GE Shipping profits down

MUMBAI, JAN 25: A 130 per cent increase in provision for taxation has taken the sheen off GE Shipping's otherwise impressive financial re...

MUMBAI, JAN 25: A 130 per cent increase in provision for taxation has taken the sheen off GE Shipping’s otherwise impressive financial results for the quarter ended December, 1998. While the company’s pre-tax profit for the quarter has shown a 11.18 per cent growth to Rs 42.25 crore, the higher tax provision has led to a 8.43 per cent fall in net profits to Rs 29.87 crore.

Analysts say that this may have been caused by a possible write-back on account of the section 33 AC provisions. Under this section a shipping company is allowed to provide for acquiring ships in the future. In case it fails to utilise fully the provision within eight years, the unutilised portion is written back, thereby resulting in higher taxes.

Though the company’s income from operations & sales for the quarter has fallen by 5.39 per cent to Rs 221.54 crore, the fall in total expenditure has been steeper at 12.65 per cent to Rs 126.60 crore. Operating profit has, therefore, witnessed a 6.39 per cent rise to Rs 94.94 crore andoperating margin has improved from 38.11 per cent to 42.85 per cent. However, as other income fell by 60.35 per cent to Rs 5.04 crore, gross profit has declined by a marginal 1.93 per cent to Rs 99.98 crore. Gross margin has improved from 41.30 per cent to 44.13 per cent.

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The 22.18 per cent fall in interest outgo has resulted in the improvement of cash margin from 34.65 per cent to 38.49 per cent. Depreciation has been 5.43 per cent lower at Rs 44.96 crore and the pre-tax profit has witnessed an 11.18 per cent growth to Rs 42.25 crore. Pre-tax margin has improved from 15.39 per cent to 18.65 per cent but there has been a marginal decline in net margin owing to the higher tax provision.

As for the nine-month period ending December 1998, income from operations & sales has been 11.44 per cent lower at Rs 681.08 crore. Operating profit has increased by 3.30 per cent to Rs 277.11 crore and gross profit is 3.24 per cent higher at Rs 289.69 crore (if one does not consider the Rs 24.87 crore gain made on the saleof vessels & other assets in the corresponding period in the previous year). Taking into account the gains from asset sales in the previous period, net profit has witnessed a fall of 19.95 per cent to Rs 98.68 crore (sans the gains from asset sales, net profit would have shown a marginal growth).

GE Shipping’s forays into offshore activities and property development appear to be paying off. While there has been a 14 per cent dip in the operating profit of the shipping division, the off offshore activities and the property development divisions have grown by 26 per cent and 16 per cent, respectively.

GE Shipping’s net profit for the nine-months ended December 1998 stood at Rs 98.68 crore. Even by the most conservative estimate, the company should be able to achieve a net profit of Rs 115 crore for the year 1998-99. Assuming that the company pays out 65 per cent as dividend (payout for the previous year was 77 per cent), share-holders would receive a minimum of Rs 2.50 per equity share held by them.

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Thescrip closed at Rs 23.00 on the BSE on Monday, the level it has been hovering around for the past three months. Therefore, one could reliably expect to earn a dividend yield of over 10 per cent by investing in the stock at this price. Considering that these would be tax-free earnings, the stock appears ripe for a re-rating.