Great Eastern Shipping Company Ltd has earmarked a capital

expenditure of Rs 1,170 crore in the two years for its expansion strategy
even as the entity has concluded road shows to raise $50 million through
issuance of non-secured debt from the international market.

The company has committed a capital expenditure of Rs 1,170 crore

for fiscals 2004-05 and 2005-06, which involved acquisition of 10 new
vessels and two second-hand dry bulk carriers.

In the financial Year 2005-06 the company laid up 6 ships out of which
5 were older ones which take longer time to repair and they are more
expenditure intensive.There was 85% increase in the dry dock expense in
the 3rd quarter that year.The impact of the high crude oil prices was
negative for the bunker cost and the bunkers cost as a percentage of direct
operating expense went up from 48% to 59% that quarter.

In 2008, GE Shipping had a total capital expenditure commitment of

around $589M, which resulted in additional tonnage of about 0.85M dwt.
Currently, it has a fleet of 47 vessels, comprising 34 tankers and 13 dry bulk
carriers, aggregating 3M dwt.

The capex for 2007 was $160 million which was for the 5 product
tankers. The offshore capex was $80 million. GE has a capital expenditure
commitment of approximately Rs 2,910 crore, which will result in addition to
the tonnage of about 0.90 dwt.

GE shipping costs are on:

 DRAGGERS/TUGS/BARGES/ON HIRE/S&P
 SHIP REPAIRS
 WORLD WIDE TRADING OF SECOND HAND
 MARITIME EQUIPMENT AND SPARES
 AGENTS OF FISHING VESSELS
 EXPORTERS OF FISH/SEAFOOD.
 EXPORTERS OF RICE.
 CREW SUPPLY/CREW CHANGES
 SHIP MANAGEMENT

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Acquisitions( Part of Capital Expenditure)
✔ Vessels acquired in FY 2004-05:

Dry Bulk Tankers

Vessels Year Built DWT (m.t.)

Jag Radha 1983 35,676
Jag Rupali 1983 37,092
Jag Labh 1988 96,551
Jag Pahel 2004 46,319
Ardeshir H Bhiwandiwalla 1992 265,955
Jag Lok 2005 158,280
Sub Total : Vessels - 6 , DWT(m.t.) – 63,9873.

Gas Carriers

Vessels Year Built DWT (m.t.)

Jag Viraj 1991 17,577
Sub Total : Vessels - 1, DWT(m.t.) - 17,577

Total : Vessels - 7, DWT(m.t.) - 657,450

✔ Vessels acquired in FY 2005-06:

Dry Bulk Tankers

Vessels Year Built DWT (m.t.)

Jag Ravi 1997 45,342
Jag Rahul 2003 52,364
Jag Reena 2000 45,659
Jag Lyall 2006 110,531
Jag Lalit 2005 158,344
Total : Vessels - 5 , DWT(m.t.) -
412,240

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 ✔ Vessels acquired in FY 2006 – 07:

Dry Bulk Tankers

Vessels Year Built DWT (m.t.)

Jag Akshay 1994 73,350
Jag Arjun 1996 164,796
Jag Panna 2007 37,154
Jag Layak 1996 147,834
Jag Parwar 1988 29,998
Jag Payal 2007 37,159
Jag Prakash 2007 47,400
Total : Vessels - 7, DWT (m.t.) - 537,691

✔ Vessels acquired in FY 2007 - 08

Dry Bulk Tankers

Vessels Year Built DWT (m.t.)

Jag Ratan 2001 52.179
Jag Riddhi 1997 47,240
Jag Prerana 2007 47,400
Jag Lakshita 2000 147,000
Jag Lateef 2000 147,092
Jag Pushpa 2007 47,400
Total : Vessels - 6, DWT (m.t.) - 488,311

Year 2005:
• GE Shipping wins crude supply order for MRPL.
• GE Shipping acquires 26-pc stake in USL.

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Year 2006:
• G E Shipping contracts to buy a Geared Panamax Dry Bulk Carrier -
December 20, 2006
• G E Shipping contracts to buy a Product Tanker - December 7, 2006
• Greatship(India) Limited contracts to buy a modern Platform Supply
Vessel-Sep.13, ‘06
• G E Shipping contracts to buy a Capesize Drybulk carrier - September
7, ‘06.
• G E Shipping orders a new building Self Propelled (Cantilever type)
Independent leg, Jack Up Drilling unit - August 28, 2006.
Year 2007:
• G E Shipping contracts to buy 2 more Kamsarmax Dry Bulk Carriers -
December 18, 2007.
• Greatship orders two state-of-the-art construction support vessels
(MPSVs/ROV Support Vessels) - December 18, 2007.
• New building order placed for 2 more Supramax Dry Bulk Carriers -
December 13, 2007.
• G E Shipping contracts to buy 2 Supramax Dry Bulk Carriers -
November 30, 2007.
• Greatship forays into high end Multi Support Vessels (MSVs).
• New Building order placed for 2 Kamsarmax Dry Bulk Carriers -
October 13, 2007.
• G E Shipping augments its Dry Bulk fleet - acquires a modern
Supramax - July 18, 2007.
• G E Shipping contracts to buy another modern Suezmax Tanker - July
6, 2007.
• Order for Two nos. 80 T AHTSVs placed- June 27, 2007.
• G E Shipping contracts to buy a modern (double hull) Suezmax Crude
Carrier - June 21, 2007.

Great Eastern Shipping Company (GE Shipping) announced that the

Greatship (India) (GIL), a wholly owned subsidiary of the company, has
entered into a joint venture with DOF Subsea ASA, Norway. This joint
venture, to be named `GREATSHIP DOF SUBSEA` will focus on subsea
project opportunities in the Indian subcontinent.

DOF Subsea ASA is a world-wide supplier of subsea services with a

presence in all the major offshore hubs in the world. Their core business is
the execution of complex subsea operations down to depths of 4,000
meters. The DOF Subsea group employs more than 800 skilled employees
worldwide, 25 offshore vessels (8 under construction), 31 ROVs (10 more to

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be delivered), 1 AUV/UUV system and diving spreads. DOF Subsea currently
owns the largest and most modem fleet of subsea construction vessels
(including new buildings) in the world.

Greatship (India) is a global offshore oilfield services provider, with six

assets operating across the world and twenty under construction. Since their
inception in 2006, the Greatship group has rapidly established itself as a
supplier of state of the art assets and services to the offshore domain. The
group`s order book includes PSVs, mid-sized and large AHTSVs, MPSSVs,
MSV, ROVSVs and a premium 350 jack up rig.

OUR VIEW: VALUATIONS & RECOMMENDATIONS

• Shipping major, the Great Eastern Shipping Co Ltd, has taken up a
$1.6-billion capital expenditure (capex) plan over the next three years,
a top company official said.

• Acquiring 8 ships, which include 6 bulk carriers and 2 oil tankers, along
with 13 offshore supply boats and an oil drilling rig. The project will be
financed partly through internal accruals and partly through
borrowings.

• Negotiation for loan at 0.65% over Libor, but banks would provide 4.5
to 5% over Libor, which means borrowing costs come to almost 7-7.5%
along with the dollar-rupee exchange risk.

• Most of the ships are due for renewal and if GE takes over, it has to
spend a lot of money. Therefore, it does not make any sense to
takeover Great Offshore.

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