GE Shipping (Gesco) is expected to see strong growth over the next few years as tanker freight rates bottom out from their downturn. The company plans to list its offshore subsidiary, Greatship Limited, which will unlock value for shareholders. The author values the shipping business at Rs. 263/share and the offshore business at Rs. 133/share based on comparable companies. Trading at a discount to peers, the author recommends buying Gesco.

1. Company Update | Shipping
April 28, 2010
GE Shipping BUY
CMP Rs331
Anchoring Offshore Target Price Rs396
GE Shipping (Gesco) has emerged almost unscathed from the downturn of the Investment Period 12 months
shipping cycle on account of timely purchase and sale of assets and sound mix of
Stock Info
time spot ratio. Accordingly, with the bottoming out of the freight rates and asset
prices, we expect Gesco to register 49.3% CAGR in Net Profit over CY2010-12E. Sector Shipping
Further, the company plans to list its wholly-owned offshore subsidiary, Greatship Market Cap (Rs cr) 5,048
Limited (GIL) by end FY2011E, which we believe will unlock value for the Beta 0.9
shareholders. On NAV basis, the Shipping business fetches Rs263/share (10% 52 Week High / Low 340/201
discount to NAV), while we have valued the Offshore business at 6.5x FY2012E
Avg Daily Volume 203,318
EV/EBIDTA in line with its global peers and fetches Rs133/share. Based on our
Face Value (Rs) 10
Target Price of Rs396 the implied EV/ EBITDA, P/BV, P/E multiple works out to
BSE Sensex 17,745
5.7x, 0.9x, and 5.7x respectively, on FY2012E basis. Thus, on account of trading
at a significant discount to its global peers, we recommend a Buy on stock. Nifty 5,322
Reuters Code GESC.BO
Tanker freight rates bottoming out: The International Energy Agency (IEA) estimates
Bloomberg Code GESCO@IN
global oil demand to register 1.5% CAGR over CY2009-11E increasing from
2.6mbd to 87.5mbd as against the decline of 1.5% in CY2009. As per Clarksons,
Shareholding Pattern (%)
13% and 14% of the existing capacity (fleet) of crude and product tankers will be
added in CY2010. However, accelerated phase out of single hull tankers, which Promoters 30.0
account for 12% of the world's existing tanker fleet, will relieve supply-side pressures MF / Banks / Indian FIs 21.1
and keep the freight rates at current sustainable levels over the near to medium FII / NRIs / OCBs 21.8
term. Gesco will be a key beneficiary of higher tanker freight rates as it derives Indian Public / Others 27.1
around 46% of its Consolidated Revenues from the Tanker Segment.
GIL IPO to unlock value: The company intends to list its 100% subsidiary, GIL by Abs. (%) 3m 1yr 3yr
end FY2011E through fresh equity issuance. We believe this will unlock potential Sensex 5.7 56.6 24.7
value of the Offshore business, which globally trades at higher multiples than the
Gesco 10.6 57.5 35.9
Shipping business due to better stability and high visibility in Earnings.
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 3,801 2,840 3,013 3,873
% chg 21.4 (25.3) 6.1 28.5
Profit
Net Profit 1,418 475 687 1,059
% chg (2.4) (66.5) 44.5 54.2
FDEPS (Rs) 93.1 31.2 45.1 69.5
EBITDA Margin (%) 41.6 23.6 32.7 37.2
P/E (x) 3.6 10.6 7.3 4.8 Param Desai
RoE (%) 29.7 8.8 11.9 16.5 +91 22 4040 3800 Ext: 310
RoCE (%) 14.5 2.5 5.0 8.7 Email: paramv.desai@angeltrade.com
P/BV (x) 1.0 0.9 0.8 0.7
EV/Sales (x) 1.9 2.4 2.2 1.8 Mihir Salot
+91 22 4040 3800 Ext: 307
EV/EBITDA (x) 4.5 10.3 6.9 5.0
Email: mihirr.salot@angeltrade.com
Source: Company, Angel Research, Price as on April 26, 2010
Please refer to important disclosures at the end of this report

2. GE Shipping | Company Update
Valuation
Shipping Business valued at Rs263/share
The Shipping business is cyclical in nature. Hence, it is difficult to predict the Earnings
given volatility in the freight rates. Hence, we have valued Gesco on the sum-of-the-
parts methodology. We have valued the Shipping business on NAV basis taking into
account three parameters, viz, size, age and type (ie., whether single or double hull).
We have assigned 10% discount to NAV on a conservative basis though we believe
the asset prices have bottomed out. Further, we believe that the decline in NAV through
the reduction in asset prices would be mitigated by an increase in tonnage. We have
thus arrived at an NAV of Rs263/share (10% discount to NAV) for the Shipping Division.
Exhibit 1: Shipping Division Valuation
Particulars Value ( Rs cr)
Tanker Segment - A 3,108
Dry Bulk Segment - B 649
NAV- discounted @ 10% (A + B)
NAV 3,757
Less Debt 3,487
Add Cash 3,214
Add Advances 525
Total 4,009
NAV/share (Rs)
NAV/share 263
Source: Company, Angel Research
Offshore business valued at Rs133/share
Gesco intends to add another eight offshore vessels over the next two years, which
would spur Revenue growth. In our view, the listing could unlock the potential value
of the Offshore business, which globally trades at higher multiples than the Shipping
business due to better stability and high visibility in Earnings. Moreover, we believe
that the company might further expand capacity with better capital structure post
listing of Offshore Division, which would enable it to acquire assets, especially new
rigs. Consequently, this would further spur Revenue and Earnings growth while
providing Earnings visibility. We have valued the Off-shore Division at 6.5x EV/EBIDTA
in line with the global peers. Consequently, the Offshore Division fetches
Rs133/share.
Exhibit 2: Offshore Division Valuation
Particulars Value (Rs cr)
FY2012E EBIDTA 593
Target multiple -EV/EBIDTA (x) 6.5
EV 3,856
Less Debt 2,099
Add Cash 264
Target Mkt cap 2,021
Value (Rs/share) 133
Source: Company, Angel Research
Trading at discount to Peers
Based on our Target Price of Rs396, the implied EV/ EBITDA, P/BV, P/E multiple
works out to 5.7x, 0.8x, and 5.7x respectively, on FY2012E basis. Thus, Gesco is
trading at a significant discount to its global peers.
April 28, 2010 2

3. GE Shipping | Company Update
Exhibit 3: Global Peer Valuation
Market Cap P/E (x) P/B (x) EV/EBITDA (x)
EV/EBITDA EV/Sales (x) RoE (%)
Tankers USD Mn CY10E CY11E CY10E CY11E CY10E CY11E CY10E CY11E CY10E CY11E
Teekay 526 15.1 12.0 1.7 1.9 11.2 9.9 6.3 6.3 14.2 16.8
Frontline 2,833 15.2 14.8 3.5 3.5 9.6 9.7 5.1 5.1 22.4 22.9
Overseas Shipholding 1,538 98.9 24.6 0.8 0.8 12.0 9.2 2.5 2.5 0.6 3.3
Ship Finance International 1,594 8.8 9.3 1.7 1.7 8.1 7.2 9.1 9.1 27.5 20.4
Tsakos Energy 569 19.1 10.2 0.6 0.6 9.8 8.5 4.3 4.3 4.6 4.6
Average 31.4 14.2 1.7 1.7 10.1 8.9 5.5 5.5 13.9 13.6
Dry Bulk
China Cosco Holding 17,042 47.2 25.7 2.6 2.4 15.6 14.3 1.7 1.7 2.8 6.0
China Shipping Development 5,536 17.6 12.7 1.6 1.4 11.2 8.5 3.2 3.2 9.1 10.9
Stx Pan Ocean 2,490 26.7 10.9 1.2 1.1 16.5 9.1 0.6 0.6 4.9 9.6
Cosco Shipping 1,841 29.3 14.8 2.6 2.3 13.1 9.7 1.9 1.9 7.9 15.1
Pacific Basin 1,483 14.9 12.7 1.0 1.0 8.1 7.1 1.5 1.5 6.9 8.0
Diana Shipping 1,258 9.8 10.3 1.1 1.0 7.0 7.1 5.0 5.0 11.1 9.5
Average 24.3 14.5 1.7 1.5 11.9 9.3 2.3 2.3 7.1 9.9
Offshore
Transocean 30,134 10.0 8.5 1.3 1.2 7.3 6.6 3.4 3.4 13.2 15.1
Diamond Offshore 11,901 10.3 10.0 3.0 2.8 6.0 5.8 3.3 3.3 30.8 31.3
Nabors Industries 6,436 21.3 13.6 1.2 1.1 6.8 5.7 2.1 2.1 5.2 8.2
Pride International 5,864 18.4 10.1 1.3 1.1 11.3 6.6 3.0 3.0 6.9 11.9
Rowan Companies 3,700 13.2 16.3 1.1 1.0 6.4 6.9 2.1 2.1 8.8 7.6
Aban Offshore* 1,198 11.9 5.7 2.1 1.6 10.4 7.8 4.8 4.8 20.9 32.2
China Oilfield Services 8,824 12.3 10.9 1.7 1.5 10.3 9.0 4.0 4.0 15.3 15.5
Average 14.0 10.7 1.7 1.5 8.4 6.9 3.2 3.2 14.5 17.4
GE Shipping* 1,149 7.3 4.8 0.8 0.7 6.9 5.0 2.2 1.8 11.9 16.5
Source: Bloomberg, Angel Research; Note: * Y/E March; Prices as on April 26, 2010
Exhibit 4: Gesco’s 1yr forward P/BV
1.8
1.6
1.4
1.2 Trading at discount to its
four year average
1
(x)
0.8
0.6
0.4
0.2
0
April-06 April-07 April-08 April-09 April-10
Source: Bloomberg, Angel Research
April 28, 2010 3

4. GE Shipping | Company Update
Exhibit 5: GE Shipping Fleet Details
Sr no. Vessels Name Dwt Hull Age Market
Value (US $mn)
Crude Carriers
1 Suezmax Jag Lalit 158,344 DH 5 61.0
2 Suezmax Jag Lok 158,280 DH 5 61.0
3 Suezmax Jag Laskhya 152,485 SH 21 8.0
4 Suezmax Jag Lateef 147,092 DH 10 45.0
5 Suezmax Jag Lakshita 147,092 DH 10 45.0
6 Aframax Jag Lyall 110,531 DH 4 51.0
7 Aframax Jag Lamha 98,214 SH 23 7.5
8 Aframax Jag Laxmi 105,051 DH 11 15.0
9 Aframax Jag Leela 105,148 DH 11 15.0
10 Aframax Jag Lata 105,716 DH 7 35.0
11 Aframax Jag Lavanya 105,010 DH 6 35.0
Product Tankers
Tankers
12 LR1 Jag Amisha 74,868 DH 1 45.0
13 LR1 Jag Aparna 74,868 DH 1 45.0
14 LR1 Jag Aabha 74,868 DH 2 45.0
15 LR1 Jag Aanchal 74,868 DH 2 45.0
16 MR Jag Pranam 50,600 SH 26 4.0
17 MR Jag Pavitra 50,600 SH 25 4.0
18 MR Jag Pahel 46,319 DH 6 25.0
19 MR Jag Pankhi 46,345 DH 7 25.0
20 MR Jag Pradip 45,684 DH 14 5.0
21 MR Jag Pratap 45,683 DH 15 5.0
22 MR Jag Prakash 47,848 DH 3 35.0
23 MR Jag Prerana 46,348 DH 3 35.0
24 MR Jag Pushpa 47,400 DH 3 35.0
25 MR Jag Padma 47,000 DH 14 25.0
26 GP Jag Preeti 29,139 DH 29 3.0
27 GP Jag Pari 29,139 DH 28 3.0
28 GP Jag Palak 27,402 SH 25 3.0
29 GP Jag Pragati 27,400 SH 25 3.0
30 GP Jag Parwar 29,998 SH 22 3.0
31 Gas Carriers Jag Viraj 17,577 19 4.5
Bulk Carriers
32 Supramax Jag Rahul 52,364 SH 7 35.0
33 Supramax Jag Ratan 52,180 SH 9 35.0
34 Capesize Jag Arjun 164,796 SH 14 32.0
35 Panamax Jag Arnav 71,122 SH 15 25.0
36 Handymax Jag Ravi 45,342 SH 13 20.0
37 Handysize Jag Vikram 27,463 SH 30 15.0
Total 2,740,184 938
Source: Company, Angel Research
April 28, 2010 4

5. GE Shipping | Company Update
Investment Arguments
Tanker freight rates bottoming out
The International Energy Agency (IEA) estimates global oil demand to post 1.5%
CAGR over CY2009-11E increasing from 2.6mbd to 87.5mbd as against the decline
of 1.5% in CY2009. As per Clarksons, 13% and 14% of the current existing capacity
(fleet) of crude and product tankers will be added in CY2010. However, accelerated
phase out of single hull tankers, which currently account for 12% of the world's existing
tanker fleet, will relieve supply side pressures and keep freight rates at the current
sustainable levels over the near to medium term.
Tanker freight rates hinge on Oil consumption and New deliveries
The world economy, oil consumption, floating storage, slippages & scrapping and
delivery of new buildings are some of the important factors that impact the demand
for tanker fleets.
Exhibit 6: Drivers of Tanker Fleet
Global
Economy
Scrapping
New
&
Deliveries
Slippages Demand
for
Tanker Fleet
Oil Floating
Demand Storage
Source: Angel Research
Demand for oil will drive freight rates
As per IEA forecasts, crude oil demand Crude oil production in the last few years has been driven by consumption in the
should grow by 1.7% in CY2010E to non-OECD countries (developing nations) owing to the greater energy requirements
86.3mbd and 1.6% in C2011E to in these faster growing nations, and is likely to keep demand high in the long term.
87.5mbd as against the decline of As per IEA, all incremental demand is expected to be derived from the non-OECD
1.5% in CY2009 countries, which will overtake the OECD nations and are expected to account for
51% of the world's oil demand by 2014 from current levels of 46%. In the last decade,
China's crude oil consumption almost doubled and currently the country consumes
10.0% of the total world crude consumption. As per IEA forecasts, crude oil demand
should grow by 1.6% in CY2010E to 86.3m bbls/per day and 1.4% in C2011E to
87.5mbd as against the decline of 1.5% in CY2009.
Exhibit 7: Demand for oil
Demand Scenario (m bbls/day) 2008 2009 2010 2011 2012 2013 2014
OECD 47.6 45.5 45.5 45.4 45.2 45 44.8
Non-OECD 38.6 39.3 40.8 42.1 43.4 44.8 46.0
World 86.2 84.9 86.3 87.5 88.7 89.8 90.9
yoy chg (%) (1.5) 1.6 1.4 1.4 1.2 1.2
Global GDP (yoy %chg) 2.9 (1.2) 3.1 4.2 4.4 4.5 4.5
Source: IEA
April 28, 2010 5

6. GE Shipping | Company Update
Slippages and Scrapping key to Tanker freight rates
We expect a major portion of the The sharp drop in sea-borne oil trade during the global economic crisis along with
single-hull
single-hull tankers (55mn dwt), ie. 12% 7% growth in fleet should have led to a decline in the rates for tankers in most part of
of the world tanker fleet, to get CY2009. But, it did not happen because 20mn dwt of the fleet or 5% were used as oil
removed from active trading in storage vessels. In CY2009, 9mn dwt or 18% of the scheduled deliveries were not
CY2010 in line with the IMO standards delivered. The total Tanker Order Book size currently stands at 30.7% (134.1mn dwt)
of the existing fleet of which 14.6% (64mn dwt) is expected to come up in 2010. We
expect actual deliveries to be significantly lower than 64mn dwt on account of slippages
and scrapping. A major portion of the single-hull tankers will be removed from active
trading (55mn dwt) ie. 12% of the world tanker fleet in 2010 in line with the IMO
standards. Hence, we expect net addition of moderate 7-8% of tanker fleet, which
should keep the freight rates firm in the near term and gradually move up from
2HFY2011E onwards.
Exhibit 8: Slippages to be a decisive factor
Product
Crude & Product Carriers (mn dwt) VLCC Suezmax Aframax Panamax MR GP Total
Order Book as on Jan 1, 2009 20.8 10.9 11.9 4.1 10.6 2.1 60.5
Actual Deliveries CY2009 16.7 7.1 10.5 2.8 7.2 1.4 45.9
Slippages/ Cancellations
mn dwt 4.1 3.8 1.4 1.3 3.4 0.7 14.6
% of Order Book as on Jan 1, 2009 19.7 34.9 11.8 31.7 32.1 33.3 24.1
Source: Company, Clarksons
Exhibit 9: Single hull scrapping crucial Exhibit 10: Scrapping Details
Particulars (mn dwt) CY2010E CY2011E Category Fleet size Scrapping
Existing fleet as on Jan 1, 2010 437.5 471.5 (mn dwt) 01.02.10 CY08 CY09 2010 YTD
Add New deliveries in CY2010 64 48.2 Crude Carriers 313.3 1.3 5.1 1.2
Less Scrapping 15 25 Product Carriers 125.8 1.5 3.3 0.7
Less Slippages 15 0 Source: Company, Clarksons
Fleet as at Y/E Dec 471.5 494.7 12% of World
Net Fleet Addition (%) 7.8 4.9 tanker fleet
single hull
Source: BRS, Angel Research
Increase in Tonnage Miles
Tonnage carried per dead weight tonne (DWT) has declined due to faster growth in
global tonnage as against growth in total cargo. However, tonnage miles per DWT
have been increasing, which signifies that ships are carrying similar cargo over longer
distances now. We believe that tonnage miles have further potential to increase as
patterns of trade movement between countries are changing and there are more
shipments to the Asian countries such as China and India, which involve longer
distances. There is an additional global refinery capacity of 8.7mb/d of which 75% is
expected to come from Asia over 2008-2014E. Growth continues to be dominated by
China at
2.9mb/d, Other Asia at 2.1mb/d and the Middle East at 1.5mb/d. Thus, higher
crude volume will move from the Atlantic to the Pacific Basin with products moving
the other way. This is a positive for the long haul tanker tonne-mile demand.
April 28, 2010 6

7. GE Shipping | Company Update
Correlation with Tanker Indices
The Baltic Dirty Tanker and Clean Index has risen by around 100% from the bottom in
April 2009, but still lower by around 55% from the peak. On the other hand, Gesco’s
stock price has risen by 75% during the same period. Given IEA forecast of oil
consumption, IMO regulation of scrapping single hull vessels by CY2010 and
slippages, the positive trend in freight rates could well be captured by the indices and
have a bearing on Gesco’s stock price going forward. We expect the tanker rates to
remain firm in the near term and rise from 2HFY2011E onwards.
Exhibit 11: Gesco share price v/s Crude tanker index Exhibit 12: Gesco share price v/s Product tanker index
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jan-07
Mar-07
May-07
Jul-07
Jan-08
Mar-08
May-08
Jul-08
Jan-09
Mar-09
May-09
Jul-09
Jan-10
Mar-10
Nov-06
Sep-07
Nov-07
Sep-08
Nov-08
Sep-09
Nov-09
Mar-07
Jul-07
Sep-07
Mar-08
Jul-08
Sep-08
Mar-09
Jul-09
Sep-09
Mar-10
Nov-06
Jan-07
Nov-07
Jan-08
Nov-08
Jan-09
Nov-09
Jan-10
May-07
May-08
May-09
GE Shipping Baltic Dirty Tanker Index GE Shipping Baltic Clean Tanker Index
Source: Bloomberg, Angel Research Source: Bloomberg, Angel Research
Dry Bulk Segment hinges on China's consumption and New Deliveries
The volumes of new building deliveries, The Baltic Dry Index (BDI) rebounded by an impressive 288% yoy in CY2009 fuelled
China's economic growth and the trend by low commodity prices, deferred new buildings, back loaded order book and Chinese
in the global market prices of iron ore demand much to a positive surprise. Going forward, volumes of new building
and coal will determine the demand deliveries, China's economic growth and the trend in the global market prices of iron
for dry bulk fleet ore and coal will determine the demand for dry bulk fleet. We believe that the freight
rates for the Dry Bulk Segment will remain under pressure in the near term unless
construction related activity progresses at a faster pace in China, and higher slippages
leading to substantial decrease in supply.
Exhibit 13: Gesco share price v/s BDI
300
250
200
150
100
50
0
Mar-07
Jul-07
Sep-07
Mar-08
Jul-08
Sep-08
Mar-09
Jul-09
Sep-09
Mar-10
Nov-06
Jan-07
May-07
Nov-07
Jan-08
May-08
Nov-08
Jan-09
May-09
Nov-09
Jan-10
GE Shipping Baltic Dry Index
Source: Bloomberg, Angel Research
April 28, 2010 7

8. GE Shipping | Company Update
High iron ore inventory could exert pressure on Freight rates
High levels of iron ore inventory could The Dry Bulk Segment accounts for 66% of the total cargo volume transported by sea.
exert presure on freight rates unless The five principal commodities in this segment are iron ore, grain, coal,
construction related activity progresses bauxite/alumina and phosphate, where iron ore and coal account for 40% of the
at a faster pace in China total dry bulk commodity of which China accounts for a substantial share. In CY2008,
out of the 823mn tonnes of sea-borne iron ore trade, China's imports accounted for
roughly 53% of the same. In CY2009, China's total dry bulk imports increased by
44%, with its iron ore imports growing from 444mn tonnes to 628mn tonnes and
coal imports increasing from 40mn tonnes to 122mn tonnes during the period.
Correspondingly, dry bulk imports fell by around 300mn tonnes for the rest of the
world with Japan registering a fall of 80mn tonnes (17%), while European demand
contracted by nearly 100mn tonnes (23%) for same period. The substantial increase
in Chinese imports was supported by a couple of factors such as massive economic
stimulus package, which created strong growth in demand for steel and energy, and
low prices of raw materials, which provided great incentive to secure large volumes
at bargain prices from the international market. This resulted in high inventory levels,
which could impact Chinese imports in CY2010 and exert pressure on the freight
rates unless construction related activity progresses at a faster pace in China.
Exhibit 14: Increasing Iron Ore inventory remains a concern
80
75 75 74
75
71 72
70 70
69 70
70 67 68
(mn tonnes)
67
65
60
55
50
Apr-09
Jun-09
Jul-09
Jan-10
May-09
Aug-09
Sep-09
Nov-09
Dec-09
Feb-10
Mar-10
Oct-09
Source: Bloomberg, Angel Research
More cancellations in the pipeline
The total Dry Bulk Order Book currently The cancelled tonnage for 2009 represents only around 10% of the ships actually
stands at approx 58.5% of the existing delivered, for 2010 deliveries (which now include many vessels postponed from 2009),
fleet, which could in crease supply side the total percentage only rises to 12.5%. We expect more cancellations to come to
pressures light in the current year as private deals struck between ship-owners and shipbuilding
partners emerge, unlike deferments that kept the market healthy in CY2009.
Exhibit 15: Bulk Orders cancelled this far per Delivery Year
160
12.5%
140
120 8.3%
100
(mn dwt)
80
9.7%
60 2.4%
40 0.9%
20 2.6%
0
CY08 CY09 CY10 CY11 CY12 CY13
On Order Cancelled
Source: BRS, Angel Research
April 28, 2010 8

9. GE Shipping | Company Update
Favourable time spot mix reduces volatility
In FY2010, major portion of revenue Gesco has maintained a good mix between time and spot deployment to maximize
was in favour of time charter owing to earnings and at the same time mitigated risks arising out of freight rate volatility. In
high volatility in freight FY2010 major portion of revenue was in favor of time charter owing to high amount
of volatility in freight. The management has indicated to continue trend over next few
quarters in favor of time charters as uncertainty still prevails in freights. In 3QFY2010,
the management had covered 60% and 40% of operating days for tanker and dry
bulk segment respectively.
Exhibit 16: Mix of time and voyage charter for Tanker and Dry Bulk Segments
Tanker Dry Bulk
100 100
90 90
28 26 26
80 42 80 45 42
49 46
70 58 58 58 60 70
60 60
(%)
(%)
50 50
40 40
72 74 74
30 58 30 55 58
51 54
20 42 42 42 40 20
10 10
0 0
FY07 FY08 FY09 1QFY10 2QFY10 3QFY10 FY07 FY08 FY09 1QFY10 2QFY10 3QFY10
Spot Time Spot Time
Source: Company, Angel Research
Second-hand prices to remain firm
We expect second-hand asset prices to The number of second-hand tanker sales fell from about 300 in 2008 to about 170
pick up post 2HFY2011E in 2009. The average value for double-hull tanker vessels fell by 25% during CY2009
or about 50% since the peak mid-2008. For 2010, we expect fewer transactions at
least through the first half of CY2010 due to buyers betting on deteriorating market
conditions. Later in 2010, we expect some owners to start struggling with too much
debt and not enough revenue, which will kick off industry consolidation and
restructuring on a larger scale. Consequently, we expect second-hand asset prices to
pick up post 2HFY2011E.
Exhibit 17: Five-year Tanker and Dry Bulk asset prices fell by 25% and 65% yoy respectively, in CY2009
Tanker Bulk Carriers
160 160
140 140
120 120
100 100
(US $mn)
(US $mn)
80 80
60 60
40 40
20 20
0 0
CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10E CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10E
MR Product Aframax Suezmax VLcc Handymax Panamax capesize
Source: RS Platou, Angel Research
April 28, 2010 9

10. GE Shipping | Company Update
Relatively younger fleet
The average age of GE Shipping's fleet The average age of GE Shipping's fleet is around 10.9 years, which is relatively young
is around 10.9 years, which is relatively given that most vessels have a life of 25 years. The company has applied depreciation
young given that most vessels have a on an accelerated basis for the vessels that will need to be phased out by FY2010 as
life of 25 years per the MARPOL regulations. In the Offshore Segment, offshore assets such as platform
supply vessels and anchor handling tugs are relatively young and hence, the company
could earn better rates on such assets.
Exhibit 18: Gesco current fleet and average age
20 19 19.0
18
16
13.6
14
12 11 10.6
10.1
10
8
6
6
4
2 1
0
Crude Carriers Product tankers Bulk carriers Gas Carriers
Age Profile (years) Number of Vessels
Source: Company, Angel Research
Offshore business gaining momentum
Gesco's Offshore Division Revenues are Gesco's Offshore Division Revenues are expected to increase from 6.6% in FY2009 to
expected to increase from 6.6% in 38.3% in FY2012E driven by the addition of eight new Offshore Supply Vessels (OSV).
FY2009 to 38.3% in FY2012E driven Going ahead, this would further diversify the company’s Revenue stream as well as
by the addition of eight new OSVs lower Earnings volatility. On the other hand, enhanced capex by the oil & gas
companies, which is expected to increase by 10% CAGR over the next two years, will
strengthen the offshore freight rates. Further, with the Offshore Division stabilising,
we expect Gesco’s Offshore EBIT Margins to improve from current levels of 21% to
30% in FY2012E.
Exhibit 19: Offshore Operating Days to drive Revenues Exhibit 20: Share of Offshore Revenues increasing
9,000
1,600 45
38.3
8,000 7,700
1,400 40
7,000 34.1
28.7 35
6,222 1,200
6,000 5,402 30
1,000
25
(Rs cr)
5,000
(Days)
(%)
800
20
4,000 3,390 600
15
3,000 400 6.6 10
2,000 200 3.4
1,226 5
1.0
1,000 0 0
FY07 FY08 FY09 FY10E FY11E FY12E
-
Offshore revenue (LHS) % of consolidated Revenue (RHS)
FY08 FY09 FY10E FY11E FY12E
Source: Company, Angel Research Source: Company, Angel Research
April 28, 2010 10

11. GE Shipping | Company Update
Ageing fleets and higher exploration to drive Offshore vessel market
Around 48% of the AHTSV and 65% of Around 48% of the Anchor Handling Tug Supply Vessels (AHTSV) and 65% of the
the OSV fleet is more than 25 years Offshore Vessels (OSV) fleet is more than 25 years old and is due for immediate
old and is due for immediate replacement. This is expected to keep the freight rates firm. The search for new
replacement, which will keep the freight hydrocarbon reserves has pushed the boundaries of technology, to facilitate new
rates firm discoveries in deeper water and harsher environment. As per the Ocean Shipping
Consultants (OSC), in a Base Case scenario, offshore oil production is forecast to
increase from an estimated 25m bbls/day in 2007 to 30m bbls/day by 2010 and to
42m bbls/day by 2020. This equates to a rise in output of approximately 62%.
Consequently, the AHTS fleet is forecast to increase from the current 1,448 vessels to
approximately 1,850 vessels by 2015, and potentially to over 2,000 vessels by 2020.
In case of the Platform Supply Vessel (PSV) fleet, it is expected to increase from 457
vessels to 760 vessels by 2015, and to 840 vessels by 2020. Going ahead, we continue
to remain optimistic about the offshore support vessel market.
Exhibit 21: Vessel-wise age profile
60
50
40
(%)
30
20
10
0
<5 5-10 10-15 15-20 20-25
- 25-30 > 30
AHTS OSV PSV AHT MSV
Source: BRS, Angel Research
Focus on E&P activity to rebound
The global offshore spend is set to Decline in oil and gas reserves, high energy security concerns on consumer countries
CAGR
increase at a CA GR of 10.3% over agenda, development and drilling activity in mid-to-deep water is expected to increase
CY2009-13E on the back of the global the focus on E&P activity by the oil majors. Further, the high oil prices will also press
recovery and higher oil prices the need for reserve accretion, which will increase focus on exploration efforts. As per
Douglas-Westwood (D-W), spend on offshore exploration activities registered a CAGR
of 14.6% during CY2004-08. However, following the global slowdown, the E&P
activities were curtailed globally during the two years, but is estimated to witness
strong rebound aided by global recovery and higher oil prices. D-W estimates the
global offshore spend to register a CAGR of 10.3% over CY2009-13E.
April 28, 2010 11

12. GE Shipping | Company Update
Exhibit 22: Global Offshore Spend
400
350 335
293
300 268
230 242 235
250 226
(US $bn)
200 185
160
140
150
100
50
0
CY04 CY05 CY06 CY07 CY08 CY09 CY10E CY11E CY12E CY13E
Source: Douglas-Westwood, Angel Research
Exploring Rig Segment
The demand for offshore rigs is dependent on crude oil E&P activity. In India, seven
bidding rounds of the New Exploration licensing Policy (NELP) this far awarded 203
blocks, of which 71 oil and gas discoveries have already been made in 19 exploration
blocks. The NELP-VIII round launched recently along with the fourth round for Coal
Bed Methane blocks (CBM-IV) offers the highest ever number of 70 oil and gas
exploration blocks and 10 blocks under CBM-IV. The NELP-VIII would offer 24 deep
water blocks, 28 shallow water blocks and 18 on-land blocks resulting in substantial
scope for the vessels catering to the Offshore Segment.
GIL owns a 350ft jack-up rig, which has been chartered to ONGC for five years for
US $164,000/day. It has also leased a jack-up rig from Mercator Lines and chartered
the same for three years.
GIL IPO will unlock value
Gesco proposes to list its 100% subsidiary, GIL, by end FY2011E through fresh equity
issuance. In our view, the listing could unlock the potential value of the Offshore
business, which globally trades at higher multiples than the Shipping business due to
better stability and high visibility in Earnings. Moreover, we believe that the Division
might further expand capacity on better capital structure post the listing, which would
enable it to acquire assets especially new rigs. Consequently, this would spur Revenue
and Earnings growth. We have valued Gesco's Offshore business at 6.5x FY2012E
EV/EBIDTA in line with the global peers and fetches Rs133/share or Rs2,021cr.
April 28, 2010 12

13. GE Shipping | Company Update
Financial Outlook
New vessels and higher freight rates to drive revenues
We expect consolidated Revenues to We expect the company's Shipping Segment Revenues to register 8.0% CAGR over
CAGR
post CAGR of 16.8% over FY2010-12E FY2010-12E to Rs2,360cr driven by addition of five new vessels in the Dry Bulk Segment
to Rs3,874cr in FY2011E and sustainable freight rates on account of slippages and removal of
single hull tankers. We expect the Offshore Segment to register 34.8% CAGR in Revenue
to Rs1,483cr during the mentioned period driven by induction of the eight new OSVs
and higher freight rates following heightened E&P activity. Consequently, consolidated
Revenues are expected to post CAGR of 16.8% over FY2010-12E to Rs3,874cr.
Exhibit 23: Revenue Trend
4,500 50
44.5
4,000 40
3,500 30
28.5
3,000 21.4 20
2,500
(Rs cr)
(%)
10
2,000 6.4 6.1
0
1,500
(10)
1,000
500 (20)
-25.3
0 (30)
FY07 FY08 FY09 FY10E FY11E FY12E
Tanker (LHS) Dry Bulk (LHS) Offshore (LHS) chg yoy (RHS)
Source: Company, Angel Research
Offshore Segment to drive Operating Margins
We expect core EBITD A Margins to
EBITDA We expect core EBITDA Margins to improve by 1,360bp to 37.2% over FY2010-12E
improve by 1,360bp to 37.2% over on the back of stabilisation of the company's Offshore business and increase in
FY2010-12E Revenues. Our day rate forecasts have been fairly conservative over FY2010-12E,
and growth in the Offshore business has been driven more by an increase in Operating
days rather than an increase in Day rates.
Exhibit 24: EBITDA Trend
(%)
60
49.3
50
44.3
41.6
40 37.2
32.7
30
23.6
20
10
0
FY07 FY08 FY09 FY10E FY11E FY12E
Source: Company, Angel Research
April 28, 2010 13