Detailed Rationale

Crisil Ratings has upgraded its rating on the non-convertible debentures (NCDs) of The Great Eastern Shipping Company Ltd (GESCO) to ‘Crisil AAA/Stable’ from ‘Crisil AA+/Positive’.

 

Also, Crisil Ratings has withdrawn its rating on Rs 400 crore NCDs that matured and were redeemed on August 31, 2024 and January 18, 2025, upon receipt of redemption confirmation from the debenture trustee. The rating action is in line with the withdrawal policy of Crisil Ratings.

 

The rating upgrade reflects Crisil Ratings’ expectation that the company shall sustain its strong financial risk profile as supported by its sizeable net-worth, robust liquidity and low leverage amid healthy operating performance, resulting in strong cash accrual. The rating also factors in the company’s sound risk management policies in an inherently cyclical business (wherein a stress test is conducted on a quarterly basis to ensure sufficient cash availability to meet debt obligation for three years) and measured approach towards growth, which should keep its financial risk profile healthy even in case of a downturn in the business.

 

The rating continues to factor in the established market position of the company in the shipping industry, supported by its relatively young and well-diversified fleet across the dry bulk and tanker segments. The company has an experienced management team with a track record of more than 75 years of navigating business cycles and headwinds in the industry. Also, it has maintained strong operating performance while sustaining high fleet utilisation and deploying ships under spot charter rates. It also operates jack-up rigs and support vessels in the offshore segment under its wholly owned subsidiary, Greatship India Ltd (GIL; ‘Crisil AA+/Stable’), which has also showcased healthy operating performance over the past few years.

 

These strengths are partially offset by volatility in the operating performance of the shipping and offshore oilfield services businesses. While the shipping industry is cyclical in nature, charter rates in the offshore oilfield services segment are susceptible to fluctuations in crude oil prices and availability of offshore oilfield equipment in the market.

Analytical Approach

For arriving at its rating, Crisil Ratings has combined the business and financial risk profiles of GESCO and its subsidiaries, owing to the strong financial linkages among the entities.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established track record and experienced management: The promoter family has been engaged in the shipping business for seven and half decades. The promoters led by Mr. K M Sheth are supported by experienced management and collectively have the ability to withstand short or mid-term headwinds in the industry. The company has dedicated teams that track the charter rates and ship prices on a regular basis, to take informed decisions on deployment as well as sale and purchase of ships.

 

• Strong business risk profile, supported by a young and well-diversified fleet: GESCO maintains a relatively young and well-diversified fleet, which has better functionality and operating efficiency than older vessels and helps the company get better market value when vessels are sold. The company has sold seven ageing vessels in fiscal 2025 and currently owns and operates 38 vessels (26 tankers and 12 dry bulk carriers) with a combined capacity of 30.4 lakh dead weight tonnage as on February 21, 2025. It also keeps its fleet well-maintained and compliant with various emission, safety and security norms, which enables it to work with the top importers, exporters and commodity traders of the world, optimise the operational cost and earn better returns when they are sold. Through its subsidiary, GIL, the company has established its presence in the offshore oilfield services industry, wherein it owns and operates 19 offshore support vessels and 4 jack-up rigs. The average age of ships (~14 years), offshore support vessels (~14 years) and rigs (~13 years) is significantly lower than their useful life.

 

• Strong financial risk profile: The financial risk profile of GESCO is supported by low gearing and strong liquidity, backed by a prudent risk management approach. The company maintains adequate liquidity to sufficiently cover debt obligation, operating expenses as well as committed capital expenditure (capex) requirements, even in a stressed earning scenario for three years, and investment or capex decisions are taken based on the liquidity available after considering the above cash requirement. As on December 31, 2024, the company had a net cash position on a consolidated basis, with net cash of Rs 5,372 crore, resulting in net debt to equity ratio of (negative 0.38) time (as per consolidated financials reported by the company). Despite cyclicality in the operating performance of the shipping and offshore oilfields service businesses, the financial risk profile of GESCO is likely to remain strong over the medium term. Owing to its prudent risk management policy, the gearing (measured as a ratio of debt to equity) has remained below 1 time over the past 10 years.

 

Weakness:

• Operating performance remains susceptible to volatility in charter rates: Performance of the shipping business is inherently cyclical, with mismatch between fleet demand and supply and disruptions to supply chain on account of macro-economic and geopolitical events. Moreover, the charter rates for crude and product tankers as well as dry bulk carriers are driven by the demand and supply situation for the underlying commodities or products. Presence across multiple segments allows the company sufficient leverage to mitigate the adverse impact of a drop in the charter rates of any segment during a business downturn and at the same time take advantage of the rates during an upturn.

 

In the first nine months of fiscal 2025, GESCO's shipping business maintained healthy operating performance. Notably, earnings from LPG tankers remained steady, buoyed by fixed charter rates. As for dry bulk carriers, earnings remained range-bound after a spike in the second half of fiscal 2024 amid geopolitical tensions in the Red Sea. On the other hand, crude and product tankers faced headwinds from the weak demand outlook for crude and squeezed refinery margins.

 

Profitability and cash flow in the offshore business depend on offshore charter rates, which are influenced by offshore and deep-water expenditure by oil majors. Offshore and deep-water block investments, which are larger than investments in onshore blocks, are highly sensitive to crude oil prices. While this segment grew significantly during the upcycle between fiscal 2008 and fiscal 2015, an oversupply situation thereafter led to a sharp correction in the time charter rates, which hit margins significantly across the industry. This downcycle reversed from fiscal 2023 onwards and the charter rates have been high for the offshore segment.

Liquidity: Superior

GESCO, at consolidated level, had adequate cash and equivalents of Rs 8,023 crore as on December 31, 2024. Expected cash accrual of Rs 1,700-2,000 crore per annum in fiscals 2026 and 2027 will sufficiently cover yearly debt obligation of Rs 650-850 crore per annum. Liquidity is expected to remain comfortable considering the risk management policy followed by the company for the shipping segment, wherein adequate funds are reserved for covering cash outflow, even in case of the worst 3-year period of charter rates seen over the past 20 years, prior to undertaking capex decisions.

 

Environment, Social, and Governance (ESG) profile

The ESG profile of GESCO supports its already healthy credit risk profile.

 

The company targets for 70% reduction in greenhouse gas (GHG) emissions by 2050, in line with the International Maritime Organisation (IMO) guidelines. The company has made investments in many energy saving devices, including high performance paints, Mewis Ducts, advanced propellers and propeller caps, to reduce emissions.

 

Six of 38 ships owned/operated by the company are equipped with exhaust gas cleaning system with the aim to reduce sulphur emissions.

 

Share of women employees was low at ~26% in fiscal 2024 though it was in-line with listed peers in the industry. Its lost time injury frequency rate stood at 0.36x for fiscal 2024 (0.38x for fiscal 2023).

 

GESCO’s governance structure is characterised by 60% of its board comprising independent directors, 13%-woman directors, split in positions of Managing Director (MD) and chairperson, and extensive financial disclosures.

Outlook: Stable

Crisil Ratings believes GESCO will continue to benefit from its strong business risk profile underpinned by its relatively young and well-diversified fleet and maintain a comfortable financial risk profile, driven by healthy liquidity and prudent risk management approach.

Rating sensitivity factors

Downward factors:

• Higher-than-expected leverage or lower-than-expected operating profit, including due to turning of business cycle resulting in net debt to Ebitda ratio exceeding 1.5 times on a sustained basis.
• Sustained weakening of the operating charter rates impacting cash accrual or material change in liquidity policy resulting in significant and sustained depletion of cash balance.

About the Company

Incorporated in 1948, GESCO is the largest private sector shipping company in India. The company operates two main businesses tankers and dry bulk carriers wherein it owns and operates 38 vessels (26 tankers and 12 dry bulk carriers) with a combined capacity of 30.4 lakh dead weight tonnage as on February 21, 2025.

 

Through GIL, GESCO has presence in the offshore oilfield services industry. GIL along with its subsidiaries provides services in the offshore energy exploration and production (E&P) domain, and has presence in the offshore oilfield logistics support, offshore construction and offshore drilling services segments.

Key financial indicators*

Particulars	Unit	2024	2023
Revenue	Rs.Crore	5919	6171
Profit After Tax (PAT)	Rs.Crore	2614	2575
PAT Margin	%	44%	42%
Adjusted debt/adjusted networth	Times	0.29	0.40
Interest coverage	Times	12.31	7.7

*Based on consolidated financials reported by the company

Any other information: Not Applicable