Margins dipped due to rise in tanker rates: Varun Shipping

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jul 2009

Varun Shipping announced its first quarter numbers for the financial year 2010. Its net profit declined to Rs 1.8 crore from Rs 21 crore and its net sales stood at Rs 176 crore. Commenting on the company’s performance in the quarter, Yudhishthir Khatau, Vice-Chairman and Managing Director, Varun Shipping, said the operating profit margins dipped due to rise in tanker rates, which currently stood close to the USD 17,000-18,000 per day mark compared to USD 16,000 per day mark in the first quarter. “The tanker markets continued to be challenging.” He said the company saw recovery in the offshore industry. “We see better prospects in offshore.”
Here is a verbatim transcript of the exclusive interview with Yudhishthir Khatau on CNBC-TV18. Also watch the accompanying video.
Q: Walk us through just what exactly has happened on the margin front this quarter?
A: The shipping industry has been going through difficult times because of global trade. Global trade has been affected especially on certain sectors of the industry. Fortunately, Varun is predominately on the energy side where the impacts have been a little less than in other sectors of the shipping industry. But the worst hit has been the crude tankers. Our crude tanker rates which average about USD 45,000-50,000 per day in the last quarter were unfortunately down to as low as USD 15,000 per day in this particular quarter, which is a drop of around 70%. Varun has three crude tankers, so it affected the tanker side of the business but we see better prospects on the offshore side where Varun has really been consolidating its position and is now one of the leading players in the Asian markets especially in the deep water sector.
Q: What exactly happened with your operating profit margins this time around?
A: Operating profit margins were lower like I mentioned because of the decline in the tanker rates and we see a total drop in profit from last year’s numbers which were approximately Rs 20 crore to about Rs 10 crore in this year. While costs remain the same revenues were more the contributing factor.
Q: Are you seeing any recovery in prices or rates now in line with what's happened with crude prices itself? Where are rates trading at right now?
A: I am seeing a recovery in one sector which is the offshore sector because what happened was that in the offshore industry exploration was driven by the price of crude oil which went from as high as USD 154 per barrel to as low as USD 30 per barrel. When it went to USD 30 per barrel, there was an acute slowdown in the exploration efforts and freight rates on the offshore sector also took a decline. With crude prices stabilising at about USD 65 per barrel to USD 70 per barrel and that seems to be the consensus range as to where crude should hold. We are seeing a slight improvement in the rates and the utilisation of the offshore industry. Tanker markets however still continue to prove very challenging.
Q: And where are current crude tanker rates trading at?
A: On the Aframax sector where Varun is involved at the moment, rates are closer to the USD 17,000-18,000 per day mark compared to USD 16,000 per day mark which we had for the first quarter. So, there has not been much improvement in that sector. However, there has been a visible improvement seen on the offshore side.

Source: Money Control