CRISIL Ratings: Shippers see a further revenue dip of 5-7% next fiscal as charter rates course correct

Posted On : 2023-12-21 22:02:28( TIMEZONE : IST )

CRISIL Ratings: Shippers see a further revenue dip of 5-7% next fiscal as charter rates course correct

Healthy profits and modest capex spend to support credit profiles

Domestic shipping companies could see their revenue decline 5-7% next fiscal as charter rates continue to normalise. This follows a steep fall of 23-25% this fiscal, after the 35% growth spurt in fiscal 2023 when charter rates had surged because of geopolitical conflicts (including the Russia-Ukraine war) and higher demand from China post-pandemic.

While the margin profile may vary widely across players operating in different segments, average operating margin may continue to moderate to 33-35% in the next fiscal driven mainly by the correction in charter rates. However, it will remain higher than the pre-pandemic levels of 25-30%. This along with modest capital expenditure (capex) plans, should sustain the healthy credit risk profiles of shipping companies.

A CRISIL Ratings study of five shipping companies, which account for about half of the ~20 million metric ton (MMT) deadweight tonnage (DWT)1 of shipping fleet in India, indicates as much.

Shipping fleet of domestic companies is dominated by tankers that carry crude oil and petroleum products (contributing to ~70% of total DWT), followed by dry bulk carriers carrying unpackaged commodities such as coal, iron ore and grains (~20%). The balance is distributed between container ships, gas carriers and others.

The charter rates correlate with the global demand-supply dynamics.

Says Anuj Sethi, Senior Director, CRISIL Ratings, "We are seeing charter rates for crude and product tankers correcting 20-25% this fiscal from the average of ~$50,000/day last fiscal, as global uncertainties (caused by Covid-19 followed by geopolitical conflicts) ease. Expecting the current trend in global trade continues, charter rates could further moderate next year, but will remain higher than the pre-pandemic level, supported by buoyant tonne-mile2 demand and limited new fleet deliveries."

Charter rates for crude oil and petroleum product tankers will be supported by growing imports by China and India; also, to be aided by better fleet utilisation given higher tonne-mile demand due to change in trade routes following the Russia-Ukraine conflict. On the supply side, capacity addition for tankers is expected to remain limited given the decadal-low orderbook, which will keep charter rates much higher than the pre-pandemic level of $15,000-25,000/day.

As for dry bulk, charter rates are expected to remain range-bound this fiscal and the next, with moderate growth in demand for key commodities, especially iron ore and coal (accounting for 40-45% of the global dry-bulk trade), and moderate fleet orders. Average charter rates had declined last fiscal due to lower demand of these and other key commodities due to subdued industrial / construction activities in major economies.

These corrections seen in charter rates will also impact operating profitability of shipping companies.

Says Joanne Gonsalves, Associate Director, CRISIL Ratings, "We expect average operating margins of shipping companies to moderate 300-500 basis points to around 38-40% this fiscal and further to 33-35% in fiscal 2025 as charter rates normalise. Albeit, operating margins will continue to remain higher than pre-pandemic levels. We also expect credit profile of shipping companies to remain stable, benefited by healthy cash flows and limited debt addition as no major fleet addition is planned. This will ensure comfortable debt metrics, despite a slight moderation from fiscal 2023 levels."

Source : Equity Bulls


CRISIL INE007A01025 Shipping CharterRates