The Great Eastern Shipping Company Ltd

"The Great Eastern Shipping Company Limited Q2 FY26

The Great Eastern Shipping Company Limited

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Shivakumar – Executive Director and CFO. Thank you and over to you, sir. G Shivakumar: Thank you. Good Afternoon, Everyone and Welcome to the Results Presentation for Q2 & H1 FY26. Thank you for joining us. Standard disclaimers apply. I take it you have had a chance to go through our numbers. These are the highlights. We have a net profit of Rs.581 crores on a consolidated basis. Our NAV has moved up by about Rs.60 rupees from the last quarter, and we have declared another interim dividend of Rs.7.20 paisa. I would not go too much into the results themselves, but let us go to the “Normalized Highlights”: So, our profit is more or less the same on a standalone basis as what it was in the previous quarter, that is Q1 FY26; it is significantly lower than in Q2 FY25, which is a corresponding quarter. Couple of impacts, significant profit on sale in the previous year and a drop in the capacity corresponding to the sale of those ships and that is one of the significant reasons for the profits coming down. Also, we have had slightly lower rates than we had in the corresponding quarter of last year. The offshore business continues to contribute to profitability. The vessels are all fixed at very good levels. We have most of the vessels fixed. Four vessels continue to operate on short-term contracts and have also had a good run this year. This is the movement in the standalone net asset value. In March '20, we were at Rs.450 per ship, we are now up more than 2.5x over the last five and a half years. And just to remind you where the change in the net asset value comes, it is not just a notional change in the market value of the vessels. There is a change in the market value, but the accretion stayed at the same level as a year ago. The cash profit contribution has been Rs.165 and while the fleet value has dropped; this drop in the fleet value is again partly due to some sale of vessels and partly due to drop in the value of tankers. So, we are more or less at the same level as we were a year ago.

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A similar story for the consolidated. We have Rs.200 crores of cash profit, of which Rs.28 crores has been paid out, but we have had a drop in the fleet value. We have most of our tankers operating in the spot market. Our LPG carriers are fully fixed and the dry bulk as well is operating mainly in the spot market. Jack-up rigs have a lot of their days covered for the rest of the financial year and vessels are, as I mentioned, a lot of them are on long-term contracts. We have $186 million effectively of debt. This is a repayment schedule for that. We cannot prepay these because these are all the NCDs which have been floated and which are listed. So, we are not able to prepay them, but wherever loans could be prepaid, we have prepaid those because we do not want to have the negative carry of having debt. Looking at the fleet profile, currently at 41 vessels; however, we have committed for a crew of our 20-year-old tankers, one is a crew carrier Jag Lok and the other is the product tanker Jag Pooja, both of which will be delivered in this quarter. We have also purchased our first Ultramax bulk carrier which will be delivered by Q4 FY26. So, with these, the commitments, we will be at 40 vessels. There is no change in the offshore fleet. Coming to the “Shipping Markets”: Markets have been somewhat similar. So, Suezmax have been slightly higher, and this is I am talking about the market averages. Suezmax have been slightly higher than they were in the previous year, while product tankers, MRs have been significantly lower. We saw very strong Q1 in FY25, which then tapered off towards the end of the first half. So, the levels have remained about the same since this time last year. So, you can see this line, which is the yellow line and then the red line after that; it is in a very narrow range around the $20,000 mark. I will not go into all of these details, but basically the big factor in influencing the crude tanker flows is the OPEC unwinding of the OPEC production cuts and that has resulted in demand for crude tankers, because there is more commodity coming into the market. Along with that, we also have some new Brazilian supply coming into the market. So, these resulted in significant demand increase for crude tankers. Also, on the consumption side, China has been doing stock building and adding to their oil inventories, while the fleet did not grow compared to the previous year.

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Product tankers, product trade also has been growing and there has been strong drill cracks in the Western markets, which have been supporting some of the flows. There has been a lot of disruption to Russian supplies of products because of refinery outages caused by drone attacks. So, that market has been facing some uncertainty and some substitution has been happening of Russian supply. Asset prices have been stable for crude tankers. MR product tankers have been up slightly. They had gone down quite a lot between July-September last year and June this year and now they have started recovering a little bit. The order book has been picking up. So, we now have a crude order book of about 13% while the product tanker order book is at 18%. In recent times, we have seen sanctions on Rosneft and Lukoil, the two largest Russian oil producers and exporters and it is already starting to have some impact. So, we have seen a flurry of fixings out of US and out of South America to possibly meet the shortfall which can be caused by this. We have also had a lot of ships getting sanctioned. So, we have between 10% and 15% of the tanker fleet currently under sanctions. So, some of those vessels are having some difficulty trading. So, the current crude tanker market has shown significant tightening, especially for the VLCC and Suezmax sectors. Dry bulk were more or less the same as last year, slightly lower, but not too different and let us look at those reasons. While they were slightly lower than the previous year, they were better than they were in the first half of calendar '25. Iron ore trade has been growing. While coal dropped in Q1, it has been recovering, Chinese production declined marginally. The highlight really was the grain trade and this is a tariff impact. China ramped up its soybean exports from South America in advance of the grain season from the US because of fear of the tariffs continuing on US trade into China, and therefore, we had some front- ended grain trade which normally does not happen, and that helped the Panamax, Kamsarmax market mainly. Both side of course, trade is strong, China's import appetite stays very strong. So, that was up 14% year-on-year. Bulker asset prices are also firmer during the quarter. The order book still is at around 10% to 11%, not a very high number. Looking at LPG, this is another commodity that was potentially affected by worries on counter tariffs by China, because there was a 10% tariff on LPG from the US, and therefore, the trade got a little disrupted. So, US LPG had to find other buyers, while the Chinese had to import from elsewhere,

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mainly from the Middle East. This made the trade a little bit less efficient which saw rates spiking a little bit, again, not to the highs we have seen in the past, which is about 100,000 but going at least about $60,000 a day on occasion. Now, this is reversing. We are seeing potentially that there could be more cargoes going to China. The order book stays very elevated at 29%, while asset prices were corrected marginally, this is from very, very high levels. Looking at “Fleet Supply”: I have already mentioned what the order book is. So, we have 29% for LPG, we have 18% for products, 13% for crude tankers and under 11% for dry bulk. Scrapping again, as one would expect with such strong markets, scrapping is extremely low. Looking at “Asset Price Movements”: Both sectors of tankers have seen an uptick. Bulk carriers also have seen an uptick in the last few months, while LPG is more or less where it was maybe marginally down, but again, you do not get too many transactions here for assessing them. Looking at “Great Ship”: This is the picture which has been in place for many, many years. This is a global supply of rigs and OSVs. There are many old rigs and offshore vessels which are in the fleet which we expect will need to be removed from the fleet sometime. Against that, there is very little on order and you can see we are looking at about 2.5% order book-to-fleet ratio. Coming to the “Repricings of the Vessels,” we have the green bar which is the vessels to be repriced in the second half of FY26. Of these, four are the most capable vessels, these are the large anchor handlers and the two MPSSVs which we have consciously operated on short-term contracts internationally to maximize their revenues, while the other vessels which are more India-suitable, are fixed into longer-term charters in India. So, these vessels will have to be repriced every few months. So, that is four of them and we have one of our PSVs coming off contract in this period as well. We have three of our rigs working currently. The fourth rig is going to go into a short-term contract. It is just being mobilized for a short-term contract off the coast of India, that should hopefully go on higher by end of November. That is a seven-month contract. However, one of the rigs which is working is on a four-month contract which ends in February, so, we will need to reprice, find a work for that rig. Again, we have another rig coming up in H1 FY27 and we have a third rig coming up in

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H2 FY27 which is around January 2027. Apart from that, we have some vessels coming off from time-to-time. Coming to “Financials” and you have seen this, we are currently net cash of about $550 million. On a share price to consolidated NAV, we are at about 0.73. Thank you. That brings me to the end of the presentation and we are happy to take questions. Moderator: Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. We will take our first question from the line of Krishnaraj V from Agathis Investments. Krishnaraj V: Hi Shiv, thank you for taking my question. My question is not for the current quarter results but largely on financing. I wanted to better understand the benefits of converting the INR debentures into synthetic fixed rate USD loans. The reason I was drawn to this analysis was that broadly we know that the INR debentures are fixed costing around 8.5% and the synthetic USD loans come at, I reckon, around 6%. But if I take the amortized cost of rupee depreciation on the principal until now, the Rs.300 crores that you were carrying till the end of March '25 and about 3.4% depreciation of the rupee for this fiscal, it adds to about 3.8% to 4% with still about four years to go. And then there is an increase in the rupee equivalent of the interest expense which is about 25% or about 1.5% on the 6% at the midpoint of this typically 10-year term. So, all in all, it appears to me that this synthetic conversion gives you an finance cost of about 11.3% to 11.5% versus 8.5% if you had just left it without doing the conversions and of course there were bank charges. So, I just want to understand how you think about this and what are the benefits you get? G Shivakumar: Yes, so a couple of things and thanks for that question, it is an interesting one. So, a couple of things; one is fundamentally we are trying to create a match between our currency of our assets and inflows and the liabilities. So, we are trying to create a dollar liability which offsets the dollar assets which are on our balance sheet, our ships are dollar assets, which earn dollar revenues. So, one is we are trying to match that. So, our fundamental position is that we want to borrow dollars rather than rupees because we do not want that currency mismatch, we try not to take that view. But coming to the specific case of our current debentures that we have, so you are right about the approximate Indian rupee coupon, it is about 8.5%. The issue is with the swap rate for the dollars. We do these debentures when we can get a better rate by doing these synthetic structures to get the dollar debt than by doing straight dollar debt. So, effectively, our fixed rate in dollars on these is less than 4%... it is about 3.5%. So, if we look at it and the standard depreciation over a long period of time is approximately 3% of rupee versus dollar. So, we have got a 5% spread in the interest cost and where you could lose 3% due to depreciation, so you are better off by 2%. However, it is not our objective to save interest cost. We are not taking a view on whether the rupee is going to depreciate faster than 3% or slower than 3%. We are just doing it as part of managing our risk because we have dollar inflows and dollar assets and we are funding the dollar assets with a dollar liability.

The Great Eastern Shipping Company Limited

The Great Eastern Shipping Company Limited

The Great Eastern Shipping Company Limited

So, in this quarter, actually, we have had an improvement of Rs.60 or so in the NAV, where the fleet value is more or less the same, very marginal difference. But the Rs.60 rupees is broken up into Rs.30 approximately of cash earnings and Rs.30 of rupee depreciation impact. Harsh C: Understood, understood. Okay, okay. Thanks a lot. G Shivakumar: Thank you. Moderator: We will take our next question from the line of Amit Khetan from Laburnum Capital. Please go ahead. Amit Khetan: Thank you for taking my question. So, I had a couple of questions on capital allocation. So, if I look at, we have some Rs.7,000 crores in net cash and even at the current rate of paying dividends, we are accruing at something like Rs.2,000 crores per annum, right, and add to that, we have like significant debt capacity and one could argue that some moderate level of debt is even good for the business. Now, if I look at our cash flow statement, we have deployed some Rs.5,500 crores over the last decade on a net basis, and this includes the period of 2016 to '18, when we were quite active in buying vessels, right? So, my question is, first, how confident are we that we can deploy this scale of capital when markets are weak? And second, is there a limit to this cash accumulation, because where we take a call that we have more than sufficient capital to which we can intelligently deploy, and therefore, it makes sense to largely dividend it out. Would love to get your thoughts on how the management and the board thinks about this? G Shivakumar: Yes, thanks, Amit. I have got Rahul here with me and he will take that question. Rahul Sheth: So, that is a good question that you have posed. And as you can imagine, we do our own internal assessment of that. So, of course, our fleet has aged over this period of time considering we have not significantly invested in new ships. Of course, we continue to follow a switch strategy, which we did mention in the past that we would not like to ideally drop below this 40-odd ships, and therefore, in this quarter, we have actually bought a few ships, sold some of the older ships, and that does take in a certain amount of capital. Looking in the future, let us say, even if the markets do not come off for some time, we will still continue to do the switch strategy. Of course, every time we continue or we evaluate such a deal, we do look at how the spreads work. The spread meaning selling an older ship and buying a newer ship and whether it makes sense or not. But assuming it does, we have got ships aging in the next couple calendar years, and that will take in a certain amount of capital. The second, but a large part of the capital, like you mentioned, is being kept aside as of now for more favorable prices. And we have done historical calculations and assessments of how liquid the shipping market is in both the second hand as well as in new building. Of course, in 2016-18, the business was smaller, the last few years have been very profitable, and therefore, the amount of cash we have, the amount of debt we can raise has significantly increased, so the potential CAPEX we can do in the future has

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also increased. In 2016-18, we solely focused on the second hand market. But in the new building market, you can absorb a significant amount of money. So, just to give you an example, today, if you build a Suezmax tanker, right, it costs about $80 million to build. So, if you place an order for two, three or four of those, it will absorb a significant amount of money. Now, do the yards have that kind of capability? They easily do. We have seen companies much larger than ourselves, being able to deploy much larger amounts of capital. So, we do keep this in mind. And as long as we believe that we can invest this intelligently in the future, we believe that it is worth holding on to the cash. Amit Khetan: Fair enough. I know you have talked about this in the past where we have looked at the container segment. Has there been any progress there in terms of new segments that we are looking at? Rahul Sheth:: So, in the container segment, we do watch it closely. We do not cover it here because of course, we are not invested in it, but I can just give you a very brief overview. So, our decision to hold back on the sector as of now has been all right. So, there are two things. The nature of the container business is different from the tanker business, because in the tanker business or the dry bulk or LPG business, we deal directly with the end customer. So, for example, an ExxonMobil, Reliance, Chevron, companies like that. In the lining business, what we would do is, ideally, we would be a tonnage provider. So, we would buy a container ship, we would give it to the likes of Maersk, and Maersk has the responsibility to fill up the ship with container boxes, which means Maersk charges a box rate, right, per box to the end customer. So, there is an in-between layout. Now, the box rates have significantly come off over the last few years. As you may be aware, the container market had probably a once in a lifetime kind of boom over the last few years. But those rates have come off significantly. The order books are very strong in the container space. And it is very difficult to call these markets and know when all these things will happen. But we do expect that there can be a correction in the freight rates that a tonnage provider could earn in the future, along with the asset values of those ships. And if we get those opportunities, we would seriously look at the container space as well. Also, just for your knowledge, ships in the container business does absorb a lot of capital. Amit Khetan: Got it. Got it. Just a last follow-up to the capital allocation. Now, when the markets turn weak, given that we would be looking at multiple vessels at the same time, and each transaction, my guess is, takes a few months to close, do we have the team in place to sort of for an increased level of activity should that happen? Rahul Sheth:: Yes. So, again, that is a very good question to ask. Of course, we have also again done an assessment to know that when we do need to act quick, do we have the capability to act quick, both in evaluation and being able to take over a significant number of ships. So, again, to draw to your example of 2016- 18, at that time, we were about 30 ships, and we scaled up to 50 ships. And we have our own internal discipline of the amount of leverage we needed to take. At that point in time, we were capped out on

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what we believed would be the investable surplus that we wish to deploy that time. But had it been that we had more money available, we could have executed more; we could have gone up to 55, 60, that is a bit of speculation, but I am quite confident we could have executed it from an operational angle and that is a doubling of the size. Right? So, now today, of course, we are starting off on a bigger base and therefore, if we are unable to execute that, then after waiting for so long, that would be unforgivable. So, clearly, we keep that in mind, and we have prepared ourselves for that eventuality. Amit Khetan: Got it. So, we have the bandwidth for that? Rahul Sheth:: Yes, of course. Amit Khetan: Yes, yes. Okay, perfect. Thank you. Rahul Sheth:: All right. Thank you. Moderator: Next question is from the line of Rajakumar Vaidyanathan from RK Invest. Please go ahead. Rajakumar Vaidyanathan: Yes, good evening. Thanks for the opportunity. So, my question is to Shiv. On the FX line item, sorry for a long question, so I see that the FX line item is appearing under three line items in P&L. There is an Item E and F and then there is also one on the other comprehensive income line where you are showing a gain of Rs.54 crores to be reclassified to P&L at a later stage. So, I would like to know what are the major buckets sitting in each of these categories? Because first one you said you are repricing the loan, but that will not show up on the asset side because of the gap reasons, so the asset repricing is sitting off balance sheet, so you will only show the loss in P&L, that part I understood. So, Rs.59 crores that you are showing is that that is what you are referring to the loss? G Shivakumar: You are referring to standalone results, right? Rajakumar Vaidyanathan: No, I am looking at the consol. G Shivakumar: There are three. First is 4E. That is change in fair value or settlement of derivative contracts. That is a loss in this case, the derivative which converts our rupee debt to dollar debt because the rupee has depreciated has now gone, is now worse, the MTM is worse. Okay? The second one, which is ‘F’ is the revaluation of our cash balances. Our dollar cash balances are significant. So, those are the two items. Rajakumar Vaidyanathan: The third one? I am looking at 8C, items that will be reclassified to P&L.

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Yes, this is, I think referring to our investment in the overseas subsidiaries, where that investment has get revalued, because you have invested in dollars, right, you have capital in certain dollars and that has got revalued. Rajakumar Vaidyanathan: But this has got nothing to do with your cash flow hedges. This is not, I thought the MTM. G Shivakumar: No. That is nothing to do with the cash flow hedges, because that gets classified to P&L immediately. Rajakumar Vaidyanathan: Okay. But how about the future hedges, I mean, the one, the contracts that you are not fulfilling, for which you are taking a forward? G Shivakumar: When you are talking about cash flow hedges, you are talking about general dollar sales? Rajakumar Vaidyanathan: Based on your future, you could have sold your – G Shivakumar: No, no, no, that is not there at all. So, we do very little of dollar sales forward. Rajakumar Vaidyanathan: Okay, okay. Shiv, sorry to labor on the same point. The reason for this question is in one of the, I think, previous calls when we saw the rupee depreciation, you mentioned that do not expect to see a positive impact on the P&L because of the loan repricing. So, net-net, we will be losing on the P&L, but factually we will be gaining, but from a P&L standpoint, we will be losing. That is what you mentioned in one of the calls. G Shivakumar: No, that is absolutely correct. The reason why depreciation is a positive for a P&L currently is because we have more dollar current assets, which is mainly cash than dollar liabilities, which is the loans. So, we have $180 million of loans and close to $400 million of cash. And that is why on a net basis, we are benefiting on $200 million. That is not a normal situation. Under the normal circumstances, we would have $700 or $800 million of debt. And this would have been the case four years ago, you would have had $700 million of dollar debt, and maybe $300 million or $200 million of cash, which meant that if there was a depreciation, you would have had a negative impact on the P&L, which is also the comment that when we explained the normalized. Rajakumar Vaidyanathan: Okay, got it. So, whatever the statement you mentioned earlier, it holds good, just subject to the cash holdings. G Shivakumar: That is correct. Rajakumar Vaidyanathan: Got it, Shiv. Thanks for the clarification. So, the second question is, there has been an uptick on the VLCC, crude carriers of late. So, I just want to give any color, is there a talk about floating storage

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back in Vogue, and is that what is driving the prices, and what is the current scenario, and also any color on the future as well? Rahul Sheth: So, right now, the economics are not floating storage. You need to have a steep contango especially at these VLCC rates. When markets go up, you can put some reasons, of course, the extent to which it has rallied. Whenever market goes up, you cannot pinpoint A, B, C reason and say exactly this is why the market should be exactly at this level. Of course, it currently seems to be at a very strong level. But we did see that there were a lot of sanctions to Russian refineries and oil producers, and there has been a bit of a scramble for cargoes. And as Shiv mentioned it earlier in the presentation, when you go for these Atlantic basin crudes, places like Brazil, Guyana, or even from the Middle East, because the Middle East has unwound some of their OPEC cuts, which they had. So, the extra crude that countries like China and India would need to replace the Russian barrels would come from these nations. And in these nations, generally, they pick them up on VLCCs, while main Russian exports have been on Aframax and Suezmax. So, there has been a bit of a switch. Of course, the scramble for cargoes, along with extra sanctioning to not only the Russian crude producers, but also there have been additional sanctions on a bunch of vessels that have carried Russian cargoes, which has reduced some of the supply from the market, led to people wanting more, needing ships from the international trading fleet, and so we saw a rebound in the rate, along with the fact that China has also been stocking up and that also added to the demand for ships. Rajakumar Vaidyanathan: So, how much of that benefit has come to us, because I think we do not own any VLCCs, right? Rahul Sheth:: No, we do not. But we own the Suezmaxs and Aframaxs and they have also strengthened. Of course, the VLCC saw a big jump. We do not have that. But all our crude tankers are in the spot market. So, to the extent that Suezmaxs and Aframaxs are strengthened, we get all the benefits. Rajakumar Vaidyanathan: Okay. And do you expect this benefit to last for at least a couple of quarters, if not more? Rahul Sheth:: We do not make a forecast on the rates because genuinely, you do not know which factors will come to either pull up the market or pull down the market, so we will refrain from that. Rajakumar Vaidyanathan: Oh, okay. Yes. The last question is on the rig part. So, in the previous call, you mentioned that there will be a lumpy expenditure whenever the rigs go for a contract. So, I just want to know, have you taken any hit in this quarter or the hit will come in the coming quarter, because you mentioned a couple of your rigs are going to go for work in the Q3? Rahul Sheth:: It will mainly come in the coming two quarters. Rajakumar Vaidyanathan: Okay. So, there will be a hit in the bottom line or the bottom line will be taken care of?

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The Great Eastern Shipping Company Limited

China is producing a variety of goods that are sold to America, Europe and other kind of countries, there is a consumption of steel and therefore consumption of iron ore. All of the steel production in China has been down this year, even in the last couple of years by a few percentage points each year. However, the iron ore production in China sometimes remains weak, mainly because the iron content in that iron ore is on the lower side. Because iron ore prices today are roughly on the lower side, sometimes steel mills find it more economical to import higher iron content from countries like Australia and Brazil instead of using domestic ore. And then it is on the margin of whether they import a little bit more or import a little bit less. And that is kind of at least somewhat holding up the iron ore imports. Coal has been on the weaker side. We are seeing power generation increase in both India and Europe, at maybe just or 2-3%, and renewable energy growth has been strong, hydropower production has been decent. And because of that, coal imports have been a bit weak. But we are seeing minor bulks, mainly driven by bauxite, fertilizer, other agricultural products holding up very well. And that is why we are seeing the strength in this dry bulk market, despite the main two commodities actually being on the weaker side. I hope that answered your question. Moderator: Let us take one live question and then we will go on. We have a question from Harsh C, an individual investor. Please go ahead. Harsh C: Shiv, I am just looking at the standalone cash flow statement and there is some Rs.425 crores of loan to subsidiaries. So, I believe this is to GIL, correct? G Shivakumar: That is correct. Harsh C: And this is the sum total of all the payment, like all the debt has been retired from GIL or - G Shivakumar: That is correct. So, there is no other debt now in the group apart from the Great Eastern debt itself, apart from RM. Harsh C: Understood. And I am just looking at the financing activity as well, I mean, just comparing from the last H1, there was some Rs.282 crores of dividend and this year it has come down to almost Rs.180, so, any reason for that given that we are better off compared to last year from a cash availability point of view, the reason for this reduction in dividends? Rahul Sheth: This might be that we did something as a final instead of an interim. So, there was just a timing difference because last year we made a total of Rs.424 crores. It cannot be all, but we will just see this. Harsh C: Okay, but like as a principle, ideally it should match or in fact improve, right? G Shivakumar: No, the profits are not higher than in the previous year. H1 was lower than the previous year.

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The Great Eastern Shipping Company Limited

The Great Eastern Shipping Company Limited

The Great Eastern Shipping Company Limited