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Great Eastern Shipping Company Ltd.

BSE: 500620 Sector: Infrastructure
NSE: GESHIP ISIN Code: INE017A01032
BSE 00:00 | 24 Feb 283.35 2.85
(1.02%)
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280.00

HIGH

288.45

LOW

278.00

NSE 00:00 | 24 Feb 283.45 2.20
(0.78%)
OPEN

282.00

HIGH

289.50

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OPEN 280.00
PREVIOUS CLOSE 280.50
VOLUME 46670
52-Week high 298.20
52-Week low 168.95
P/E 4.75
Mkt Cap.(Rs cr) 4,164
Buy Price 283.35
Buy Qty 484.00
Sell Price 284.50
Sell Qty 1.00
OPEN 280.00
CLOSE 280.50
VOLUME 46670
52-Week high 298.20
52-Week low 168.95
P/E 4.75
Mkt Cap.(Rs cr) 4,164
Buy Price 283.35
Buy Qty 484.00
Sell Price 284.50
Sell Qty 1.00

Great Eastern Shipping Company Ltd. (GESHIP) - Director Report

Company director report

Your Directors are pleased to present the 72nd Annual Report on the business operationsand the Financial Statements of your Company for the financial year ended March 31 2020.

FINANCIAL PERFORMANCE

The financial results of the Company (standalone) for the financial year ended March31 2020 are presented below:

(Rs. in crores)
2019-20 2018-19
Total Revenue 3168.90 2913.41
Total Expenses 2849.37 2919.88
Profit/(Loss) before tax 319.53 (6.47)
Less : Tax Expenses 38.84 13.00
Profit/(Loss) for the year 280.69 (19.47)
Retained Earnings
Balance at the beginning of the year 1247.95 1412.37
Add :
- Profit for the year 280.69 -
- Other Comprehensive Income 32.32 -
Less :
- Loss for the year - 19.47
- Change in accounting policy (Ind AS 115) - 6.54
- Other Comprehensive Income - 2.08
- Transfer to Tonnage Tax Reserve 35.00 4.00
- Transfer to Debenture Redemption Reserve - 6.25
- Final Dividend on Equity Shares (FY 2017-18) - 108.56
- Final Dividend on Equity Shares (FY 2018-19) 81.03 -
-1st Interim Dividend on Equity Shares (FY 2019-20) 79.37 -
- Dividend Distribution Tax 21.17 17.52
Balance at the end of the year 1344.39 1247.95

The net worth of the Company as on March 31 2020 was Rs.5067.05 crores as compared toRs.5065.72 crores for the previous year.

The financial statements have been prepared in accordance with the Indian AccountingStandards (IndAS) notified under the Companies (Indian Accounting Standards) Rules 2015.

DIVIDEND

During the year your Directors declared and paid first interim dividend of Rs.5.40 pershare. Subsequent to the end of the year your Directors declared second interim dividendof Rs. 2.70 per share. The aggregate outflow on account of the equity dividend for theyear will be Rs. 129.13 crores (inclusive of tax on dividend on first interim dividend).This represents a payout ratio of 46%.

The Board has not recommended any final dividend for the year under review.

BUYBACK OF EQUITY SHARES

During the year under review your Company announced buyback of its equity shares fromthe open market through stock exchanges at a price not exceeding Rs. 306 per share for anaggregate amount not exceeding Rs. 100 crore.

The buyback commenced on June 14 2019 and was completed on November 20 2019. TheCompany bought back 3810581 equity shares of Rs. 10 each for an aggregate amount of Rs.99.94 crores. The highest lowest and average market price at which the shares were boughtback was Rs. 305.00 Rs. 221.00 and Rs. 261.60 per share respectively. Consequent upon thebuyback the paid-up share capital of the Company was reduced from Rs. 1507770650comprising of 150777065 Equity Shares of Rs. 10 each to Rs. 1469664840 comprisingof 146966484 Equity Shares of Rs. 10 each.

MANAGEMENT DISCUSSION AND ANALYSIS

COMPANY PERFORMANCE

In Financial Year 2019-20 (FY 20) the Company recorded a total income of Rs. 3168.90crores (Previous year Rs. 2913.41 crores) and earned a PBIDT of Rs. 1113.79 crores(previous year Rs. 864.62 crores).

MARKET ANALYSIS

CRUDE TANKER MARKET

Average crude tanker freight rates across vessel classes improved significantly in FY20over FY19. It was a year which saw two contrasting halves with relatively weak freightmarket performance in H1 FY20 followed by decade high rates in H2 FY20. Some of thefactors that contributed to a relatively soft H1 FY 20 were:

a) Weak core product demand growth led by trade war

b) Planned (led by IMO 2020) and unplanned refinery outages

c) OPEC production freeze and high fleet growth

At the end of Q2 FY 20 after the missile attack on Saudi oil facilities a chain ofevents occurred which propelled crude tanker freight rates to very high levels. Some ofthe factors that led to this strength in H2 FY 20 were:

a) US ban on a couple of COSCO subsidiaries which reportedly impacted a fleet ofalmost 50 VLCCs

b) Significant VLSFO floating storage build-up even as a number of ships wereundergoing scrubber retrofitting

c) Pick up in Iranian and Venezuelan floating storage for their crude production

d) Pick up in refinery runs especially in Asia due to new large-scale refineries comingonline

e) Seasonal oil demand uptick in Q3 FY20

In February 2020 the US ban on COSCO subsidiaries was reversed and the freight marketwas on a gradual downslide when a completely different set of events led the freightmarket significantly higher. This time it was:

a) The breakdown of OPEC production freeze pact (in March)

b) Much lower oil demand due to Covid-19 lockdowns leading to lower refinery runsconsequent contango and the emergence of floating storage

The table below captures the spot earnings of the Suezmax and the Aframax type of shipsover the financial year (in US $/day as per market data).

FY 20 FY 19 YOY CHANGE
Aframax 31038 19532 59%

PRODUCT TANKER MARKET

Average product tanker freight rates improved considerably in FY 20 versus FY 19 withmost of the strength coming in H2 FY20 in line with the crude tankers. However the extentof the overall improvement in freight rates clearly lagged their crude counterparts.

Whilst the reasons for a relatively weak freight market in H1FY20 were almost the sameas mentioned on the crude tankers a couple of additional factors were observed forproduct tankers during the year. These were:

a) Decline in naphtha demand due to petchem maintenance and competition from LPG

b) Crude newbuildings esp. VLCCs cannibalizing product cargoes on their maiden run

H2 FY 20 did witness a sharp rise in product tanker freight rates as well. Some of thekey factors that aided this improvement in product tanker freight markets were:

a) Significant switching of clean trading LR2s into dirty trades as the crude freightmarket was very strong

b) Seasonal pick-up in demand

c) Middle East refineries returning from outages in Q3FY20

d) Long haul gasoil (IMO 2020 led) and jet fuel trade

e) Scrubber retrofitting

The product tanker freight markets cooled off slightly in early Q4 FY 20 due to aCovid-19 led demand slowdown and massive maintenance at MEG refineries. However thefreight markets recovered substantially in March when the excess product barrels led tocongestion at ports steep contango in prices of refined products and the emergence offloating storage.

The table below captures the earnings of the LR and MR type of ships over the financialyear (in US $/day as per market data).

FY 20 FY 19 YOY CHANGE
MR - Avg. Earnings 15053 9721 55%
LR1 MEG-Asia earnings * 15700 10414 51%

* Earnings of LR1s on the Middle East to Far East route

ORDERBOOK AND OUTLOOK

The trajectory of future oil demand will depend to a great extent on the course takenby the pandemic and the actions taken by governments to help their economies recover fromits effects. Even if there is a pickup in demand it is expected that with the ongoingOPEC crude oil production cuts and limited refinery runs most of the demand uptick mayhave to be met from inventories. This is expected to lead to inventory drawdowns on boththe crude and the products side. This could adversely impact tanker freight rates in theshort to medium term and lead to lower rates.

However there are some wild cards which could have a positive impact on the market aswell. For example a second wave of pandemic could lead to the opening up of contangoagain or a rapid rise in oil demand or prices may lead to cheating/collapse of the OPECproduction deal. In the longer term we believe that tankers are well placed from fleetsupply point of view with crude and product tanker order-books at historical lows closeto ~8% of the fleet.

Asset values have appreciated significantly during the year for crude as well as forproduct tankers though the former category seems to have outperformed the latter. Valueshave appreciated anywhere between 10% -20% depending upon the age profile and the type ofthe vessel. Given that spot freight markets for tankers are likely headed lower in FY 21values are likely to follow suit as well.

LPG CARRIER MARKET

Very Large Gas Carrier (VLGC) earnings improved significantly in FY-20 with benchmarkearnings increasing 200 % year on year and holding steady through the year. This came asa welcome improvement after miserable freight markets for a large part of FY-17 to FY-19.The following reasons can be attributed to the freight uptick:

a) Strong US LPG production growth opened up a high US Asia arbitrage trade whichultimately led to 24 % increase in US LPG exports YOY.

b) Most of these incremental US export volumes landed up in Asia giving a major boostto ton - miles.

c) Drone attack on Saudi Arabia's oil fields led to a drop in MEG LPG exports. Ownershad to ballast back to US for cargoes which further tightened fleet supply.

d) LPG demand in India continued to grow due to the Pradhan Mantri Ujjwala Yojana(PMUY) scheme.

e) Asian petchem market (esp. new Chinese PDH plants) supported the freight market asLPG continued to be the preferred feedstock over Naphtha.

The table below captures the earnings of VLGCs over the financial year (in US $/day asper market data).

FY 20 FY 19 YOY CHANGE
VLGC Earnings 55299 17963 208%

ORDER BOOK AND OUTLOOK

The Covid-19 pandemic has severely impacted petrochemical demand globally. Furtherlower oil prices have also led to Naphtha being the preferred feedstock over LPG inpetrochemical plants. This has led to a sharp drop in LPG price in Asia which has led to asteep correction in the US - Asia LPG trade arbitrage. On LPG cargo supply side lower oilprices have lowered US LPG production forecasts in line with shale oil production. This intandem with current OPEC oil production freeze is likely to negatively impact availabilityof LPG cargoes globally. With fleet growth also projected to be high spot earnings for FY21 could be at lower levels than in the previous year.

Asset values have gained at least 5%-10% over the course of the year depending on theage profile of the vessel. Given the freight market outlook for FY21 we think that valuesmay be headed lower.

DRY BULK CARRIER MARKETS

The dry bulk market started off the year on a weak footing but slowly gained momentumduring Q2 and Q3 FY20 before giving up strength in Q4FY20. Overall freight rates for drybulk vessels were largely flat in FY 20 vis-a-vis FY 19.

Some of the factors that contributed to the substantial market improvement observedduring Q2 and Q3 FY20 were:

a) Approval to restart Vale's 30 mtpa "Brucutu mine" led to a sudden surge ofBrazilian Iron ore exports.

b) Robust thermal and coking coal import demand from Far East and SEA.

c) Strong bauxite cargoes from Guinea improved ton-miles.

d) Slow steaming and significant scrubber retrofitting projects reduced effective fleetsupply.

However freight rates started correcting towards the end of Q3 FY20 and languishedentirely in Q4 FY20 as:

a) Iron Ore exports came under pressure due to Vale's inability to ramp up production.Heavy rains in Brazil and Cyclone Damien in Australia compounded the impact in Q4 FY20.

b) Coal import demand which was under pressure from Chinese coal import curbs anddegrowth in Indian thermal generation completely collapsed in Q4 FY20 with the outbreakof corona virus globally.

c) Minor bulk trade was battered globally due to Covid-19 related demand/supply cutsand Indonesian nickel ore ban.

d) High effective fleet supply - Limited scrapping and a reduction in scrubberinstallations.

The table below shows the earnings of the various categories of dry bulk ships overFY20 (in US $/day as per market data).

FY 20 FY 19 YOY CHANGE
Capesize 16808 15358 +9.4%
Panamax 10710 10494 +2.1%
Supramax 9543 10767 -11.4%

ORDERBOOK AND OUTLOOK

Recently we have observed Brazil's inability to ramp up iron ore production as itstruggles to recover from the Covid-19 pandemic. This is a cause for concern for thelarger ships in the dry bulk markets.

In the short term overall trade growth (largely led by coal) is expected to remainweaker than last year as both demand and supply of dry bulk commodities are batteredglobally by the pandemic. The only solace at the moment in the market is that the dry bulkorderbook stands at 8% which is the lowest since June 2002.

While there is a high degree of uncertainty over demand recovery (and supply ofcargoes) it is possible that the overall freight market in FY 21 will be lower on averagecompared to FY 20. Asset values dropped significantly over the course of the year(12%-15%) and this trend could possibly continue.

FLEET SIZE AND CHANGE DURING THE YEAR

As at 31st March 2020 the fleet of your Company stood at 46 ships aggregating to 3.70million dwt with an average age of 12.20 years. During the financial year your Companydelivered to buyers a Very Large Gas Carrier (VLGC) which it had contracted to sell in FY2018-19 and also sold and delivered to the buyers a Suezmax crude carrier.

KEY FINANCIAL RATIOS

Conventional return ratios are not appropriate to assess the performance or conditionof your Company for the following reasons:

I. A very significant part of the return in shipping comes from the appreciation in thevalue of the asset itself. This does not enter the Profit and Loss account except at thetime of sale.

II. In recent years due to the change in accounting standards the Company's profitshave been affected very significantly by the movement in exchange rates. This hasgenerally had the effect of increasing the Company's profits when the rupee appreciatesagainst the US Dollar and of reducing its profits when the rupee depreciates against theUS Dollar. In reality the depreciation of the rupee against the US Dollar improves theprofitability of the Company.

Considering the cyclical and highly volatile nature of the shipping industry theability to survive weak markets and if possible even take advantage of them is criticalto success. The Company therefore believes that the following are the key financial ratiosapplicable to its business:

I. Gross and Net Debt:equity Ratio - This shows the extent of leverage taken by thebusiness both at a gross level and net of the cash and equivalents held. Net debt:equityis a standard ratio used in assessing a shipping company's credit-worthiness. There hasbeen a drop in these ratios over the course of FY 20 thanks to the improved businessresults of FY 20.

FY 20 FY 19
Gross 0.71 0.81
Net 0.26 0.36

II. Cash Debt Service Coverage Ratio - this represents the Company's ability to meetits debt servicing obligations. It is the sum of the PBIDT plus the cash and equivalentsheld by the Company divided by the expected debt service payments over the next 12 months.This ratio stood at 5.50 as of end FY 20 versus 2.65 at the end of the previous financialyear. The improvement in the ratio is due to (i) improved PBIDT and (ii) the low level ofdebt repayments in FY21.

III. Net Debt:PBIDT - this shows the number of years earnings it would take to coverthe repayment of the debt which is not covered by the cash and equivalents. The ratio was1.19 as of end FY 20 versus 2.12 as at the end of the previous financial year. The changewas due to both the drop in net debt and the higher PBIDT for the year.

Return on net worth: While the business results were significantly better than theprevious year the depreciation of the rupee versus the US dollar brought down theprofitability. Despite this the Profit after Tax was still significantly better than inFY 19 leading to a Return on Net Worth of 5.54% for FY 20 and -0.38% for FY 19. In FY2018-19 the net impact of the movement in exchange rate and mark-to-market gain or loss onderivatives was a negative effect of Rs. 86 crores in the net result while in FY 2019-20the net impact was a negative effect of Rs. 328 crores in the net result. Changes in theshipping markets have been explained hereinabove.

RISKS AND CONCERNS

Your Company has carried out a detailed exercise to identify the various risks faced bythe Company and has put in place mitigation control and monitoring plans for each of therisks. Risk owners have been identified for each risk and these risk owners areresponsible for controlling the respective risks. The efficacy of these processes ismonitored on a regular basis by Risk Committees for the different areas in order to makecontinuous improvement and is further reviewed by the Risk Management Committee consistingof the three Whole-time Directors and the Compliance Officer.

The material risks and challenges faced by the Company are as follows:

ECONOMIC RISK:

Shipping is a global business whose performance is closely linked to the state of theglobal economy. Therefore if global economic growth is adversely impacted it could havean unfavourable effect on the state of the shipping market

GEO-POLITICAL RISK:

OPEC nations control more than one third of the world oil supply. Therefore theirdecision on whether to comply with (or extend) crude production targets can have amaterial impact on the crude product and LPG freight markets.

Many of the countries producing and exporting crude oil are politically volatile. Anychange in the political situation in these countries may alter the supply-demand scenario.This would have a consequential impact on the tanker market.

Issues such as sanctions and wars may also affect shipping markets.

TRADE BARRIERS:

The recent trade dispute between the US and China may turn into a trade war. The mannerin which it develops could have a major impact on trade volumes and routes.

CHINESE ECONOMY:

China has been a major driver of global growth especially for commodities. If theeconomy falters or changes its policy towards import of various goods the consequentialdamage to shipping will be significant.

CHALLENGES FACED BY THE SHIPPING BUSINESS

EARNINGS VOLATILITY:

The shipping industry is a truly global business with a host of issues potentiallyimpacting the supply demand balance of the industry. This results in tremendous volatilityin freight earnings and asset values.

Your Company attempts to manage that risk in various ways.

If the Company believes that the freight market could weaken it may enter into timecharter contracts ranging from 6 months to 3 years.

Another method of managing risk is by adjusting the mix of assets in the fleet throughsale or purchase of ships.

The Company also ensures that assets are bought at cheap prices as capital cost is amajor cost component. The Company hopes to weather the depressed markets better than mostplayers in the business by having among the lowest fleet break-evens.

The Company operates ships in different asset classes and different markets. Thisensures that the Company's fortunes are not fully dependent upon a single market.

LIQUIDITY RISK:

The sale and purchase market and time charter markets are not always liquid. Thereforethere could be times when the Company is not able to position the portfolio in the idealmanner.

FINANCE RISK:

The Company's business is predominantly USD denominated as freight rates are determinedin USD and so are ship values. The Company has its liabilities also denominated in USD.Any significant movement in currency or interest rates could meaningfully impact thefinancials of the Company.

SHIPBOARD PERSONNEL:

Indian officers continue to be in great demand all over the world. Given theunfavorable taxes on a seafarer sailing on an Indian flagged vessel it is becomingincreasingly difficult to source officers capable of meeting the modern-day challenges ofworldwide trading.

CYBER RISK:

A new and worrying threat to our business is cyber risk. The Company is taking steps tosecure our assets and systems from this threat including by having suitable protection inplace and by constant training to employees on how to avoid such issues.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has instituted internal financial control systems which are adequate forthe nature of its business and the size of its operations. The policies and proceduresadopted by the Company ensure the orderly and efficient conduct of its business includingadherence to Company's policies safeguarding of its assets prevention and detection offrauds and errors accuracy and completeness of the accounting records and timelypreparation of reliable financial information.

The systems have been well documented and communicated. The systems are tested andaudited from time to time by the Company and internal as well as statutory auditors toensure that the systems are reinforced on an ongoing basis. Significant audit observationsand follow up actions thereon are reported to the Audit Committee.

No reportable material weakness or significant deficiencies in the design or operationof internal financial controls were observed during the year.

The internal audit is carried out by a firm of external Chartered Accountants (Ernst& Young LLP) and covers all departments. The Company also has an independent InternalAudit Department. Apart from facilitating the internal audit by Ernst & Young LLP theInternal Audit Department also conducts internal audit as per the scope to be decided fromtime to time.

Both Ernst & Young LLP and Head (Internal Audit) report to the Audit Committee intheir capacity of internal auditors of the Company.

In the beginning of the year the scope of the internal audit exercise including thekey business processes and selected risk areas to be audited are finalised in consultationwith the Audit Committee. All significant audit observations and follow up actions thereonare reported to the Audit Committee.

The Audit Committee comprises of Mr. Cyrus Guzder (Chairman) Mr. Raju Shukla and Ms.Rita Bhagwati all of whom are Independent Directors and Mr. Berjis Desai who is theNon-Executive Director on Board of the Company.

CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements have been prepared by your Company in accordancewith Ind ASs notified under the Companies (Indian Accounting Standards) Rules 2015. Theaudited Consolidated Financial Statements together with Auditors' Report thereon form partof the Annual Report.

The group recorded a consolidated net profit of Rs. 207.14 crores for the year underreview as compared to net loss of Rs. 21.45 crores for the previous year. The net worth ofthe group as on March 31 2020 was Rs.6795.64 crores as compared to Rs.6809.67 crores forthe previous year.

SUBSIDIARIES

The statement containing the salient features of the financial statements of theCompany's subsidiaries for the year ended March 312020 has been attached along with thefinancial statements of the Company. The report on performance of the subsidiaries is asfollows:

GREATSHIP (INDIA) LIMITED MUMBAI

Greatship (India) Limited (GIL) wholly owned subsidiary of your Company and one ofIndia's largest offshore oilfield services providers has completed another challengingyear of operations. In FY 20 GIL has recorded a total income of Rs. 741.66 crores(previous year Rs. 979.20 crores) on a standalone basis and Rs. 846.80 crores (previousyear Rs. 956.02 crores) on a consolidated basis. In the current financial year GIL hasearned a profit before interest depreciation (including impairment) and tax of Rs. 310.07crores (previous year Rs.544.61crores) and Rs. 348.78 crores (previous year Rs.500.46crores) on a standalone and consolidated basis respectively. GILs net loss for thecurrent financial year is Rs. 113.34 crores (previous year net profit was Rs.44.90 crores)and Rs. 64.75 crores (previous year Rs. 7.88 crores) on a standalone and consolidatedbasis respectively.

GIL alongwith its subsidiaries currently owns and operates nineteen vessels and fourjack up drilling rigs. The operating fleet of nineteen vessels comprises of nine PSVs(including five R-Class Supply Vessels) eight Anchor Handling Tug cum Supply Vessels(AHTSVs) and two Multipurpose Platform R-Class Supply and Support Vessels (MPSSVs).

GIL has the following four wholly owned subsidiaries whose performance during the yearis summarised hereunder:

I. Greatship Global Energy Services Pte. Ltd. Singapore (GGES)

GGES has earned a net profit of USD 0.27 Mn for the current financial year as againstthe net profit of USD 8.50 Mn in the previous year. The net profit in the current year wason account of the interest received on bank deposits and that of previous year was onaccount of interest received from the parent company on the balance consideration paid byit for the purchase of rigs from GGES.

II. Greatship Global Offshore Services Pte. Ltd. Singapore (GGOS)

During the year GGOS purchased one 2010 built R Class Supply Vessel 'Greatship Ramya'from GIL on April 08 2019. In addition GGOS owns and operates two Multipurpose PlatformSupply and Support Vessels. GGOS earned a net profit of USD 1.36 Mn for the currentfinancial year as against the net loss of USD 0.70 Mn (after accounting for an impairmentof USD 1.35 Mn in asset values) in the previous year.

III. Greatship (UK) Limited United Kingdom (GUK)

GUK's net profit for the current financial year amounted to USD 0.11 Mn as against thenet profit of USD 1.92 Mn in the previous year. The net profit in the current year wasattributable to the interest received on bank deposits/exchange gain on provisions andthat in the previous year was mainly on account of reversal of provisions.

IV Greatship Oilfield Services Limited India (GOSL)

During the year under review GOSL has been exploring possible business opportunitiesand has incurred certain expenses resulting into net losses of Rs. 0.01 crore for thecurrent financial year (Previous Year: Rs. 0.01 crore).

THE GREATSHIP (SINGAPORE) PTE. LTD. SINGAPORE

The Greatship (Singapore) Pte. Ltd. is a wholly owned subsidiary of your Company. TheGreatship (Singapore) Pte. Ltd. does shipping agency business for the ships owned by yourCompany. During the year ended March 31 2020 there were 86 ship calls at Singapore. Thecompany's profit after tax for the current financial year amounted to S$ 0.09 Mn asagainst the profit of S$ 0.25 Mn in the previous year.

THE GREAT EASTERN CHARTERING LLC (FZC) U.A.E.

The Great Eastern Chartering LLC (FZC) is a wholly owned subsidiary of your Company.During the year ended March 312020 the company made a profit of USD 3.42 Mn (previousyear net profit of USD 0.72 Mn). The company had invested in shares of some listedshipping companies during the year and these shares were valued at USD 10.40 million asof March 31 2020.

In the year ended March 312019 the company had sold the spread between Gas oil andHSFO and it has exited most of this exposure during the year. As of March 312020 itstill holds a position of 3000 MT of Cal 2022.

THE GREAT EASTERN CHARTERING (SINGAPORE) PTE LTD. SINGAPORE

The Great Eastern Chartering (Singapore) Pte Ltd is a wholly owned subsidiary of TheGreat Eastern Chartering LLC (FZC) UAE. During the financial year ended March 31 2020the company made a loss of USD 0.01 Mn (previous year USD 0.01 Mn). Since no opportunitiesarose in the freight trading market during the year there was no trading activity in thecompany.

GREAT EASTERN CSR FOUNDATION INDIA

Great Eastern CSR Foundation (Foundation) is a wholly owned subsidiary of your Companywhich handles the CSR activities of your Company and its subsidiaries. The Foundationreceived a total contribution of Rs.4.08 crore from the Company and Greatship (India)Limited during the year ended March 31 2020. The Foundation spent Rs. 6.20 crore on CSRactivities during the year.

Details of CSR activities carried out by Great Eastern CSR Foundation are set out inthe reports on CSR activities which form part of this Annual Report.

DEBT FUND RAISING

During the year fresh debt of Rs. 141.96 crores was raised. In addition a loan of USD22.5 Mn was refinanced to bring down the interest cost and extend the tenor. The grossdebt:equity ratio as on March 312020 was 0.71:1 (0.83:1 including effect of currencyswaps on rupee debt) and the debt:equity ratio net of cash and cash equivalents was 0.26:1(0.38:1 including effect of currency swaps). The Company redeemed Non-convertibleDebentures aggregating to Rs. 675 crores during the year and also settled the swapsrelating to those debentures.

QUALITY SAFETY HEALTH AND ENVIRONMENT

High levels of safety continue to be maintained on board the Company's fleet. Enhancedsafety is being achieved by continuous training of ship's personnel at all levels and atevery opportunity. Safety continues to have paramount place in the operation of allvessels of the fleet. To foster safety culture in the organization proactive reporting ofunsafe acts and conditions reflective learning from the incidents in the fleet andimplementation of appropriate preventive measure to avoid recurrences is being encouragedand practised in day to day operations.

FY20 had been very challenging with respect to implementation of IMO 2020 sulphur cap(0.5% Sulphur) requirements which came in force on January 012020. The Company hassuccessfully implemented this regulatory change on board all its vessels well before thedate of implementation. The changes were controlled and implemented through robustManagement of Change process.

With a view to generate enhanced value from our operations and to meet ever changingneeds of business the Company's Quality and Safety department has been empowered tointegrate Health Safety Environment and Quality (HSEQ) aspects with all businessprocesses. The department has been adequately strengthened to meet above objectiveaccordingly.

To protect all seafarers on board the ships and office personnel from the on-goingCovid-19 pandemic and to maintain business continuity the Company has drawn andimplemented a detailed risk-based Disease Outbreak Management Plan. Implementation ofpreventive measures under this plan is closely monitored by a specially constituted teamcomprising of HSEQ team members with support from Purchase Technical and Operations team.

TRAINING AND ASSESSMENT

Keeping the Company's vision and mission in the mind to man the entire fleet vesselswith a pool of competent confident and well-trained seafarers Training and Assessmentdepartment has continued to manage and conduct mandatory and non-mandatory value-addedtraining for the seafarers. All the shore-based training on-board training andcomputer-based training have been happening in an orderly manner throughout the year.

In view of the new maritime regulatory requirements the department developed variousin-house Computer Based Training and Assessment modules viz Sulphur Cap 2020 BallastWater Management Systems Exhaust Gas Cleaning Systems (Scrubbers). Different modules weredeveloped for 4 different categories of officers viz Engineers - Management LevelEngineers - Operational Level Deck Officers - Management Level and Deck Officers -Operational Level.

Based on the need and feedback from various stakeholders the department developed andimplemented some new courses for the seafarers viz. First Aid Refresher Course Oil MajorVetting Course for Officers and Crew.

The department continued conducting the competency assessments for every rank ofseafarers. Clearing these competency assessments is a mandatory requirement of the Companyfor recruitment and promotions of the seafarers.

The management of entire training Training Need Identification (TNI) and monitoring ofEffectiveness of Training (EOT) is being done through inhouse developed Training andAssessment portal of the department.

IT INITIATIVES

In this financial year IT has focused on the following major initiatives:

DIGITALIZATION COLLABORATION AND PROCESS IMPROVEMENT

The Company focused on adoption of implemented technology (Office 365 collaborationtool) by all the employees. The result of adoption was visible during the Covid-19lockdown by employees using complete Office 365 suite (Outlook Email Teams One Drive)collaborating with other team members through audio and video conferencing and accessingall documents from OneDrive which ensured there was no disruption to the business.

Process improvement continues to be one of the key focus areas in all the technologysolutions bringing efficiency accuracy and scalability of operations for both ship andshore. The Company is phasing out all old technology applications with new solutions usedby international shipping companies and following global best practices.

CONSOLIDATION AND OPTIMIZATION OF TECHNOLOGY INFRASTRUCTURE

The Company has done a lot of optimization in existing infrastructure resources andapplication development leading to operational efficiency. Focus on governance led tooverall efficiency and effectiveness of people process and technology.

IMPROVING SHIP AND SHORE CONNECTIVITY

The ships are well connected with VSAT which is helping business to work in morecollaborative manner and providing quick remote support to resolve issues. Increasedinternet speed also helped the crew members to stay connected with the family membersduring lockdown. The Company will be exploring IOT solutions next year.

BUSINESS CONTINUITY PLAN

The Company has ensured to build the IT systems with proper business continuity planand disaster recovery site to ensure that the business functions as usual without anydisruptions i.e. in the event of fire flood or malicious attack by cybercriminalslockdown etc.

In case of primary data centre failure (in Mumbai) a robust Disaster Recovery Site atHyderabad will be available to ensure smooth functioning of critical business operations.

CYBERSECURITY

Cybersecurity has become a top priority in the international maritime sector. In thewake of persistent cybersecurity vulnerabilities there is dire need to develop aproactive and robust maritime cybersecurity framework and plan which offers risk-basedprevention mitigation response and recovery stages. The Company is following theframework as per the IMO and TMSA guidelines and ensured to have built policy andprocedures with best practices like Vulnerability Assessment and Penetration Testing(VAPT) Audits and remediation on regular basis based on its audit findings.

INNOVATION -TECHNOLOGY

• Digitalization: Focus to create paperless organization by implementingElectronic Approval solution to remove the physical dependency and improve the turnaroundtime of approvals leading to efficiency

• OT solution for improving efficiency performance and optimizing cost on shipoperations

• Robotic/Intelligent Process Automation for automating monotonous processes andto improve efficiencies

• Artificial Intelligence - to provide predictive and cognitive Analytics

HUMAN RESOURCES

The Company recognizes that the ability to attract and retain the best talent is vitalfor sustainability and competitive advantage for the Company. A set of initiatives wereimplemented for enabling talent acquisition and development during the year.

Learning and Development continued to be an organizational focus area. As in the pastthe Company has initiated the 360 feedback process for Senior roles to aid in individualdevelopment and succession planning. Middle and Senior level managers underwent LeadershipDevelopment module focusing on improving self-awareness interpersonal skills and teamcohesiveness.

Social cafe approach was utilized to harness employee camaraderie which included QuizMarathon and cultural programs during festive occasions. The annual Townhall held inDecember 2019 helped in employee alignment and building team spirit.

The retention rate for office staff during the fiscal year is 96%.

Another focus area for the team was to improve the work processes based on the TMSAframework. The team has achieved reasonable success in this area.

Towards the end of the year the focus of the function shifted to enable employees tobe ready to work from home due to the Covid-19 lockdown. Considerable effort was put in bythe administration team to overcome various challenges posed by an uncertain complex anddynamic environment.

Total number of permanent shore staff and ship board personnel was 217 and 1105respectively.

GREAT EASTERN INSTITUTE OF MARITIME STUDIES

The Great Eastern Institute of Maritime Studies has so far trained 4204 pre-sea cadetsat its campus at Lonavala besides training 1892 post-sea cadets and officers.

Today it is ranked as one of the best maritime training Institutes in the country whichis borne by the consecutive A+ outstanding grading awarded during the annual ComprehensiveInspection programme (CIP) of Director General of Shipping Govt. of India.

The Institute was awarded the Best Maritime Training Institute award at the SamudraManthan Awards ceremony held in December 2019.

The cadets of the Institute who have been participating in various Inter Institutecompetitions won many prizes and accolades during the year thereby once againestablishing its position as the premier Maritime training Institute of the country.

During the year the 300 KW Roof Top Solar power plant was commissioned at theInstitute. The plant has been generating electricity as per its design specification andconsequently the Institute is able to meet nearly 50% of its power requirement through thegenerated solar power.

During the year the Institute signed a MOU with another shipping company to provide 65cadets (DNS GME and ETO) annually. Today the Institute provides campus placement fromnearly 20 shipping companies for its cadets ensuring 100% placement.

The Institute also played host to the Company's shareholders who enjoyed andappreciated the world class training infrastructure and facilities of the Institute.

CORPORATE SOCIAL RESPONSIBILITY

The Company has always been conscious of its role as a good corporate citizen andstrives to fulfill this role by running its business with utmost care for the environmentand all the stakeholders. The Company looks at Corporate Social Responsibility (CSR)activities as significant tool to contribute to the society.

The Board of Directors of the Company has constituted a Committee of Directors knownas the Corporate Social Responsibility Committee comprising of Mr. Vineet Nayyar(Chairman) Mr. Cyrus Guzder and Mr. Bharat K. Sheth to steer its CSR activities.

During the year the Company replaced its earlier Corporate Social ResponsibilityPolicy with a new Group Policy mainly to update new focus areas - education health andlivelihood.

Copy of the revised Corporate Social Responsibility Policy of the Company asrecommended by the CSR Committee and approved by the Board is enclosed as 'Annexure A'.The CSR Policy is also available on the website of the Company : www.greatship.com.

The CSR Policy is implemented by the Company through Great Eastern CSR Foundation awholly owned subsidiary of the Company specifically set up for the purpose.

The Annual Report on CSR activities is enclosed herewith as "Annexure B".

DIRECTORS

Mr. Raju Shukla and Mr. Ranjit Pandit were appointed as Independent Directors of theCompany w.e.f. June 01 2019 for a term of 5 years. Mr. Cyrus Guzder and Mr. Vineet Nayyarwere re-appointed as Independent Directors for second term of 3 years w.e.f. September 252019. Mr. Berjis Desai was re-appointed as 'Non-Independent Non-Executive Director' of theCompany (liable to retire by rotation) w.e.f. September 25 2019. All the aforesaidappointments/re-appointments were approved by the members at the Annual General Meetingheld on August 08 2019.

The first 5 year term of office of Ms. Rita Bhagwati and Dr. Shankar Acharya asIndependent Directors of the Company expired on November 13 2019 and February 04 2020respectively. The Board at its meeting held on November 08 2019 re-appointed Ms. RitaBhagwati and Dr. Shankar Acharya as Additional and Independent Directors for second termof 5 years w.e.f. November 14 2019 and February 05 2020 respectively.

Ms. Rita Bhagwati and Dr. Shankar Acharya being Additional Directors cease to be theDirectors of the Company on the date of the ensuing Annual General Meeting. Notices underSection 160 of the Companies Act 2013 have been received in respect of theirre-appointment as Independent Directors of the Company.

Mr. Farrokh Kavarana's first 5 year term as Independent Director of the Company expiredon November 13 2019. He expressed his desire not to seek re-appointment as he normallyresided abroad and found it difficult to travel to India for attending meetings on accountof his advanced age.

Accordingly Mr. Farrokh Kavarana ceased to be an Independent Director of the Companywith effect from November 14 2019.

Your Directors place on record their appreciation for the valuable guidance and supportextended by Mr. Farrokh Kavarana during his tenure as an Independent Director.

Mr. G. Shivakumar was re-appointed as 'Executive Director' of the Company for a periodof 3 years with effect from November 14 2019. Mr. Bharat K. Sheth was re-appointed as'Deputy Chairman and Managing Director' for a period of 3 years with effect from April012020.

Re-appointment of Ms. Rita Bhagwati and Dr. Shankar Acharya as Independent DirectorsMr. Bharat K. Sheth as 'Deputy Chairman and Managing Director' and Mr. G. Shivakumar as'Executive Director' require your approval at the ensuing Annual General Meeting. Mr. K.M. Sheth shall retire by rotation at the ensuing Annual General Meeting and beingeligible offers himself for re-appointment.

Necessary resolutions for re-appointment of Ms. Rita Bhagwati Dr. Shankar Acharya Mr.K. M. Sheth Mr. Bharat K. Sheth and Mr. G. Shivakumar have been included in the Noticeconvening the ensuing Annual General Meeting.

As per the provisions of the Companies Act 2013 Independent Directors shall not beliable to retire by rotation. The Independent Directors of your Company have given thecertificate of independence to your Company stating that they meet the criteria ofindependence as mentioned under Section 149(6) of the Companies Act 2013 and underRegulation 16(1)(b) of SEBI (Listing Obligations and Disclosure Requirements) 2015. Inthe opinion of the Board all the Independent Directors (including thoseappointed/re-appointed during the year) are persons of integrity and possess relevantexpertise and experience to effectively discharge their duties as Independent Directors ofthe Company.

The policies on Director's appointment and remuneration including criteria fordetermining qualifications positive attributes independence of Director and alsoremuneration for key managerial personnel and other employees are enclosed herewith asAnnexure 'C' and 'D'.The details of remuneration as required to be disclosed pursuant tothe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 areenclosed as Annexure 'E'.

BOARD MEETINGS

During the year 6 meetings of the Board were held. The details of Board meetings aswell as Committee meetings are provided in the Corporate Governance Report.

BOARD EVALUATION

Annual performance evaluation of the Board its committees (namely Audit Nominationand Remuneration Corporate Social Responsibility and Stakeholders' RelationshipCommittees) and all the Directors individually has been done in accordance with thePerformance Evaluation Framework adopted by the Nomination and Remuneration Committee ofthe Company which is in line with the Guidance Note on Board Evaluation issued by SEBIvide its circular dated January 05 2017. The Performance Evaluation Framework sets outthe performance parameters as well as the process for performance evaluation to befollowed.

In accordance with the Performance Evaluation Framework all the Directors recordedtheir evaluation of the Board its Committees and NonExecutive Directors of the Company.The performance evaluation of the Company and Executive Directors was done on the basis ofpresentation made by the management.

Pursuant to the provisions of the Companies Act 2013 a separate meeting ofIndependent Directors reviewed performance of the Company Board as a whole andNon-Independent Directors (including Chairman) of the Company.

The Board of Directors reviewed the performance of Independent Directors and Committeesof the Board. Nomination and Remuneration Committee also reviewed performance of theCompany and every Director.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the requirement of Section 134(3) of the Companies Act 2013 the Board ofDirectors hereby state that:

(a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit and loss of the company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis; and

(e) the directors in the case of a listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.

(f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

CORPORATE GOVERNANCE

Maintaining high standards of Corporate Governance has been fundamental to the businessof your Company since its inception. A separate report on Corporate Governance is providedtogether with a certificate from the practicing Company Secretary regarding compliance ofconditions of Corporate Governance as stipulated under Listing Regulations.

The extract of annual return in Form MGT-9 as required under Section 92(3) of theCompanies Act and Rule 12 of the Companies (Management and Administration) Rules 2014 isenclosed herewith as Annexure 'G'.

PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE

With a view to create safe workplace the Company has formulated and implemented SexualHarassment (Prevention Prohibition and Redressal) Policy in accordance with therequirement of the Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013. For the purpose of handling and addressing complaints regardingsexual harassment the Company has constituted Internal Complaint Committee with anexternal lady representative (who has the requisite experience in this area) as a memberof the Committee. To build awareness in this area the Company also conducts awarenessprogrammes within the organisation.

During the year one complaint with allegations of sexual harassment was received bythe Company. Subsequent to the end of the year one more complaint was received by theCompany. Both the complaints are currently under investigation by the Internal Committee.

VIGIL MECHANISM

The Company has established a vigil mechanism (Whistle Blower Policy) for directors andemployees to report genuine concerns. The Whistle Blower Policy provides for adequatesafeguards against victimisation of persons who use such mechanism and make provision fordirect access to the Chairperson of the Audit Committee in appropriate or exceptionalcases.

A copy of the Whistle Blower Policy is available on the website of the Company:www.greatship.com

RELATED PARTY TRANSACTIONS

The Company has formulated policy on dealing with Related Party Transactions a copy ofwhich is available on the website of the Company: www. greatship.com

The particulars of contracts or arrangements with related parties in Form AOC 2 isannexed herewith as "Annexure F".

All the related party transactions have been entered into by the Company in theordinary course of business and on arm's length basis.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

Particulars of Loans Guarantees and Investments covered under the provisions ofSection 186 of the Companies Act 2013 are given in the notes to the financial statements.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and Company's operations in future.

COST RECORDS

Maintenance of cost records as specified by the Central Government under sub-section(1) of section 148 of the Companies Act 2013 is not required by the Company.

DIVIDEND DISTRIBUTION POLICY

The Dividend Distribution Policy of the Company is enclosed as 'Annexure H'. TheDividend Distribution Policy is also available on the website of the Company :www.greatship.com.

ENERGY CONSERVATION AND TECHNOLOGY ABSORPTION

CONSERVATION OF ENERGY

In order to contribute to and prepare for a low carbon future your Company has beenundertaking various initiatives about enhancing energy efficiency in its businessoperations.

ENERGY SAVING DEVICES

During the year following Energy Saving Devices were retrofitted for reducing fuelconsumption of main propulsion system.

I. Jag Amisha and Jag Pahel were retrofitted with Propeller Boss Cap Fins a devicewhich improves propulsive efficiency. The propeller's rotational motion forms a strongvortex at the centre which causes overall loss of propulsive efficiency. The finnedfeatures of a PBCF break up this vortex thereby reducing the loss of energy.

II. Jag Aparna and Jag Lokesh were retrofitted with Mewis Duct a device which improvesthe flow of water on to propeller and thus its efficiency. Total cost incurred on abovefour ships: USD 535357.

For a typical Bulk Carrier or Tanker loss of energy through hull resistance is around30% and this increases with growth of hull roughness due to bio-fouling. To minimizegrowth of bio-fouling the Company has applied superior anti-fouling coatings on JagAmisha Jag Aparna Jag Prabha Jag Pranam Jag Pranav Jag Pahel Jag Lokesh JagLavanya Jag Lyall and Jag Radha during their respective dry dockings during the financialyear.

The cost incurred for application of the superior anti-fouling coatings was USD960510.

During the year saving of USD 2.63 million was achieved in fuel cost from energysaving retrofits and use of superior anti-fouling hull coatings alone. This fuel savingalso resulted in reduction of CO2 emission by 18800 MT.

TECHNOLOGY ABSORPTION

Your Company has identified and absorbed several technologies on fleet vessels. Theseare reflected in paragraphs above.

COMPLIANCE WITH IMO DCS AND EU MRV REGULATIONS

With effect from January 01 2019 all vessels above GT 5000 are mandatorily required toreport their annual fuel consumption distance sailed and sailing hours and certain othertechnical features of individual ships to its Flag State and upon satisfactoryverification of the data Flag States in turn are obliged to submit such data toInternational Maritime Organization (IMO) all as per Regulation 22A - Collection andreporting of ship fuel oil consumption data of MARPOL Convention Annex VI. The data willbe used by IMO for making future policy decision with respect to further reduction of GHGemission from ships on international trade. Your Company has developed ship specificrequired Data Collection Plans which describes the procedure of collection qualitycontrol storage and transmission of relevant data and the same have been approved byRecognized Organizations (R.O.) Data for the first calendar year 2019 have been submittedto R.O. by the due date for their review.

Similar exercise for corresponding requirement of EU but applicable to vessels whichhave made commercial voyages to or from EU for the Calendar Year 2019 has been completed.

QUANTIFICATION AND REPORTING OF GHG EMISSION

Your Company since FY 2015-2016 has started to capture and quantify GHG emission fromits business operations in a transparent and standardized manner for the information ofstakeholders of the Company on a voluntary basis. The GHG emission quantification andreporting has been done taking into account:

I. ISO 14064-1 (2006) Greenhouse gases - Part 1: Specification with guidance at theorganization level for quantification and reporting of greenhouse gas emissions andremovals and

II. The Greenhouse Gas Protocol - A Corporate Accounting and Reporting Standard(Revised edition) published by World Business Council for Sustainable Development andWorld Resources Institute.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The details of Foreign Exchange Earnings and Outgo are as follows:

(Rs. in crores)
a) Foreign Exchange earned on account of freight charter hire earnings etc. 1740.48
b) Foreign Exchange used including operating expenses capital repayment down payments for acquisition of ships (net of loan) interest payment etc. 2738.81

AUDITORS

Pursuant to the provisions of Section 139 of the Companies Act 2013 Deloitte Haskins& Sells LLP were appointed as the Statutory Auditors of your Company to hold officeuntil the conclusion of the Annual General Meeting of the Company to be held in thecalendar year 2022.

SECRETARIAL AUDITORS

Pursuant to the provisions of Section 204 of the Companies Act 2013 the Companyappointed M/s. Mehta & Mehta Company Secretaries to undertake the Secretarial Auditof the Company for the financial year ended March 312020.

The Secretarial Audit Report is annexed herewith as "Annexure I".

APPRECIATION

Your Directors express their sincere thanks to all customers charterers vendorsinvestors shareholders shipping agents bankers insurance companies protection andindemnity clubs consultants and advisors for their continued support throughout the year.Your Directors also sincerely acknowledge the significant contributions made by all theemployees through their dedicated services to the Company. Your Directors look forward totheir continued support.

For and on behalf of the Board of Directors
K.M. Sheth
Chairman
(DIN : 00022079)
Mumbai May 30 2020

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