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Edited Transcript of GESHIP.NSE earnings conference call or presentation 8-Aug-19 12:00pm GMT

Q1 2020 Great Eastern Shipping Company Ltd Earnings Call

Mumbai, MAHARASHTRA Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Eastern Shipping Company Ltd earnings conference call or presentation Thursday, August 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anjali Kumar

The Great Eastern Shipping Company Limited - Head of Corporate Communications

* G. Shivakumar

The Great Eastern Shipping Company Limited - CFO & Executive Director

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Conference Call Participants

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* Aadesh Mehta

AMBIT Capital Private Limited, Research Division - Analyst

* Ankit Panchmatia

ICICIdirect.com, Research Division - Former Research Analyst

* Bhavin Gandhi

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Nirav Shah

* Ranjit Kothari

* Vaibhav Badjatya

Honesty and Integrity Investment - Founder

* Vikram Suryavanshi

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen. Thank you for standing by. Welcome to The Great Eastern Shipping earnings call on declaration of its financial results for the quarter ended June 30, 2019. (Operator Instructions) I now hand the conference to Ms. Anjali Kumar, Head of Corporate Communications, at the Great Eastern Shipping Company Limited to start the proceedings. Thank you, and over to you, Ms. Kumar.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [2]

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Good afternoon, friends. Welcome to the Q1 FY '20 conference call. And I am hoping that all of you have managed to get a hold of the results that we have announced earlier today. And I would now like to hand over the call to our CFO, Mr. Shivakumar, to take you through the [financials], and we can then discuss the Q&A. Over to you, Mr. Shivakumar.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [3]

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Good afternoon, everyone, and welcome to the conference call. Let's look at how the business did first.

On tanker rates first, especially crude. And you'll see from our press release, our average TCYs for each of the sectors. In this, you can see that crude tankers earned about $15,000 on average, $15,000 a day approximately on average in Q1 FY '20, down from about $21,000 in Q4 FY '19, that is the immediately preceding quarter, but up very significantly from just about $11,000 in Q1 of FY '19. So crude tanker market has been a little bit stronger than it was in the previous year.

Product tankers were flat -- more or less flat, plus/minus $1,000 per day on a sequential and on a Q1-over-Q1 basis. The sector with [the most improvement] was the LPG carrier sector, where rates went up all the way to $50,000 or $60,000, but within $50,000 and $60,000 a day around end June, early July, and which is a huge good change from last year where it was languishing around $10,000 a day. Even in the month of January, it is probably around 10 -- $12,000 a day.

On the Dry side, the ships are lower than the previous year. But they've recovered from the lows, which we saw in early 2019, after the Vale incident. Again, we have -- and those were the earnings on the different types of ships.

On the results, again, we have a significant swing on account of the currency and derivatives. December currency has been more or less flat during the quarter. We started at 69.15 and ended at 69.03. But the derivative MTMs have moved because interest rates dropped significantly during the quarter due to the dollar interest rates dropped by about 50 basis points for long-term interest rates. And the [IPO] also dropped another 20, 25 basis points. And this resulted in the MTM derivatives. You'll recall this is the swaps that we have on our long-term debentures. The MTM on the derivatives moved against us by about INR 110 crores.

On a net level, you will see, we have shown a loss on a consolidated basis as a result of this MTM impact, which was also about INR 54 crores consolidated and INR 50 crores standalone. But obviously, the business has done better than it had in last year.

Coming to what drove earnings during the quarter. Tanker oil demand has been quite weak. Low refinery margins, weak demand. Weak demand, because of slower economic growth, and a decline in the [timely runs] resulted in lower demand for oil shipping, and therefore, for tankers.

The oil demand in the first half has probably been a little less than 0.5 million barrels a day. And that's quite a poor number really. The other impact came from the refineries, which went into maintenance ahead of the IMO 2020 change-over and the expected big distillate demand.

And for refining runs, actually fell over Q2 2019, I'm talking about the calendar year now, over the previous year. It fell by about 300,000 barrels per day. And against this, we had a 4%-plus increase in the crude tanker fleet and 2.5%-plus increase in the product tanker fleet in this 6-month period. That is between Jan. and July.

Now considering that all of these sound like very [various] factors, it's quite heartening to see that crude tanker rates, at least, has been higher than in the previous year, as I mentioned earlier today. And product tanker rates have remained -- have been more or less around the same as the previous year.

One factor to note here is that crude imports into the U.S. dropped by almost 1 million barrels a day in the first 6 months of this year. At the same time, crude exports from the U.S. went up by almost 1 million barrels a day.

Now this would appear to be sort of balancing each other out, but it doesn't actually balance each other out. What has happened is that less ships are carrying oil into the U.S., and which means less ships being available to carry oil out of the U.S., which means that somebody has to valet from the Far East in order to pick up that cargo. And as some of you know, that ton-mile impact of somebody doing a round trip from the Far East loading in the U.S. and coming back to the Far East is very high end ton-mile impact.

Going forward, we expected that IMO-related diesel demand and a higher off-hire days due to scrubber installations would likely support trade rates. We saw 1 estimate, which said that about 2% to 2.5% of the crude tanker's capacity effectively could be taken out in the last 4 to 5 months of the year just for scrubber treatment and the tanker market [lists] on these small changes in demand and supply. And therefore, we expect that this should have a positive impact as we go forward closer to the end of this calendar year.

Again, on the positive side, the crude tanker order book is currently under 10% of the fleet, and the product tanker order book is at 7% of the fleet, which is again at historical lows.

I mentioned earlier, the LPG market went up to almost $60,000 a day on the spot market. And again, this is driven by large LPG volumes of LPG exports coming out of the U.S. and coming to the Far East, which absorbed the fleet supply of 2.5% to 3%, which we saw, and not just absorbed, but tightened the market significantly. So that market continues to be strong. It's come up a little bit since then, but we are still at between $40,000 and $50,000 a day on the spot market.

Unfortunately, all our ships were fixed on time charter. Now we have 1 vessel on the spot market, VLGC. So we hope to be able to take some advantage of it.

During the quarter, again, and after the end of the quarter, in dry bulk, we saw market -- sharp market recovery, especially in Capesizes. The market, which was down to $4,000 a day in the early part of the year in Q1 of calendar 2019. In July, we saw it go all the way, its spot market, we saw it go up all the way to $32,000, $33,000 a day.

Again, one of the mines, the [coal] mine was given permission to reach that. And that could have resulted in additional cargoes, and therefore, tightening in the market. The other factor which people are using to explain this sudden tightness in the market is that there was some shortage of [ships] in the Atlantic to pick up the Brazilian cargoes. And so the market tightened very significantly because there was just a shortage of ships. As quite a few ships who are in dry dock in the Far East, they [cover installation] . And this was a report that we saw.

This filtered through to the smaller sizes as well, (inaudible) also went up quite sharply to about $14,000, $15,000 a day in the spot market. All of which happened around the June, July, and therefore, is not yet in our results. But hopefully, it will feed into our results going forward.

The dry bulk fleet grew by about 1.7% during the year. And we expect that growth for the full year should be at around 3%.

Scrapping was reasonably strong. And let's see how that goes. The order book stands at about 11%. While the offshore market continues to be very challenging, there are some visible signs of improvement in rates. The big event for us in -- to report is that we have obtained a long-term contract for a rig which -- the Greatdrill Chaaru which comes off contract in first quarter of 2020. And it's had a significantly higher rate than the last pricing that we saw 6 months ago. So that's an indicator of some recovery in the drilling market as well. We saw some recovery in the vessels market, and now we are seeing it in jack-up fleet as well.

In -- during the quarter, we sold and delivered -- we have sold our oldest VLGC in the month of January, and we delivered the vessel to the buyers in early May 2019.

We have taken the opportunity to fix a few of our ships on charter, especially the tankers, because as the time charter rates have gone up along with the optimism on IMO 2020. So as part of managing the portfolio, we have [fixed out] of few ships on charter. However, we continue to have a spot exposure, which is in excess of 75% and probably closer to 80% on a 1-year forward basis.

Coming to asset values. We saw in the quarter, the dry bulk asset values were down a little very marginally, maybe 1% to 2%. While the tanker asset values moved up between 0% and 10%, depending on the [size] category of the asset. Overall, our fleet value went up by about 2.5% during the year, which is about $20 million, $25 million. And the NAV has therefore moved up to about INR 383 per share standalone. And consolidated, the range is -- there is nothing -- no change in the asset values in offshore. So the consolidated range, NAV range is INR 450 and INR 475 would be [high end].

Having said that brings me to the end of the prepared statement. We are happy to take questions and discuss what's happened in the market and anything else you would like to know about our terms.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Rajish Katin] an individual investor.

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Unidentified Participant, [2]

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I have 4 questions. If you can take all 4 of them, it will be great. Like, first, you mentioned about the MTM losses. So just want to know [how much] of this MTM losses is going to continue in the next 1, 2 quarters. How do you see them?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [3]

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Okay. So this, we don't know. It depends on how interest rates move. It's because interest rates came down. So for instance, the 10-year IRS interest rates go up, the U.S. interest rates is up, came down by about 50 basis points last quarter to about 1.8% from (inaudible)

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Unidentified Participant, [4]

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So what is your outlook? I mean like...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [5]

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Again, so we are not [speculating] on interest rate, so I can't really give an outlook for the charter. What we can see is that it's slightly down from there. So when it goes down, so just as a broad thumb rule, when the interest rates go down, our MTM goes against it, because basically, we have fixed interest rates.

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Unidentified Participant, [6]

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Okay, right. My second question is like are any of your ships are impacted by the Iran route because the (inaudible) sometimes there are some ships which are used by Iran. So are any of the ships taking that route? And is there any risk?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [7]

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You can't avoid that route. So we have ships transiting there all the time. Again, you take precautions. And it's not an issue. It's -- we haven't faced any issues at all.

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Unidentified Participant, [8]

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Okay. My third question is like you have announced a buyback from the open market for around INR 100 crores. So like what was the rationale of the timing of the buyback at this stage? I mean, does the company feel that good times are around the corner? And like what was the rationale or internal thought process for that?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [9]

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So we don't time the market. It's not around the corner. All we see is that something is cheap, and we don't try to time it very close to the recovery. We see something which is very cheap. I mentioned that our net asset value is somewhere around INR 450 a share. And we saw something which is at below INR 300 a share, so a significant discount was being offered by the market. So we thought that we should take advantage of that discount.

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Unidentified Participant, [10]

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So like; have you actually done the buyback or is this going on? Or will it take time?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [11]

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We have completed so far 20 -- approximately INR 20 crores out of the INR 100 crores that have been -- that we had submitted.

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Operator [12]

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(Operator Instructions) The next question is from the line of Nirav Shah from GeeCee Holdings.

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Nirav Shah, [13]

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Sir, you've mentioned some (inaudible) currently going around 40 to 50. And you also mentioned that you have [run-on spot] and balance of, I believe, 3 around charter. So can you just give a broad schedule of when are they coming off charter? And how do you see the rates at that point of time? I mean, I understand that it's very volatile. But just your view on how do you see that market based on the timeline of these vessels coming off charter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [14]

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Yes. So broadly, we -- our fleet is like this in gas carriers. We have 3 VLGCs and 2 MGCs. Now what I've been talking about in the spot market is basically the VLGCs. That is a VLGC spot market. The MGC spot market went up, but it didn't go up anything like what we saw in VLGCs. Our 2 MGCs, the time charter rates went up. We have fixed them out on time charter. We have taken the opportunity to fix the modern time charter. Out of the 3 VLGCs, 1 has just completed a time charter and is now in the spot market. The other 2 VLGCs are on time charter, and we will complete the time charters end of 2019 or early 2020. So they will come out of charter within the next 6 months or so. And therefore, we'll come into the spot market or time charter market. You asked me for a forecast on what we think the market will be at that time. I don't know. Again, as I said, we don't know market timing. We think that the market should get stronger. The market could possibly get tighter as we get into IMO 2020 implementation. But in any way (inaudible) gets the spot market. We didn't think it will be $50,000 today, so you should not be taking what it would be 3 months down the road.

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Nirav Shah, [15]

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But anything conservative is good enough. Got it, sir. And on the buybacks, sir, I believe from the data posted on your website, the stock purchase of buyback come from (inaudible) concerning the budget rate. Slightly off the business question, but I believe you've been awaiting clarity on the tax or something. But we have a minimum buyback of 50%. So in case -- I mean if you get clarity that you have to pay tax, will you go ahead and do the minimum 50%? Or I mean, there's a loss of something like a force majeure or something which you can use to not utilize up to that percent?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [16]

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Yes. So not -- I don't think there is a fine legal reading in this. So -- but broadly, you are right. We stopped doing it because we wanted to get guidance from the Board as to what we should do, considering the changed circumstances. We have not factored in this cost of 23% in many factor -- when we proposed the buyback. So we have -- so the guidance that we have is that we will continue with the buyback. And so that cost, in the meantime, we have made representations to the ministry, to the tax authorities, that then all the buyback, which is already in process, should not be subjected as tax. But in any case, we will be starting off with our buyback.

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Nirav Shah, [17]

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Correct. Sir, just the last question, apologies. I mean in your opening remarks in the offshore market, so if you can [get again brief] and give your outlook over this year.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [18]

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Well, the offshore market has been slowly and steadily strengthening. Again, it's a function of oil price as well. Because even though it doesn't immediately impact, it affects the sentiment of the market. So it's been -- the rates have been going up. They went down to business levels. But now they've been going up. And we saw significant improvement in the pricing of our rate in a recent tender, so a 60%-plus improvement in the pricing. And that's one good sign that at least we are part of really the additional rates that we have seen earlier just 6 months ago. So just to give you a flavor of what the situation is like, about 2 years ago, if there was a tender for x rigs in India, in a particular tender, you would probably get 1.5x to 2x rigs waiting for it, sometimes 3x waiting for it. That is about 3 years ago. This time, there was a requirement for 6 rigs, and there were only 6 rigs which actually bid for that business. So the oversupply seems to be getting reduced. There's been a lot of removal from the fleet either by scrapping or converting it to nonbuilding functions. So that's sort of removing the part of the oversupply. And hopefully, as demand comes back, we will see a bit more tightening in the market.

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Nirav Shah, [19]

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So that -- did that deployment will happen in the first quarter of calendar year 2020?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [20]

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Yes. Not in the first quarter. It will happen in the second quarter. Early in the second quarter, it should happen since the contract [gets over some] time in March. Between contracts, they normally spend about 45 to 60 days. And so sometime in April, May we should be going back into the new contract.

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Nirav Shah, [21]

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Sir, any reason why this tendering happens so quickly? Because last 2 years, we have seen that it always gets delayed and (inaudible) on time, I mean, just few months ahead of the date. But this time around, ONGC has completed tenders for next year so early.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [22]

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Yes. I don't know why they take the [course] that they take. But to be (inaudible) [why is it going] to be wise if the rates are going to go up in the next 3 to 6 months, maybe it's good to lock-in the capacity today before the market goes up. I don't know the reason why they came in early. Again, it's good for them to lock in this capacity early. It's a small part of their overall cost, and it's good to lock in the capacity because they need to do the work, and it's -- they should have the capacity.

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Operator [23]

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The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [24]

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So I just wanted to understand that as per your annual, you clearly mentioned 2 criteria for the buyback. One is a heavy discount to NAV, which is pretty much one. And the second thing, the NAV being at a cyclical low point. Now this is where I want to understand actually. How do we think that current NAV is at a cyclical low point? What are the 2 or 3 parameters that you look at, the financial or qualitative?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [25]

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So there is no qualitative thing in the historical data. The historical value of a modern tailing rate or the historical value of a bulk carrier, not a product tanker, it's at a very low point in the context of the last 20 years' history. So that's where we get it from. You are right. And that's what goes into our NAV, right? We are taking the market value of the assets. That's what goes into the NAV. So we just look at the last 20 years' price range, [take the average of] the lower end of the price range, bottom 1/3 of that price range, then we say that the price is historically at a low level.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [26]

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Right. And so do you think that cost of building, new ships or new carriers have reduced a lot in the last 5, 6 years? Or it is pretty much the -- I mean to say that it is (inaudible) replacement cost (inaudible) point, how that replacement cost (inaudible) has it substantially reduced or it cannot reduce?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [27]

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Did not reduce at all. There is no great efficiency gain, which is coming into shipbuilding. The technology hasn't changes, hasn't changed that much. (inaudible) No change in the cost of building [freight] vessels. And it was, again, the cost -- so if you mean -- the cost to the shipbuilder or cost to the customer? The pricing hasn't changed that much. I would say that Suezmax 5 years ago was, can you believe, on probably $60-plus million? It continues to be $60-plus million and in demand yield. In fact, the building probably costs more than it did in 2014.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [28]

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Great. Okay. Got it. Sir, and the second question is that, again, in the annual report you mentioned that the government notification regarding removing preference for Indian flagships, it's currently on a stay by the court. I just want to know that what is the tenure of this stay and which court has granted this thing?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [29]

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It's the [Valley High Court], and it is -- it will be heard. It is expected to be heard this week.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [30]

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Well, for the review of this stay or the stay is there is for some time.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [31]

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The arguments will be heard, and then they will decide on merits.

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Operator [32]

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The next question is from the line of Bhavin Gandhi from B&K Securities Limited.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [33]

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So firstly, just on the offshore bid. Again, there were some downtime on the rigs in the (inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [34]

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Yes, yes. So went off contract for the Chitra. We went off contract in very end of March, and we went back on contract on 17th of May. So anyway I think about 50 -- 48 or 50 days we were off.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [35]

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Sure. Sir, if I were to look at the profitability of the offshore segment now and given the fact that Chaaru has gone into a much better rate, which will obviously will be lower than the previous rate, would you say that the offshore earnings has pretty much bottomed out here? Or you think there is some way to go from here as well?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [36]

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You mean not the market rates, but our earnings?

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [37]

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Yes. I mean your rates, your rates. Given you are (inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [38]

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Yes. It's not bottomed out for the simple reason that the current contracts -- so let's look at the reason, the reason (inaudible) this whole thing is (inaudible) So your -- we are fixed at lower rates on 3 rigs currently. 3 rigs are running a very low rate, the lowest rate, okay, at the bottom of the market, fixed at currently in that metric. The (inaudible) was fixed at pre-market fall rate, the 2013 rate, okay? She is going to come off -- [contracted going] into a rate, which is much lower than the 2013 rate. And so in FY '21, all the rigs will be working at a low rate, 3 at a very low rate and Chaaru at a low rate. So it's not bottomed out because you have one change, which is happening in the rigs between FY '20 and FY '21, even [that] going to price down.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [39]

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Right. Right. Got it. And sir, on -- given how the asset prices have behaved, how are you looking at capital deployment now incrementally?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [40]

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Capital deployment in shipping assets is sort of unlikely, unless certainly something happens to asset prices tomorrow. Average (inaudible) at these values, we are not really buyers for ships, either bulk carriers or crude tankers, and LPG, of course, must have gone up, a very few ships transacted, but if ships have been earning $50,000 a day for the last 1.5, 2 months, then they have definitely gone up. We haven't seen any transactions there. So we are not really there to buy anything. We've invested in a lot of capacity, and we are quite happy with the amount of capacity that we have. We are not -- I have maxed -- maybe if we get a cheap product tanker, we're going to buy it, but that's about it. We are not there to do too much of CapEx. The only thing that seems cheap to us even in June was the stock.

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Operator [41]

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The next question comes from the line of Vikram Suryavanshi from PhillipCapital Ltd.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [42]

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So basically, this scrubber, how we have placed in out of our total number of ships we plan to hire the scrubber where we are in?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [43]

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Yes. So we have a total of 7 where we have committed to scrubbers. One was completed in May successfully. One will go into dry dock this month. So that's 2. The last ship which is going [pay the] scrubber is probably the gas carrier, which will go in for the scrubber treatment in Jan, Feb. The remaining 4 Suezmaxs will go between September and November of (inaudible) scrubber.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [44]

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So that time, where we also having the last (inaudible) the same time in rerouting or...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [45]

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Yes, yes.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [46]

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So we'll have additional cost for that, including scrubber?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [47]

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That is correct. But that is all capitalized cost. If you're looking at the P&L, those are all capitalized costs. Even dry dock nowadays is capitalized at the new accounting standard to capitalize and (inaudible)

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [48]

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Okay, good. And was there any dry docking apart from this one [in] normal other reasons for this quarter?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [49]

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Yes, yes. Last quarter, we did total of 4 dry dockings. So we have (inaudible) for dry docking this year. So we had 4 in the last quarter, we are just finishing 1 and another 1. So this quarter, again, we'll have 4 or 5. And the next quarter, again, along with the scrubber treatment, another 4 or 5 will be dry docked. So it's a very busy time for dry docking for us. I think within this year, we'll be doing 18 dry docks in this financial year, 17 or 18 dry docks.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [50]

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Yes. And that looks like develop -- from the results, I thought it would be the immediate year for caulking.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [51]

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The good thing is that the market is strong in the next year. You [are not only] spending time in dry dock and you are spending time -- I mean you are earning money.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [52]

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Got it. And then how much we will be spending on all these dry dockings this year?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [53]

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Okay. Total amount for dry docking, just for pure dry docking, I'm only talking about the dry dock part of the expenditure not the scrubber and balance (inaudible) and all that. We should be spending about $30 million, close to $30 million.

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Operator [54]

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The next question is from the line of [Rajish Katin] an individual investor.

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Unidentified Participant, [55]

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Yes. So like I just wanted to understand what is the range of price fluctuation in [the freight rates] for the various ships that you have like product tankers, crude tankers, Capesizes? Like what is the range of price fluctuation in the freight rates which can happen?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [56]

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So let me just give you some numbers. So Capesizes, I mentioned earlier, this year were down to $4,000 a day; 2 weeks ago, 32,000 -- $23,000 a day. Okay? Crude tankers, which in FY '19 itself, we have done voyages at $45,000, $50,000 a day, and we have done voyages at less than $10,000 a day. The gas carriers, which were in early part of this year were $6,000, $7,000 a day. We're earning between $50,000 and $60,000 a day in the spot market last month. The only sector which doesn't fluctuate as much is in the MR tankers, which in a low market go down to $8,000, in a high market go down to maybe -- go up to maybe to $22,000. So there is a lot of fluctuation still, it has -- the huge operating leverage in this business. So all of them are very, very volatile.

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Unidentified Participant, [57]

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So like 3 to 4x fluctuation is quite common, and even 8 to 10x, can really happen in the (inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [58]

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Absolutely. Absolutely.

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Unidentified Participant, [59]

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Okay. So my next question is like I am starting the company history like sometime between 2000 and 2005, the company's profitability improved very, very sharply like exponentially, like I think between 3 to 6x or something like that. Now given the current background that you will be coming off -- the (inaudible) times where you will be coming out of 10 to 15 years' slowdown or an overcapacity. Do you think those times, I mean in a very short period, (inaudible) kind of exponential improvement whenever that happens, and it may not happen this year or next year, but whenever that happens, is there a probability?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [60]

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Yes. Anything can happen. Because the rates move like this. Everything goes to the bottom line. Your costs don't change. Everything just goes straight to the bottom line. Let me just give an example, right? If your rates move up on average by $5,000 a day, and I'm not making a forecast, I'm just talking about a number -- to illustrate the point. We have -- with 47 ships, we have approximately 17,000 operating days in a year, okay? Now if you just take $5,000 a day on this, it goes straight from top line down to the bottom line because your cost structure is fixed. And operating expenses, I think the interest depreciation, everything is already fixed. It's not going to change because you're running $5,000 per day extra. That's $85 million that they're talking about in a year. Okay, with your INR 600 crores at today's exchange rate, so that's the kind of thing that can easily happen. $5,000 a day easily happened. Again, it doesn't happen easily for the smaller ships like MRs or even, say, Supramax bulk carrier. But okay, let's look at what drove that growth in our profitability in 2000, 2005.

2003 to 2008 was a general boom for everything in the market, and it was specifically a commodities boom. Day rate, they went up to very high levels. But what also happened is that company itself, we invested in a large number of ships in 2003, '04. Okay, we happened to buy ships just before the market went up. We did a big expansion where we doubled our fleet in that year. And therefore, we were able to catch that boom and capitalize on it in a big way. We try to recreate it. We can't create that market again, but we will recreate that capacity, and that's what we did between 2016 and '18, where we bought a lot of ships. That is our principle. And you have to have capacity in order to take advantage of our strong market.

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Unidentified Participant, [61]

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Okay. And so lastly I have a suggestion like (inaudible) if you (inaudible) on calls by getting hold of the transcripts takes a lot of time. Like I have seen the transcripts are published maybe after 15, 20 days or after 1 month, by which time we may have lost out on significant transaction. So like a lot of good companies with good management, they do 1 of 2 things, either they make their recordings of their con call available for the next 5, 6 days, like some IT companies do, or they publish the transcripts within a week's period. So if your company could take (inaudible), it will be very, very helpful.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [62]

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I'm not sure which companies you're referring to, but ours has never been more than a week. It's between 5 and 7 days latest, absolutely the most -- at the most.

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Unidentified Participant, [63]

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Okay. Because I have seen sometimes -- so okay. I may have -- I don't have the dates right now. I don't have the dates right now, but sometimes I found it difficult. So like if you could take a [tradition] because there are some...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [64]

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(inaudible) within a week from the...

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [65]

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We always -- always our endeavor is to put it up in as quick time as possible. 3 to 5 days is normally what we target. But sometimes, it just goes up to a week, because sometimes the transcript that comes is fairly garbled, and then we need to just edit it a bit.

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Operator [66]

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The next question is from the line of [Ranjit Kothari] , an individual investor. [

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Ranjit Kothari, [67]

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]

So my question was regarding other expenses. I wanted to know the [breakdown by category] as well as what is driving such a change in the other expenses.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [68]

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The other expenses include a lot of overhead expenses later on coming. So it's just a thing which doesn't come under the other headings, which are provided there in the format. So including repair -- so mainly repair and maintenance expenses of the fleet, so then hire of chartered ships, insurance expense, traveling expenses, those kind of expenses, which don't come under any of the other headings, and other employee expenses. [

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Ranjit Kothari, [69]

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]

Yes. So like what did -- there was -- like the expenses went down by around INR 80 crores, slightly, Q-on-Q.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [70]

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Yes.

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Unidentified Participant, [71]

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So I wanted to understand what is -- like what are the reasons for being lower -- which costs have come down then?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [72]

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Yes. We had, in chartered ships, last year, and we did not have this year. So the other contract, which we are [performing are using] in chartered ships, so mainly hire ships then. It was under other expenses. So next time we have hire ships and we had a contract which we had to perform for a customer, (inaudible) in chartered ships, and that expense goes in other expenses.

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Operator [73]

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The next question is from the line of Aadesh Mehta from AMBIT Capital.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [74]

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Sir, what we understand is that in terms of tankers, though the supply -- though the fleet growth continues to be moderate, we are seeing that order book is now at an all-time low. Scrappage, until recently, was also high. Now it has picked up, but then what is preventing a rate increase in tanker is the demand. So, sir, in oil demand side, what should we wait for to see that pick up? What are the top 3 or 5 variables you are monitoring?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [75]

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Yes. A couple of things there. We are monitoring. -- okay. We can hope for it. So one is IMO 2020 implementation will almost certainly lead to an increase in oil demand, okay? So that's one. Now we had expected -- so 6 months ago, we would have expected that you will have normal oil demand growth. This is not considering IMO 2020 or a little over 1 million barrels a day. And then on top of that, you have the IMO 2020 impact. And therefore, you have much higher demand growth for oil. Currently, the economic situation, the growth in oil demand has been quite poor. I think I mentioned less than 0.5 million barrels a day demand growth for the coal products.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [76]

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So sir, that's almost a 50% decline.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [77]

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Yes. It's 50% of what was expected. And it might be a little lower than that also, so it has been poor. Now what is driving this? Economic growth because we can see it in middle distillate demand. Middle distillate which is basically (inaudible) industry and commodity. And if industry -- if economic growth is poor, then you will have low diesel demand. And that's what seems to be happening. So we have had poor economic growth. The one thing to look out for if something happens on the trade war business, but we don't see -- again, what we know is what we read in the papers and in reports. But if that gets settled, then hopefully, the general economic growth will improve, and therefore, oil demand. But that's a big worry, really.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [78]

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Okay, okay. Then -- so yes. So if the clarity emerges on global growth, we can see this trend continuing.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [79]

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That's correct. That's correct. So one thing I'd say that you mentioned when you started that the fleet growth has been moderate. We had 4.5% fleet growth in crude tankers in the first half of this year, very, very, high fleet growth.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [80]

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Yes. But then, sir, what is your outlook here? Will it moderate in the second half?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [81]

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It will moderate because it's expected to moderate in the second half. I think main deliveries, the delivery hump, which we had, we are past that. And as I mentioned, we find it quite encouraging that even in the face of such major fleet growth, rates have not collapsed with growth, that kind of fleet growth. And when you just look at 4.5% fleet growth and very little demand growth, rates could have collapsed, but it has not happened. So that means that there is some underlying tightness in the market, which is keeping the markets up, which means that when the market demand comes back, then the market is going to get really tight.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [82]

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Right, right. But then, sir, we saw the scrapping also declined significantly in the first half.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [83]

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Everybody is very positive on IMO 2020. Scrapping has declined significantly. There are very few modern ships available for sale, especially crude tankers. Time charter rates have gone up. Asset prices have gone up despite the market being not great, so I think there is generally a lot of optimism in the outlook for the IMO 2020 business -- so. And that's sort of keeping people from scrapping their ships because everybody has got the same view. Again, if IMO 2020 disappoints, then it's like a big event which people are expecting to be bullish. And certainly, if it doesn't deliver, then you will find everybody and a lot of people heading for the exit. And as it stands, everybody is positive. Time charter rates are up, and so -- and that's why we fixed our assumptions.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [84]

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Right, right. But then, sir, despite everyone being positive, we still haven't seen the second-hand prices go up significantly. So maybe that can just be the next level of optimism which we should be watching out for.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [85]

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No. Second-hand prices haven't gone up, so tankers...

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [86]

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(inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [87]

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Yes, yes. You're right. You're right. So yes, it hasn't -- they haven't gone up. So people are not yet so bullish that they are buying in a big way, but they're holding on to their ships. Again, I'll say price benchmarks have not been set because there have been no transactions because nobody is really there to sell a crude tanker today, especially if you have a 5-, 10-year-old crude tanker. They are not really there to sell those ships. And that's why transactions are not -- prices are not getting established. I don't know what the prices are, but this is an estimate of the price. You never know what -- if somebody comes and demands 5% extra to sell their ship, somebody may well pay those.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [88]

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Right, right, right. And, sir...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [89]

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The benchmark, values are not very high.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [90]

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Okay, okay. So the market is still lacking in terms of liquidity now. So what is...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [91]

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No. It's not lacking. It's just that people are positive, so they're holding back the ship. If you want to buy an older ship, you can buy. If you want to buy a 15-year-old crude tanker or a 17-year-old crude tanker, it's available. If you're willing to make some compromises on the quality of the ship, you can probably still get one. But if you want to get a good standard ship, not really.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [92]

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So then the 5- to 10-year-old ones are the ones which are harder to get now?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [93]

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That is correct. The modern ships, people are not giving them up very easily. Again, it's also that a lot of these ships are scheduled for scrubbers. And if I decided to take my ship to the scrubber, I'm not going to go out and sell it today. I've ordered a scrubber. I booked a dry dock, so then I wouldn't sell it today.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [94]

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Right, right, right. And then, sir, I was also seeing that in terms of net revenues, we have done a 15% kind of Y-o-Y growth. But when I see our revenue days, they have actually declined by 2%. Our time charter yields have gone up only by 4%, and the USD/INR impacted only around 4%. So it doesn't add up, sir.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [95]

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So one moment. I am not able to see these numbers.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [96]

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Yes. So I'm just summing up the growth rates of revenue days, TCY and USD/INR. It's not adding up to the net revenues.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [97]

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I am not seeing the net revenues up by 15%. Did you say the net revenue number is up 15%?

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [98]

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Yes.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [99]

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No. It's -- in the results, no, I don't see it up. It's sort of flattish, though consolidated is down.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [100]

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I'm talking about stand-alone.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [101]

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Yes. Stand-alone, it was INR 581. Revenue from operations, INR 581 going to INR 589.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [102]

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Okay, okay, okay, sir. My bad. Maybe I have punched in the wrong numbers.

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Operator [103]

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The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [104]

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Just to follow up on the buyback, you also -- what is -- what I'm trying to understand is why this is just INR 100 added? Because we really had a continuity. And in fact (inaudible) that I would really think that's why I will do this INR 100 added because on a INR 3,500 market, that INR 100 crores added doesn't go anywhere. So if it is really, really with a positivity, what has led you to just announce INR 100 crores, not INR 500 crores or INR 600 crores kind of numbers?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [105]

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So -- okay, first of all, I think only 10% you can do with a Board approval. But importantly, we looked at how much we can afford to spend in this because, as I mentioned, we are not really there to buy ships either. We have done a lot of CapEx in the last 3 years, and we are waiting for earnings still, right? And therefore, we felt that this is the amount that we can afford to put away for this. We have a lot of repayments in this year as well. We have $160 million of repayments. On a stand-alone basis, on a consolidation, about $210 million. So (inaudible) for those, because while we are quite positive for IMO 2020 impact on shipping markets, we could be wrong, and it could be disappointing. And so we decided that this is all we can spare for now, considering the risks which we are facing. And we assumed that it was very tempting price, but we have been disciplined in allocating capital correctly.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [106]

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Okay. And just the last question. And so again, from the annual report, it was clearly mentioned that you are pretty positive on the IMO 2020 in short to medium term. I was just wondering why the long term is missing there.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [107]

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IMO 2020, in fact, will wear off after such time, and that won't happen in the long term in the market, or 2003 to 2008, as the market just kept going up and up because demand grew so fast. We have had, most of the booms that we have had since then, have lasted only 1 to 2 years max. This has [built up] a lot of shipbuilding capacity still. And if you have a very strong market, then people order ships, and then it's over because then supply comes in and takes off and then pulls the market down again. So we don't know. So what we know is, for now, that IMO 2020 will have a positive impact. But beyond that, we need something much bigger, which is very strong economic growth and commodities demand, and we don't see that currently in the current scenario.

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Operator [108]

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The next question is from the line of Ankit Panchmatia from BNP Securities.

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Ankit Panchmatia, ICICIdirect.com, Research Division - Former Research Analyst [109]

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Sir, just regarding IMO 2020. There have been certain countries like Indonesia will be kind of trying to surpass the rule around allowing domestic companies to use [diesel] fuel. So is there any possibility of wherein the other countries also would like or would tend to surpass this IMO 2020 regulation?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [110]

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Yes. I don't know how -- who's [thinking] out, but let's look at on what basis they have done this. The regulation does not give any leeway to any of the flagged states. So they have done it as a flagged state [staying] local ships. It does not give any leeway to the flagged state to make any dilution of the regulation, okay? However, you can -- in practice, you can give a waiver, right for purely cost trade. So let's say that my only trade is in operating a ship, and all the ship does is it goes from Mumbai to Chennai and back, okay, and is never going to touch any foreign port. How is this to be implemented? The IMO 2020 is to be implemented by every port state checking. So whenever I call in a port, they are supposed to check whether I've complied with the sulfur emission law. Now [supporting] the Indian authorities there, I am not going to check it either at Mumbai or at Chennai. You can -- you're free to do whatever you want, and this ship can, in theory, not comply with IMO 2020. That is what I've heard as an explanation for Indonesia, and they've also said it's for their domestic trade, okay? However, if you're going to call in a foreign port, then you're in trouble because -- unless they also agreed that they will not enforce it. So this is a state -- only if you're in a domestic trade, you may get away with this. If you are flagged state, I'm not going to implement it at all.

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Ankit Panchmatia, ICICIdirect.com, Research Division - Former Research Analyst [111]

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Right, right. But just, sir, you all view, according to (inaudible) the refineries (inaudible)

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [112]

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General oil demand has not been very high. It looks like there will be -- I think they've gone into a turnaround. I think they have reconfigured their capacity to produce, to optimize, to maximize (inaudible) production. And that's why the refineries are offline for a few -- for 2 to 3 months in the last quarter. They're all coming back now. They'll find a way to produce it, whether it's a blended fuel, a blended fuel oil with low sulfur or gas oil. They will produce some oil (inaudible). It's just a question of finding the [right blend.]

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Ankit Panchmatia, ICICIdirect.com, Research Division - Former Research Analyst [113]

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Right, right. And sir, one question regarding this [action] we have been bullish on the (inaudible) market in the long term are 90% of the tonnage (inaudible) 1 to 1.5 year, [2 years]. And now, when the good times are here, we are planning to shift some of our -- turn into a time-check business. What is your view on this strategy of yours to kind of not wait, move forward in this quarter to high returns?

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [114]

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So it's sort of doing a little bit at a time. Doing gradually. We can't call the top of the market, and we see a good rate, we think so (inaudible) We still have 7 ships at the same time. So the next time we see another $1,000 per day up or $2,000 per day up, we'll fix another ship. But if it goes out further, we'll fix some more. That's what we do. We can't call the top of the market. So at various levels, we'll just keep taking some bookings, some sort of non-booking profits but locking in some capacity.

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Operator [115]

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The next question is from the line of (inaudible) from (inaudible)

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Unidentified Analyst, [116]

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Sir, my question is regarding this offshore business. So, I mean, you mentioned earlier that we are into some -- we are into a structural downturn, and we are not really at the bottom yet. And FY '21, maybe was on the pricing front and which will also reflect in the margins. So how do you see this resulting.

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [117]

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Yes. I think the question, which was asked, which I gave a reply about the P&L. The market, I think we have seen the bottom of the market. We are past the bottom of the market, okay? We have gone down to very low level, and now we have moved up from those levels. And so that's soothing. So the market has already seen the bottom, and it's gone -- it's moved higher from there. So the question was about our P&L itself. Well, depending on when you reprice because there are leads and lines in this. So the market itself, I think, is past [this quarter].

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Unidentified Analyst, [118]

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Okay, okay, okay. But how much time will it take for us to catch up [to] the market because I mean...

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G. Shivakumar, The Great Eastern Shipping Company Limited - CFO & Executive Director [119]

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Generally, 1 to 3 years because you fix a contract, it's up to 3 years. We are pricing the rigs every year. That's how it has turned out. So we have done the pricing of 2020. Now we have 2 rigs to be priced in 2021. We have another rig to be priced in 2022. So if we keep getting -- I was mentioning about fixing the vessels, every level we -- every year, we fix 1 or 2 rigs. And if the rate is up, then it's good for us.

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Operator [120]

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The next question is from the line of Aadesh Mehta from AMBIT Capital.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [121]

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Sir, my questions have been answered.

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Operator [122]

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Thank you. As there are no further questions. I will now hand the conference to Ms. Anjali Kumar for closing comments.

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Anjali Kumar, The Great Eastern Shipping Company Limited - Head of Corporate Communications [123]

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Thank you very much, everybody, for your attendance and for your questions and for giving us the opportunity to clarify on all your questions. As always, the transcript will be uploaded within the next few days. We always welcome interactions for any further questions that you may have. Thank you.

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Operator [124]

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Thank you very much. On behalf of Great Eastern Shipping Corporation Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.