GE Shipping rides high freight rates, builds cash for the next cycle
GE Shipping is benefitting from elevated freight rates and limited time-charter exposure, while its ₹8,000 crore cash reserve gives it room to make counter-cyclical fleet acquisitions when the cycle turns.
Great Eastern Shipping Co. (GE Shipping) is benefiting from the sharp rise in shipping freight rates amid disruptions in global trade flows following the Russia-Ukraine war and the West Asia war. With only about 25-26% of the company’s tonnage operating under time charters currently, it has a vast presence in the spot market, thus benefitting from the surge in freight rates.
Average Suezmax rates in the June quarter (Q1FY27) more than tripled to $143,000 per day from Q1FY26. Freight rates for other segments also rose by 70-180%. So, consolidated Ebitda rose 110% year-on-year to ₹ 1,327 crore last quarter. Elevated freight rates should continue to support near-term earnings prospects.
Additionally, a strong cash position gives it the flexibility to expand its fleet when the downcycle begins. GE’s strategy comprises avoiding new vessel purchases in an upcycle when asset prices are elevated. This has helped it build a cash reserve of around ₹ 8,000 crore at Q1FY27-end, about 40% of its balance sheet. Consequently, net debt-to-equity ratio has improved from 0.12 times in FY22 to negative 0.45 times.
“GE shipping’s cash reserve positions it to pursue opportunistic, counter-cyclical acquisitions at attractive valuations as the downturn typically depresses asset prices,” said Nomura Research. The brokerage projects freight rates to drop by 50% for oil tankers and 10% for others in FY28. It estimates GE Shipping’s Ebitda to drop at a slower 19%, aided by a larger fleet, after 55% Ebitda growth in FY27.
GE Shipping operates a fleet of 40 vessels, comprising 25 crude oil and product tankers and 15 dry bulk carriers. It also provides offshore services to oil exploration companies through four oil rigs and associated vessels. Further, it trades vessels in the second-hand market, buying and selling assets to improve the age profile of its fleet.
For instance, it sold a mid-sized oil tanker in Q2FY27 and replaced it with a similar vessel that was six years younger.
GE Shipping’s shares have risen about 40% so far this year. Shares are up 19% in the last one month, amid the ongoing share buyback programme, which started on 4 September through the open market route. The stock’s valuation is undemanding at about 6x earnings of twelve months ending June.
While the earnings outlook is bright now, the extent of the freight-rate drop after the shipping market normalizes, and its impact on earnings, will be key to track.
