THE GREAT EASTERN SHIPPING COMPANY LTD.

INCREASING VALUATION AND DELIVERING STRONG RETURNS TO SHAREOLDERS THROUGH

SHARE BUYBACK

Introduction
It is a fine Saturday morning, Mr. G. Shivakumar, the CFO of The Great Eastern Shipping
Company Limited company has called a meeting with the board of directors at 9.30 a.m. in
the morning at corporate office in Mumbai. Mr. G. Shivakumar who is already in the
boardroom at 8:30 a.m., is going through the report on his recommendation of buyback of
shares of Great Eastern Shipping Company Limited from the market. Mr. K.M. Sheth, who is
the Chairman of the company is also going to attend the meeting. FY’18 has been better in
comparison to FY’17 year as the company has substantially reduced the net loss from
₹210.49 crores in FY’17 to ₹21.45 crores in FY’18 but the stock of the Great Eastern
Shipping Company Limited is being traded at a significant discount to their Net Asset Value
(NAV). Hence, in order to deliver strong results to the shareholders Mr. G. Shivakumar has
come up with the recommendation of share buyback as an integral part of capital allocation
process and delivering strong result to shareholders.

Indian Shipping Industry: An Overview

Indian Shipping Industry plays a crucial role in boosting the Indian economy by enabling
almost 90% of the international trade by volume being conducted through sea route. The
developments in global trade and the expulsion of trade barriers has made the developing
nations to focus more on the improvement of their marine trade, like roads and airports,
seaports have played an essential job in the advancement of the economy.
This industry has acquired a new dimension post globalisation and liberalisation in terms of
infrastructural development and demand. The growth rate of seaways trade in India at 3.3%
in 2017 is double of what the rest of the world has seen. The three acts, The Merchant Act of
1958, The Inland Vessels Act of 1917 and the Coasting Vessels Act of 1838 governs the
Indian Shipping Industry and regulates the companies in this industry. As per the deadweight
tonnage Indian shipping industry has the 14th largest fleet in the world. Competition in this
industry is price based. However, a premium is commanded by the companies with younger
fleet. The competition to the companies comes in the form of both the domestic players and
from international shipping companies. It is a capital-intensive industry and hence the cash
flows act as a major barrier to this industry. The top leading companies in this industry are
State Owned Shipping Corporation of India (SCI), Essar Shipping Company, Varun Shipping
Company, Chowgule Shipping Company, Seamac and The Great Eastern Shipping Company.
The Shipping Industry in India offers employment opportunities to thousands of people and
hence one of the crucial employment generators in India.
The markets in shipping industry are usually cyclic in nature. With ever increase in the fleet
size but almost constant demand in the market this capacity extension has created a bubble in
the industry. There has been a rise in the movement of cargo globally with rise in the trade

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through sea route from 1.8 percent to 2.8 percent in 2015. With more than 1200 ships and
17.5 million dwt, India ranked at 17th position with a share of 1.4 percent in term of dwt. The
estimated cargo traffic at non- major ports in India was recorded as 281 million tonnes in
FY19 and this capacity is expected to grow by 29% from the capacity in 2016. In India, the
major ports working with the Indian Shipping industry have recorded a 195% increase in net
profits from $178.4 million in 2013 to $529.6 million in 2018. Moreover, their operating
margins have also increased from 23% to 44% over the same time period.
The various services provided by the Indian shipping companies are Shipping Services,
Digital Warehousing, Inbound Processes, Warehouse Fulfilment and Outbound Processes.
Over the years many other aspects like - multi-modal transport services, Containerization,
advancement of marine engineering technology, have been developed in this industry. Thus,
expertise and technical know-how also becomes one of the key success factors for this
industry.

Background of The Great Eastern Shipping Company Ltd.

G E Shipping was established by the Sheths and the Bhiwandiwallas, who began their own
shipping line to help grow their trading business. In 1948, in the wake of getting the retired
Liberty ship, SS Fort Elice and G E Shipping started its first journey in the shipping industry
under the innovative virtuoso of Vasant J. Sheth and steered ahead unquestionably, tasting
new waters and investigating new roads. The company mainly transports liquid, gas and solid
bulk products and is India’s largest private sector shipping company. The organization has
two primary business, shipping and offshore. The shipping business is associated with
transportation of petroleum products, crude oil, gas and dry bulk commodities. The offshore
business; caters to the oil companies and services them in carrying out offshore exploration.
The company is headquartered in Mumbai and owns a massive fleet of 47 vessels, 34 tankers
and 13 dry bulk carriers. It has 944 employees including the sailing staff. The Board of
Directors include 12 members. Mr. K.M. Sheth is the Chairman and Managing Director of
The Great Eastern Shipping Company Ltd. since 1992. Mr. Sheth joined the company in
1952 and became the Deputy Chairman and Managing Director in 1975. The details of the
management team at The Great Eastern Shipping Company Ltd is given in Exhibit 5.
The company’s vast experience in the industry along with its huge infrastructure allowed it to
register a revenue of ₹3547.11 crores from operations in FY 19. The company has grown
16.75% in terms of revenue in comparison to FY 18 but recorded a loss of ₹21.45 crores in
the same period although the loss in FY 18 was ₹210.49 crores. The shareholding pattern of
the company both pre and post share buyback is given in the Exhibit 3. The company
provided a final dividend of ₹5.40 on 6th May 2019 to the equity shareholders of the
company. The debt to equity ratio of the company as on March 2019 was 0.65. The long-term
borrowings of the company stand at Rs 4843.03 crores. Financial statements for the year
2018 and 2019 are given in the Exhibit 1 and Exhibit 2. The company is listed on Bombay
Stock Exchange and the National Stock Exchange.

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Delivering Returns to Shareholders through Share Repurchase
The Great Eastern Shipping Company clocked a loss of Rs 210.49 crores in the financial year
2018 and due to this the share value of the company plummeted in the following year. The
market value of one share of The Great Eastern Shipping Company Ltd was ₹288.80 when
Mr. G. Shivakumar called the meeting with the board of directors on 1st May 2019. The
company lost much of its share value in the third quarter of 2018 when the share price was
recorded at ₹348.40 per share in December 2018 which fell to ₹284 per share by the end of
the financial year. Currently, the stock of the Great Eastern Shipping Company Limited is
being traded at a significant discount to their Net Asset Value (NAV). Even though the
company offered a final dividend of ₹7.20 per share which resulted in an outflow of ₹126.08
crores (inclusive of tax on dividend) the company was not able to gain the trust in the market.
The dividend offered by the company represented a payout ratio of 78.71% (previous year
28.90%). Hence, in order to maximize the return for the shareholder and deliver strong results
over the long run to regain the trust of the market and balance the needs of all the
shareholders Mr. G. Shivakumar has come up with the recommendation to buy-back the fully
paid-up equity shares of the Company from the open market route through the stock
exchanges in accordance with Securities and Exchange Board of India (Buy-Back of
Securities) Regulations, 2018. According to him, in addition to paying the dividend, the
repurchase of share will help in gaining the market trust and judiciously use the capital for the
benefit of the company. Moreover, he also believes that the share repurchase should be an
integral part of the company’s capital allocation process.
The conditions that must be considered while acting on the recommendations of Mr. G.
Shivakumar are summarised as below:
1. The aggregate amount utilised for the buyback of shares should not exceed ₹100
crores.
2. The company is going to buyback the shares at an average market price of ₹261.60
per share.
3. At the Maximum Buy Back Price and for the Maximum Buy Back Size, the indicative
maximum number of Equity Shares bought back would be 32,67,973 (Thirty Two
Lakh, Sixty Seven Thousand, Nine Hundred and Seventy-Three) Equity Shares
("Maximum Buyback Shares"), which would be approximately 2.17% of the total
paid-up equity shares of the Company as at 31 March, 2019 and as on date (i.e. 1st
June, 2019). If the Equity Shares are bought back at a price below Maximum Buy
Back Price, the actual number of Equity Shares bought back could exceed the
Maximum Buyback Shares but will always be subject to the Maximum Buy Back
Size.
4. Total number of shares in the market as on 1st May 2019 are 150777065.

Conclusion
The above case highlights one of the methods of increasing the returns of the shareholders
which is by exercising buyback of shares. Firms buyback their shares from the market in
order to increase their ownership in the firm. Moreover, it also evokes a positivity in the

3
 market towards the company’s future prospects and this also increase the market value of the
shares. Recently, we have seen that many companies like Infosys, Wipro, IOCL etc. are using
this method to increase their present ownership in the company.

Future Outcome
The Board of Governors agreed to the recommendations of Mr. G. Shivakumar and the
process of buyback of shares was completed on 20th November 2019. The company bought
3810581 shares, and this increased the percentage share of promoters in the shareholding of
the company to 30.34% from 29.66%. Moreover, following the buyback process the market
value of the share prices of The Great Eastern Shipping Company Ltd. Increased by 3% and
in this way the recommendations of Mr. G. Shivakumar helped the company in regaining the
market trust and strengthened the returns of the shareholders. The share price of the company
on closure of buyback process i.e. on 20th November 2019 was ₹297.85.

Figure 1: Market value of stock prices pre and post buyback of shares

References
1. 18 Indian Shipping Industry Statistics, Trends & Analysis - BrandonGaille.com. (n.d.).
Retrieved March 30, 2020, from https://brandongaille.com/18-indian-shipping-industry-
statistics-trends-analysis/
2. GE Shipping share price gains 3% on closure of buyback - Moneycontrol.com. (n.d.).
Retrieved March 30, 2020, from https://www.moneycontrol.com/news/business/stocks/ge-
shipping-share-price-gains-3-on-closure-of-buyback-4660771.html
3. GE Shipping Share Price, GE Shipping Stock Price, Great Eastern Shipping Company Ltd.
Stock Price, Share Price, Live BSE/NSE, Great Eastern Shipping Company Ltd. Bids
Offers. Buy/Sell Great Eastern Shipping Company Ltd. news & tips, & F&O Quotes,
NSE/BSE Forecast News and Live Quotes. (n.d.). Retrieved March 30, 2020, from
https://www.moneycontrol.com/india/stockpricequote/shipping/greateasternshippingcompa
ny/GES#sec_shrhldPat

4
4. GE Shipping share price rises over 3% after firm announces closure of share buyback.
(n.d.). Retrieved March 30, 2020, from https://www.businesstoday.in/markets/company-
stock/ge-shipping-share-price-closure-ge-shipping-share-buyback/story/390766.html
5. Great Eastern Shipping - Wikipedia. (n.d.). Retrieved March 30, 2020, from
https://en.wikipedia.org/wiki/Great_Eastern_Shipping
6. Great Eastern Shipping Company Key Financial Ratios, Great Eastern Shipping Company
Financial Statement & Accounts. (n.d.). Retrieved March 30, 2020, from
https://www.moneycontrol.com/financials/greateasternshippingcompany/ratiosVI/GES
7. Great Eastern Shipping Company Management Information - Details of Great Eastern
Shipping Company Management - The Economic Times. (n.d.). Retrieved March 30, 2020,
from https://economictimes.indiatimes.com/great-eastern-shipping-company-
ltd/infocompanymanagement/companyid-13697.cms
8. Home. (n.d.). Retrieved March 30, 2020, from https://www.greatship.com/index.html#ts-
feature
9. Indian Shipping Industry Report - Shipping Sector Research & Analysis in India -
Equitymaster. (n.d.-a). Retrieved March 30, 2020, from
https://www.equitymaster.com/research-it/sector-info/ship/Shipping-Sector-Analysis-
Report.asp
10. Indian Shipping Industry Report - Shipping Sector Research & Analysis in India -
Equitymaster. (n.d.-b). Retrieved March 30, 2020, from
https://www.equitymaster.com/research-it/sector-info/ship/Shipping-Sector-Analysis-
Report.asp
11. Indian Shipping Industry, Shipping Industry in India, Shipping Industry, India’s Shipping
Industry. (n.d.). Retrieved March 30, 2020, from https://www.indianmirror.com/indian-
industries/shipping.html
12. (No Title). (n.d.-a). Retrieved March 30, 2020, from www.sebi.gov.in
13. (No Title). (n.d.-b).
14. THE GREAT EASTERN SHIPPING COMPANY LIMITED. (n.d.-a). Retrieved March
30, 2020, from www.greatship.com
15. THE GREAT EASTERN SHIPPING COMPANY LIMITED. (n.d.-b). Retrieved March
30, 2020, from www.greatship.com
16. What Do The Best Shipping Companies Do? (These 5 Main Things). (n.d.). Retrieved
March 30, 2020, from https://www.brwilliams.com/blog/what-shipping-companies-do/
 

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Exhibit 1: Balance Sheet and Cash Flow Statements

BALANCE SHEET DATA as on

March ‘15 March ‘16 March ‘17 March ‘18 March ‘19
Current assets Rs m 43,721 45,544 49,119 44,705 42,897
Current liabilities Rs m 24,780 23,969 23,421 15,931 21,118
Net working cap to
% 55.1 56.7 82.4 94.7 61.4
sales
Current ratio x 1.8 1.9 2.1 2.8 2.0
Inventory Days Days 15 11 17 21 22
Debtors Days Days 36 30 24 30 31
Net fixed assets Rs m 91,733 92,531 103,267 98,220 96,315
Share capital Rs m 1,508 1,508 1,508 1,508 1,508
"Free" reserves Rs m 55,634 64,127 70,726 67,770 66,589
Net worth Rs m 57,141 65,635 72,233 69,277 68,097
Long term debt Rs m 54,197 49,077 57,704 53,614 48,430
Total assets Rs m 136,745 139,328 154,023 146,639 143,702
Interest coverage x 3.7 5.2 3.3 1.2 1.1
Debt to equity ratio x 0.9 0.7 0.8 0.8 0.7
Sales to assets ratio x 0.3 0.3 0.2 0.2 0.2
Return on assets % 7.7 9.9 7.4 1.7 3.5
Return on equity % 13.1 16.7 10.5 -3.0 -0.3
Return on capital % 9.9 13.0 9.7 4.3 4.8
Exports to sales % 0 0 0 0 0
Imports to sales % 0 0 0 0 0
Exports (fob) Rs m 0 0 0 0 0
Imports (cif) Rs m 0 0 0 0 0
Fx inflow Rs m 9,388 11,200 11,503 11,320 16,390
Fx outflow Rs m 9,505 7,658 21,424 21,833 30,686
Net fx Rs m -117 3,542 -9,920 -10,512 -14,297
CASH FLOW
From Operations Rs m 14,448 21,507 15,218 9,689 10,957
From Investments Rs m -7,254 -4,678 -15,258 -4,495 4,298
From Financial
Rs m -2,283 -16,767 7,133 -11,584 -10,199
Activity
Net Cashflow Rs m 4,911 339 6,874 -6,017 5,052

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 Exhibit 2: Profit and Loss Statement

PROFIT AND LOSS STATEMENT for the year ended

March ‘15 March ‘16 March ‘17 March ‘18 March ‘19
Net Sales Rs m 34,380 38,078 31,169 30,384 35,471
Other income Rs m 2,755 1,187 5,059 1,022 2,828
Total revenues Rs m 37,135 39,265 36,228 31,406 38,299
Gross profit Rs m 14,332 19,847 14,312 12,005 10,532
Depreciation Rs m 6,100 6,079 6,779 7,687 7,727
Interest Rs m 3,006 2,878 3,776 4,551 5,212
Profit before tax Rs m 7,981 12,077 8,816 789 421
Minority Interest Rs m 0 0 0 0 0
Prior Period Items Rs m 0 0 0 0 0
Extraordinary Inc
Rs m 0 0 0 0 0
(Exp)
Tax Rs m 499 1,107 1,266 2,894 636
Profit after tax Rs m 7,482 10,970 7,550 -2,105 -215
Gross profit margin % 41.7 52.1 45.9 39.5 29.7
Effective tax rate % 6.3 9.2 14.4 366.8 150.9
Net profit margin % 21.8 28.8 24.2 -6.9 -0.6

Exhibit 3: The shareholding pattern of the Company both pre and post the Buyback is as
follows

PRE-BUYBACK POST-BUYBACK
No. of
No. of Equity
Shareholders Equity % of Shares % of Shares
Shares
Shares
Promoters and/or persons
who are in the control and/or
44720934 29.66 44720934 30.43
acting in concert (Promoter
Group)
Indian Financial Institutions 41127 0.03
Banks 91678 0.06
Mutual Funds 31260043 20.73
Government Companies 10238 0.01
Insurance Companies 4650718 3.08
Indian Public & Corporates 37895930 25.13 102245550 69.57
Foreign Institutional
30789416 20.42
Investors
NRIs 1313517 0.87
Foreign Nationals and
3464 0.00
Overseas Corporate Bodies
15077706
Total 100% 146966484 100%
5

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 Exhibit 4: Financial ratios over the years

FINANCIAL RATIOS
No. of
Months
* Results Consolidated Mar-
Year Mar-15* Mar-16* Mar-17* Mar-19*
18*
Ending
EQUITY SHARE DATA
High Rs 377 420 437 482 391
Low Rs 330 275 302 327 240
Sales per share (Unadj.) Rs 228.0 252.5 206.7 201.5 235.3
Earnings per share (Unadj.) Rs 49.6 72.8 50.1 -14.0 -1.4
Diluted earnings per share Rs 49.6 72.8 50.1 -14.0 -1.4
Cash flow per share (Unadj.) Rs 90.1 113.1 95.0 37.0 49.8
Dividends per share (Unadj.) Rs 11.00 13.50 10.10 7.20 5.40
Adj. dividends per share Rs 11.00 13.50 10.10 7.20 5.40
Dividend yield (eoy) % 3.1 3.9 2.7 1.8 1.7
Book value per share (Unadj.) Rs 379.0 435.3 479.1 459.5 451.6
Adj. book value per share Rs 379.0 435.3 479.1 459.5 451.6
Shares outstanding (eoy) m 150.78 150.78 150.78 150.78 150.78
Bonus/Rights/Conversions - - - - -
Price / Sales ratio x 1.6 1.4 1.8 2.0 1.3
Avg P/E ratio x 7.1 4.8 7.4 -29.0 -221.6
P/CF ratio (eoy) x 3.9 3.1 3.9 10.9 6.3
Price / Book Value ratio x 0.9 0.8 0.8 0.9 0.7
Dividend payout % 22.2 18.6 20.2 -51.6 -379.6
Avg Mkt Cap Rs m 53,301 52,396 55,698 61,043 47,541
No. of employees `000 0.6 0.7 0.4 1.0 2.3
Total wages/salary Rs m 5,579 5,924 5,991 6,744 7,116
29,905.
Avg. sales/employee Rs Th 57,976.9 54,946.2 75,468.8 15,716.0
3
Avg. wages/employee Rs Th 9,407.3 8,548.5 14,506.1 6,638.2 3,152.9
Avg. net profit/employee Rs Th 12,617.9 15,829.4 18,279.9 -2,071.8 -95.0

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Exhibit 5: Management at The Great Eastern Shipping Company Limited

MANAGEMENT at The Great Eastern Shipping Company Ltd.

Name Designation
Berjis Desai Director
Bharat K Sheth CEO
Bharat K Sheth Dy. Chairman & Manag. Director
Cyrus Guzder Director
G Shivakumar Executive Director & CFO
Jayesh M Trivedi Co. Secretary & Compl. Officer
Jayesh M Trivedi Secretary
K M Sheth Chairman
Raju Shukla Director
Ranjit Vasant Pandit Independent Director
Ravi K Sheth Director
Rita Bhagwati Director
Shankar N Acharya Director
Tapas Icot Executive Director & President
Vineet Nayyar Director