Banking on tanker rates, drilling biz in 2013: Essar Ship

Shaheen Mansuri
Moneycontrol.com

Low freight rates globally would continue to weigh on the bottomlines of Indian shippers, but the situation is unlikely to worsen further, says AR Ramakrishnan, Managing Director, Essar Shipping . In an interview with moneycontrol.com, he said his firm managed to stay profitable mainly due to long-term contracts with its customers. Essar Shipping's net profit for the December quarter fell 63% as surplus capacity and dull international trade pressured freight rates.

Ramakrishnan expects container rates to be a bit more stable in future, on steady demand in the US as well as in manufacturing activities in emerging markets like China. Did you read: Expect boom on growth in India & China, says Essar's Ruia

While the logistics and sea-transport segments may not see a big rise in revenues near term, the company's oilfield-service arm is likely to maintain its strong performance on high probability of drilling contracts from global oil and gas companies.

Apart from a general slowdown in the sector, debt refinancing remains the next big challenge as banks were wary of lending to the sector, Ramakrishnan said.

Essar Shipping itself is looking to partly refinance its debt of Rs 5,500 crore.

Below is an edited excerpt of Ramakrishnan's interview to Moneycontrol.com

Q. Your third quarter numbers were sluggish; do you see things improving in the current quarter, especially in the crude oil transportation business?

Currently, the shipping industry is confronted with over supply of tonnage and the situation is likely to improve by 2013-end. Besides, pricing pressure may continue to remain on shipping freight rates for sometime. However, we have an integrated business model with a focus captive demand in transportation services, logistics and cargo handling infrastructure. Hence, a stronger performance in any of the segments helps compensate for a downturn in any other vertical.

Q. What is your outlook on the tanker market? Industry is hopeful that things will start looking up over the next few months?

Tanker rates are likely to inch up in the next few months, with new refineries going in for Latin American crude, involving long-haul shipments.  With demand situation improving and capacity stabilising, market may improve going ahead.