Shipping industry to witness improvement in operating margins

Published Date: Jan 03, 2014

CRISIL Research estimates operating margins of domestic players in the shipping industry to improve by 5-7 percentage points in 2013-14 due to a weaker rupee and better control over costs, exercised during the year. Operating margins are expected to grow further by 4 - 6 percentage points in 2014-15, led by improvement in charter rates.

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CRISIL Research has considered four major shipping companies to analyse profitability of the domestic shipping industry. These companies together form about 55-57 per cent of the domestic tonnage.

Decline in freight rates caused margins to drop in 2012-13

The Indian shipping fleet comprises crude tankers, product tankers, dry cargo bulk carriers and container vessels. Thus, performance of Indian shipping industry depends on both, the tanker and dry bulk segments.

Composition of Indian shipping fleet

Source: CRISIL Research

Change in shipping freight rates in 2012-13

Source: CRISIL Research

Freight rates declined across all segments in 2012-13, which led to a fall in operating margins for the shipping industry. However, a 14 per cent depreciation in the rupee helped arrest the drastic fall in operating margins and also aided growth in revenues.

Past financial performance - shipping industry

Source: CRISIL Research

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Note: Profitability has been estimated on the basis of aggregate results of GE Shipping, Mercator Lines and Shipping Corporation of India.

Operating margins expected to improve over 2013-15

CRISIL Research expects operating margins to improve by 5-7 percentage points in 2013-14 and further by 4-6 percentage points in 2014-15, led by following factors:

Rupee depreciation in 2013-14

The rupee has depreciated by about 10 per cent during April-November 2013. About 90-95 per cent of shipping revenues are dollar-denominated, but only about 60-80 per cent of costs are linked to the dollar. Thus, depreciation in the rupee would help margins improve in 2013-14.

Growth in freight rates

We expect both dry bulk and tanker freight rates to increase over the next two years, which would help boost operating margins for shipping companies. The dry bulk segment is expected to recover at a faster pace than the tanker segment. Therefore, companies having dry bulk as a major revenue contributor, are likely to see a better improvement in margins.

Growth in operating margins over the next two years

P: Projected Source: CRISIL Research

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