Essar Shipping bets big on captive cargo; fleet renewal

Currently, ESL is in the process of replacing its old fleet with younger vessels

Essar Shipping Ltd (ESL), the logistics arm of Essar Group, is eyeing a 10 per cent growth in cargo handling during 2017-18 at a time when the capacity utilisation levels at shipping lines are low. ESL’s cargo handling had grown by 22 per cent in FY17, while the company’s 14-vessel fleet also grew its capacity utilisation to 94 per cent from 80 per cent in the previous fiscal.
 

Ranjit Singh, executive director and CEO, ESL said the company expects cargo handling to grow by 10 per cent year on year during 2017-18. He admitted that shipping business was going through a volatile cycle and while new ships are being delivered, the scrap market is not very high. 

ESL is in the process of replacing its old fleet with younger vessels. It acquired a Panamax vessel of 74,005 deadweight tonnage (DWT) in May this year taking its total fleet size to fourteen. Moreover, with the acquisition of the 2000-built Panamax bulk carrier, the company’s average fleet age has fallen to 12 years from 13.5 years earlier. 

Interestingly, ESL, a firm that was to be delisted in 2014, (but eventually remained listed on the bourses), has managed to double its market capitalisation from Rs 313 crore as on April 1, 2014 to Rs 605 crore as on June 27, 2017. In fact, the stock has performed better than the Sensex. (See chart) This came in while its losses (at a consolidated level) have actually widened from Rs 229 crore in FY14 to Rs 583 crore in FY17. 

Singh explained that this is due to its fully owned subsidiary Essar Oilfields Services Ltd (EOSL), owns and operates 15 land rigs and one offshore semi-submersible rig, was out of business due to fluctuations in crude prices. “One rig has been put with ONGC in June; it was out of business for two years,” Singh informed. 
 

On a standalone basis, ESL has managed to reduce its losses from Rs 198 crore in FY16 to Rs 119 crore in FY17. 

Vikram Suryavanshi, vice president, equity, PhillipCapital said that ESL has the buffer of captive cargo, primarily from Essar’s steel business. “Around 70-75 per cent of ESL's cargo is captive. This puts them in a better position compared to other shipping lines who depend on spot cargo contracts,” he said. 

Singh, however, claimed that ESL is constantly on the lookout for outiside cargo as well. “Around 20-25 per cent of our cargo is lifted,” he said. 

The good news for ESL is that the Baltic Dry Index, a key indicator of freight rates went up by four times during FY17 from an all time low of 290 in February 2016 to a high of 1,300 in March 2017.

In FY17, ESL carried 11.5 million tonnes dry bulk cargo as against 9.4 million tonnes in the previous financial year. More than 80 per cent of its fleet carries dry bulk cargo, which includes products like iron ore, coal, bauxite.