Rating Rationale

Greatship India Limited

Rating Reaffirmed

Total Bank Loan Facilities Rated	Rs.6476.2 Million
Long Term Rating	CRISIL AA/Stable (Reaffirmed)
Long Term Rating	CRISIL AA+(SO)/Stable* (Reaffirmed)

(Refer to Annexure 1 for Facility-wise details)

*Guaranteed by Great Eastern Shipping Company Limited.

CRISIL's rating on Greatship India Ltd's (Greatship's) long-term bank facilities guaranteed by its parent, Great Eastern Shipping Company Ltd (GE Shipping), continues to reflect the credit quality of the guarantor. The credit quality of GE Shipping reflects its strong market position in the shipping business, comfortable financial flexibility and healthy liquidity. These rating strengths are partially offset by GE Shipping's exposure to cyclicality in the shipping business, and moderate capital structure.

CRISIL ratings on Greatship's long-term bank facilities (not guaranteed by the parent) reflect Greatship's young, technologically-advanced and diverse, fleet, healthy revenue visibility, and its strategic importance to and financial linkages with its parent. These rating strengths are partially offset by Greatship's moderate financial risk profile and dependence of charter rates on crude oil prices, which are inherently volatile.

Greatship currently has a diverse fleet consisting of 21 offshore-supply vessels (9 anchor handling tug cum supply vessels, 4 platform supply vessels, 2 multi-purpose platform supply and support vessels, 6 remotely operated vehicles (ROV) support vessels) and 3 jack-up rigs [1 more jack-up rig will be added to fleet by the end of 2014-15 (refers to financial year, April 1 to March 31)]. The company strategically maintains a young and technologically-advanced fleet. The average age of its offshore support vessels (approximately five years) is significantly lower than the industry average (over 50 per cent of global offshore fleet is more than 22 years old). CRISIL believes that a young and technologically-advanced fleet will have better functionality and operating efficiency than older vessels, which will enable Greatship command better charter rates in an intensely competitive market with large and established players.

Greatship has healthy revenue visibility on account of its good mix of long- and short-term charters. The jack-up rigs (Greatship Chetna, Greatship Chitra, Greatship Chaaya and the to-be-delivered Greatship Chaaru), are expected to account for more than half of Greatship's revenues over the medium term ' Greatdrill Chetna and Greatdrill Chaaya are already under long-term charters, and Greatship Chitra along with the to-be-delivered Greatship Chaaru has also bagged long-term charters. Apart from its rigs, Greatship's offshore supply vessels also operate under long-term charters, with duration ranging from six months to five years. Being an Indian offshore segment player, Greatship gets preference in contracts by the state-owned oil and gas companies, ' and CRISIL believes that this will continue to support Greatship's revenue stability.

GE Shipping has been investing and building up offshore business in Greatship after the demerger of the offshore segment as separate company, GOL Offshore Ltd (rated 'CRISIL D') in October 2006. GE Shipping has invested Rs.17.07 billion (Rs.13.05 billion as equity and Rs.4.02 billion as preference share capital) in Greatship as on March 31, 2014, which accounts for about 25 per cent of GE Shipping's net worth. Revenue from Greatship accounted for 47 per cent and 45 per cent for the year ended March 31, 2014, and for the six months ended September 30, 2014, respectively, of GE Shipping's revenues and is expected to sustain around the same level in 2014-15, with an anticipated increase in share in the year ending March 31, 2016 due to revenues from an additional rig. Given the strategic importance of Greatship to GE Shipping, CRISIL believes that GE Shipping will continue to provide business, management, and financial support to Greatship.

The rating factors in Greatship's moderate financial risk profile, marked by moderate gearing and debt protection metrics. As on March 31, 2014, Greatship had total debt of Rs.32.09 billion (including preference capital of Rs.4.02 billion invested by GE Shipping), resulting in a gearing of about 1.02 times. Although Greatship's debt levels had dropped in 2013-14 compared to 2012-13, the company's ongoing capital expenditure (capex) towards Greatdrill Chaaru will result in a moderate increase in debt in the year ending March 31, 2015. However, CRISIL believes stable accretion to reserves is likely to support Greatship's debt protection metrics, including gearing which is expected to be slightly above 1 time over the medium term.

Greatship's profitability and cash flows in the offshore business depend on the offshore charter rates, which in turn are dependent on the offshore and deep-water expenditure by the oil majors. Offshore and deepwater block investments, which are higher than the investments in onshore blocks, are highly sensitive to crude oil prices. Hence, CRISIL believes that Greatship's profitability will continue to depend on the inherently volatile crude oil prices.

Outlook: Stable (on facilities not backed by guarantee from GE Shipping)
CRISIL believes that Greatship will maintain its stable revenues and profitability in the offshore segment over the medium term, supported by its strong financial and operational linkages with, and strategic importance to, GE Shipping. The outlook may be revised to 'Positive' if there is a sustained improvement in Greatship's financial risk profile, driven by improvement in gearing. Conversely, the outlook may be revised to 'Negative' if Greatship's financial risk profile weakens due to lower charter rates or sizeable debt-funded capex.

Outlook: Stable (on facilities backed by guarantee from GE Shipping)
The outlook is based on CRISIL's assessment of the credit risk profile of the guarantor, GE Shipping. CRISIL believes that GE Shipping will maintain its healthy liquidity, adequate financial flexibility, and strong market position in the shipping segment. The outlook may be revised to 'Positive' if GE Shipping's cash flow stability improves, by way of increase in the proportion of revenues from time-charter contracts, and if there is a sustained improvement in the company's freight rates and capital structure. Conversely, the outlook may be revised to 'Negative' if GE Shipping undertakes a substantially large debt-funded capex programme, resulting in a sharp weakening in its liquidity, or if significantly low freight rates result in weakening in its profit level.