Great Eastern Shipping Company Ltd (GESHIP) Q4 FY22 Earnings Concall Transcript

Great Eastern Shipping Company Ltd (NSE: GESHIP) Q4 FY22 Earnings Concall dated May. 06, 2022

Corporate Participants:

Shivakumar— Chief Finance Officer and Executive Director

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Anjali Kumar — Head of Corporate Communications

Analysts:

Himanshu Pathak — Oaktree Capital — Analyst

Archan Pathak — Centra Advisors — Analyst

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Faisal Hawa — HG Hawa & Company — Analyst

Samad Singh — Samad Singh — Analyst

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Amit Kadam — Laburnum Capital — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. Thank you for standing by. Welcome to GE Shipping earnings call on declaration of its financial results for the quarter and year ended March 31, 2022. [Operator Instructions] I now hand the conference over to Mr. G. Shivakumar, CFO at the Great Eastern Shipping Company Limited to start the proceedings. Thank you, and over to you, sir.

Shivakumar— Chief Finance Officer and Executive Director

Thank you, Aman. Good afternoon, everyone, and welcome to the results conference call for Great Eastern Shipping. Thank you for being here. Let me first take you through the highlights of the results. We also have Mr. Bharat, our Managing Director and Deputy Chairman with us and we will be happy to take questions after the presentation. So let’s first come through the presentation. So standard disclaimers. Market is volatile, and we don’t know how it’s going to pan out. We can give you some views on how the fundamentals are stacking up, but we don’t really know how market can pan out. First, let’s look at the P&L, and we are looking at the reported financial highlights. We had declared earlier an interim dividend of INR4.5 per share. We have now declared — the Board has now declared another interim dividend of INR5.40 per share, taking the total dividend declared to INR9.90 per share for FY ’22.

On a reported basis, and again, these are the reported numbers. Those who have been attended these calls in the past know that we also discussed something called normalized numbers, which we believe give a better picture of how the business is doing. So we have a drop in consolidated profit from INR919 crores to INR630 crores. The normalized drop is not as much, but we’ll come to that in a bit. And on a stand-alone basis, we have dropped from INR1,050 crores to INR812 crores PAT. But the important thing to focus on always in our business, and the one special characteristic of our business is that it produces very strong cash flows. So let’s look at what has happened with the cash flows during the year, and how we’ve used — and we tried to put together a short, simple explanation for what we’ve done with the cash flow to give you an idea of how much cash is generated. So we’re looking at about $140 million of cash generated in the business, of which just under $50 million, and I’ve looked at all the numbers in dollars because our business is basically in dollars. So about $50 million in net capex.

This is ships that we bought, dry docks that we did and equipment that we fitted onto our ships, retrofitted, minus the sale proceeds from the ships that we sold during the year. That’s $48 million of new investment in new capacity effectively. We have reduced our debt by $62 million, the gross tax during the year, again, freeing up borrowing capacity for the future. We’ve also done two returns to shareholders, one in the form of dividends. This includes the final dividend of FY ’21 and the first interim of FY ’22, which were paid out during FY ’22. That’s $26 million, about just under INR100 crores. And last, we — up to 31st March, we had spent about INR163 crores, equivalent to about $22 million on the buyback. This is including the buyback tax that we paid. After all this, we drew down cash to the extent of between $10 million and $15 million. This is a — as I have clarified, these are stand-alone cash flows. We have drawn down our stand-alone cash balances by between $10 million and $15 million during the year. After having accomplished all this, which you can see that this is about $150 million of uses of cash. Coming to the normalized results. This is an explanation for the normalized results.

Basically, we are stripping out the impact of foreign currency revaluation on loans and current assets and liabilities, which are point-to-point impacts. We have also taken out the impact of the derivative gains or losses. These derivatives are on our borrowings, which are in rupees and have been swapped into dollars and effectively should be treated as dollar loans. So on a normalized basis, the difference in performance between last year and this year is not as stock. So you’ll see in the stand-alone results have dropped from INR840 to INR787 crores to INR77 crores, so a drop of only about INR55 crores. And even on a consolidated basis, the drop is only about INR80 crores between last year and this year, FY ’21 and FY ’22. Now what drove these results? So — okay, sorry, the net asset value, and this has been a big impact. In March ’21, the NAV per share was INR489 on a stand-alone basis. This has gone up very significantly during the year to INR618 per share. And we’ll come to the — how it’s grown later on in the presentation.

On a consolidated basis also, it has gone up. There’s not much impact on the offshore business — in the offshore side of things on the NAV. So it has gone up similar to what has gone up on the stand-alone NAV movement. Looking at the performance, the business performance during the year. You can see that crude tankers and product tankers had a terrible year, probably the worst year in three decades, and therefore, earnings, you can see the crude tankers are — our crude tankers, on average, earned about $13,000 per day less than in the previous year, about 50 — that’s a 50% drop in the rates. And product tankers had a 1/3 drop in the rates. LPG carriers, which tend to be on time charters — our LPG carriers tend to be on time charter. In any case, the market was sort of similar to where it was in the previous year. So not much change. Dry bulk has been the highlight for this year. $10,900 on average has gone to $26,900 This, despite crude and product carriers forming 60% of our fleet and dry bulk forming only about 30% of our fleet, this outperformance by dry bulk has canceled out the underperformance by the product and crude tankers.

And that’s why we have produced almost a similar result to the previous year. This, again, sort of underlies the logic in our being in these different sectors because they are able to smooth out the earnings cycles, while also offering opportunities for investment at different points in that cycle. Just looking at what happened in Q4 versus Q3. Crude tankers picked up a little bit towards the end of Q4 after the Russia, Ukraine conflict started in end of February. So we had slightly stronger earnings. Product tankers were more or less the same as they were in Q3, maybe marginally lower. LPG, of course, around time charter. And dry bulk was significantly lower than it was in Q3. Of course, the first quarter of the calendar year, or Q4 of the financial year is traditionally a very weak period for the dry bulk market. So this is sort of expected. I mentioned the change in the net asset value, the stand-alone net asset value. Now let’s see what went into it. So you started at 489 in March ’21. The cash profit, which is PAT depreciation, and these are rough numbers that I’m talking about. The PAT plus depreciation is about INR85 per share.

So that’s built up because that is cash in the bank when we — the depreciating actual cash flows. The fleet value has gone up during the year. So by about $100 million, which when you divide by a number of shares, etc., works out of about INR52 per share. Then you have a dividend payout. So we paid out INR13.5 as dividend between the final dividend of FY ’21 and the first interim of FY ’22. So that’s a negative to the net asset value because it’s gone out from cash balance. And the buyback has contributed about INR six per share to the net asset value. Basically, this is — we bought back about 42 lakh shares at a discount to the net asset value, which adds value to the remaining shareholders by improving their net asset value because we bought back almost 3% of the equity at a significant discount. And that’s how we’ve reached this NAV of 680 in March 22. I want to highlight here that a very significant portion of this increase is that INR85, which is cash profit, which is actual cash accrual, which has happened from the business. Just as an update on the buyback. As I mentioned, we — up to date, we’ve bought back just under 42 lakh shares at an average price of INR316.21.

We utilize about INR133 crores in this, which is just under 3% of the equity. We had to pay tax on this buyback, which is about INR30 crores. And so the remaining amount, which is — we had allocated and taken a Board approval for a total buyback of INR225 crores, of which we have spent only INR132.79, so we have a remaining amount of INR92.21 crores of buyback approvals. And — of which we have two months more. Our buyback opened on 7th of January 2022. So we have up to July, early July, in which we have to execute the buyback. The maximum price, just in case you need reminding, was INR333 per share. Coming to fleet supply. We have — and we reiterate this. We are at one of the lowest order book-to-fleet ratios. It’s at 6.6% for dry bulk, 5% in product tankers. These are historically low order book numbers. And we have mentioned several times in the past, this gives us hope for the future because the supply — potential supply is limited.

Again, the order books are full all the way — up probably up to ’24. You may get one slot here and there in ’24 itself, but even that would be very rare, and it would be very expensive. So it’s unlikely that this is going to significantly change for the next 2, 2.5 years. Asset prices have been high. And so they were already up for tankers, which are the top two graphs. And in recent times, they’ve gone up a little bit more, and so significantly above the level at which — a lot of these assets are significantly above the levels that which we are — which is our comfort level for purchase. But let’s see if we get opportunities. Dry bulk, again, because of the market being very strong, the prices have gone up 40%, 50% in the last year, 1.5 years. While LPG continued to be strong, they hit the bottom about 3, 3.5 years ago and continue to be pretty strong. Scrapping has been low because of what markets have been doing. Crude tankers and product tankers have seen some scrapping, but still not much. For the whole quarter, it’s only less than 0.5% of scrapping. This is, again, possibly because of optimism. Though scrap prices have been very high and, again, getting historically high levels. Dry bulk has been very little — and which is understandable because rates are so firm that there is no real incentive to scrap the ship.

You might as well run the ship. If you had to spend money to do a drydock and extend the life, you can do it because the rates justify it. Coming to the oilfield services business. This is again the same chart that we look at. There’s a large proportion of the fleet, which is very old. There are lots of cold stacked rigs, which may not come back. So 50 rigs have been cold stacked for more than three years. And these rigs will find it difficult to come back without spending a lot of money to reactivate them. Similarly, for offshore supply vessels as well. We have quite a few, which have been cold stacked for significant amounts of time. One thing which is happening is that there has been a gradual improvement in utilization. We are now getting close to the 70% utilization level, which is the highest we have been for a significant period of time. Just before COVID struck, we were at these numbers — almost at these numbers, and then it went down significantly again. But now we have crossed those levels. There is a little bit of excitement and activity in the market. We haven’t seen significant price changes in recent tenders.

However, there is certainly more activity from the oil companies, especially in the Middle East, for taking in more rigs on contract. They seem to be increasing their level of activities. So these are new requirements which are coming in. From our point of view, that’s Great Shipping point of view. The next rig pricing is in H1 of FY ’24. So that’s this time next year where comes off contract. We have a rig, which has come off contract now — which will be coming off contract anytime in the next couple of months. She has already got our next contract for three months after this one. So the next pricing actually, we have to worry about in rigs is 12 months from now, which hopefully should get done by the end of this calendar year. In vessels, we have four vessels, which are to be repriced in H1 FY ’23, that is the four September, and two vessels in the second half of FY ’20. In recent times, and people who have been following us for some time will know that when the crisis hit and utilizations went down in international markets, we used to operate about 25%, 30% our fleet internationally. This is a vessel fleet. We brought most of them back into India because we were getting contracts in India.

This was one market which was — while the rates were not very lucrative, at least we were getting utilization. So we brought most of our vessels back into India. Recently, we took one vessel out into the West African market because markets — international markets are beginning to look up, pricing is beginning to look up. And we might look at taking out one or two other vessels as well. One thing we do see is that the level of activity and inquiries for especially the larger, more specialized vessels, is quite strong. Just a couple of slides on — these are standard slides showing, how we went up the leverage curve between 2016 and — FY ’16 and FY ’19. And how we’ve come back down. Again, this gives us a lot of headroom for expansion, and we’ll have to see whether we get those opportunities for expansion. This is what has happened to our consolidated net asset value over the years. So we were at about INR450 per share. In FY ’16 and ’17, actually, the INR450 was sort of a holding number because we were not able to get valuations for our offshore assets because the market was really broken. So we have — so the consolidated NAV has gone up from INR400 per share over the last four years.

So this is from March ’18 to March ’22. It’s gone up to INR679 per share. Just to reiterate before we close the presentation, we are disciplined buyers. We look to buy only where we can see value. We don’t see a value in growth for growth sake. We are careful with our investments, and we are — we’d like to ensure that we — any capex that we do results in a good return, which is. We will also have low balance sheet leverage, which will enable us to run a large proportion of our fleet on the spot market, and do time charters only on an opportunistic basis. We have back-tested these. We are aware that having a strategy of being very disciplined in our price levels could result in large cash holdings for significant periods of time. However, we have back tested this. We have back tested both the purchase model that we follow and spot versus time model that we follow over the past 10, 15 years and found that this is the model that gives best results, and that is what we will be. So we found that even holding cash, the cash drag over 2, three years from holding excess of cash is usually compensated by the drop in the value of the assets and the ability to buy the ships cheaper. So with that, I come to the end of the presentation, and we are happy to take questions from you.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Himanshu Pathak from Oaktree Capital.

Himanshu Pathak — Oaktree Capital — Analyst

Hello. Am i audible?

Shivakumar— Chief Finance Officer and Executive Director

Yes.

Himanshu Pathak — Oaktree Capital — Analyst

So my first question was on offshore, okay. In last few years, we have seen a number of consolidation deals, okay, Noble and merge Tidewater and gulf market, [Indecipherable], etc. What impact and opportunities do you see of it in the next few years? In last call, we had stated previously answer you stated that — we want to look at some stability in that market and improvement in offshore business before doing anything on that segment. So what is your current leading? And how are you looking at the market for opportunities?

Shivakumar— Chief Finance Officer and Executive Director

Yes. I don’t know about the merger. Hopefully, the mergers will help to improve pricing as you get less players. Again — but even if these are leading to improvements in international pricing, what happens in our market may sometime. We may sometimes not follow the international pricing. We hope it will. But in any case, the market seems to be — at least the slack seems to be getting taken up. And we’ve been hearing of Saudi Aramco and ADNOC looking for rigs, several rigs and reports are of maybe 20 to 30 rigs additional requirement, which hopefully will reduce the oversupply of rigs in the market.

Himanshu Pathak — Oaktree Capital — Analyst

And one thing, we are reading that the price of offshore vessels and rigs is increasing with the rates also steadily improving. Any rough estimate, what would have been the increase in ask price for a jackup break, which is 10 years old from the bottom in what we are owning?

Shivakumar— Chief Finance Officer and Executive Director

We’ve seen — okay, one thing which has happened is that we’ve seen several transactions in the last couple of months. And again, these transactions have typically been tailored towards putting them on contract in the Middle East. The problem is that the price points are at least 30% to 40% different and pricing within the same week, okay? So it’s very tough to put an estimate of how much the pricing has gone up because it depends on the individual — sort of individual circumstances. So we had pricing at below $40 million for a rig, we’ve had pricing at $70 million for a rig as well. The only thing that we can say with certainty is that there is much more volume of transactions, there is much more buying interest than we have seen for quite some time.

Himanshu Pathak — Oaktree Capital — Analyst

And one thing, should you have very clearly stated after Q4, what happened, okay? But after March, there has been a lot of volatility in the rates, okay? And what we are seeing is smaller vessels has started doing much better, whether it is on crude side or product and even dry bulk. Do you think these smaller vessels doing better will continue for this year? Or you think it will start getting reflected for larger ships [Indecipherable] so, let’s say, Capesize on the dry bulk and VLCCs on the offshore tankers you and again the — so some thoughts on that?

Shivakumar— Chief Finance Officer and Executive Director

Yes, one minute. Let me check if Mr. Bharat Sheth has I’m on the call because you would be…

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes

Shivakumar— Chief Finance Officer and Executive Director

Yes, sir. Could you answer that you’re asking about how do we see the performance of the smaller ships, the outperformance of the smaller ships in both dry bulk and tankers. And whether we see that continuing going forward?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Clearly, we don’t know whether it will continue or not. But clearly, today is an outperformance across the asset classes. So let’s take crude oil first. You have. On the nominal supply side, the Afras have seen the least supply growth as compared to the VLs and as compared to the Suezmax tankers. That’s number one. Number two, if you see some of the dislocation that has happened with the Russian oil being supplied into Europe, that’s much more of a Afra trade. The VL trade is predominantly a trade emanating from the Middle East and West Africa, and that’s not got impacted.

So we have seen these spikes in the Afras, which we think, give and take, should remain relatively strong. Suezmaxs had — soon as the war began, there was a lot of immediate disruptions. The Suezmax has benefited a lot in the first 15 to 30 days. It’s now come off a bit, but it can spike again easily and quickly. The VLs haven’t really benefited yet from any of this disruption. But I can’t see a situation on a sustained basis where you can have one or two of the sub-asset classes doing well and one particular asset class not doing well. So on a sustained basis, eventually, there will be some level of catch-up. Either all the three sectors will average better than last year or not. Our guess is that it will almost certainly average better than last.

Himanshu Pathak — Oaktree Capital — Analyst

And even on the dry bulk side or the situation [Indecipherable].

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

As you know, China has reduced its import of iron ore, which is — which, initially, for the first quarter, if you take the Jan-Feb-March data, China imported less iron ore and a little bit less of coal that tended to impact the Capes. The [Indecipherable] has predominantly gained from the grain trade, which has been very robust. You’ve seen what has happened to food prices globally. And the smaller ships the Supramaxes, the Handymaxes, the Handysize, they all benefit from a multitude of what we call minor bulks. Although the sum total of all these minor bulks now exceeds one billion tonnes of cargo per annum. And that we have seen has benefited a lot more export from Indonesia on coal. As you know, coal suddenly became desired commodity for a lot of people. And recently, we have seen the Capes do a quick catch up because suddenly — and a lot of you might have read it in the media that India, too, wants to import an extra 15 million to 17 million tonnes of coal. It’s all going to come very quickly. And if it has to come quickly in this volume, really, it has to come in Capes. So we’ve seen the Cape rates also, just from March to now, have gone up 50%, 60%, 70% depending on the day you take.

Himanshu Pathak — Oaktree Capital — Analyst

And one last thing on the asset prices, okay, we have seen the new building prices have increased very dramatically and the crude prices have also increased. So the scrubber-fitted ships, are they getting any advantages? And is it in the asset prices also, are we seeing — there is a significant difference between Eco and non-eco-ship and scrubber fitted, nonscrubber fitted. And if we look at historical facts, okay? Do you think the market is fairly valued, expenses, so let’s say, 15, 20-year track record all the three important categories for us, how are you looking at the market now?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

[Indecipherable] in multiple calls, we never look at the market, right? Because we don’t understand the market. So there’s no point looking at something you don’t understand. We just are price takers. We play the spot market, and we’ve seen that in bad markets, you obviously, like last year, we had a pretty tough tanker market, and you’ve seen where the earnings have been. And now you are benefiting because you have everything spot. So these things all have a way of averaging out. And we will only short trade at elevated price points. Otherwise, we just take each day as it comes.

As far as your question on the scrubber, etc., is concerned, the spreads keep changing by the day. They peaked at about — so the least of the differential was in the second half of 2020, where it dropped to some $30, $40 a tonne. It then widens to $100, then went on to $170, and now it’s just shy of $100. So the spreads also keep changing. I think — so you’ve got now effectively a 3-tier market. You’ve got one market for eco and scrubber. You’ve got one market for eco non-scrubber. You’ve got another market for scrubber non-ECO, and then, of course, you’ve got a market for nothing, nothing, no scrubber, no eco. But eventually, it doesn’t matter because everything is on capital, right? So the capital that you pay for top-tier ship is so much more than you pay for a ship, which is — doesn’t have any of these bells and whistles. And what we focus on is just return on capital.

Operator

That is from the line of Archan Pathak from Centra Advisors.

Himanshu Pathak — Oaktree Capital — Analyst

Good afternoon Sir. Am I audible?

Shivakumar— Chief Finance Officer and Executive Director

Yes

Archan Pathak — Centra Advisors — Analyst

Yes. I have been joining this call since past here, and I hope to see your insights and views are always very interesting and helpful to reason to. So thank you for that. And my first question would be regarding the line item of profit and loss on sale asset, which has been shown in the pain. So has there been any sell-off in the offshore side?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

In the offshore side, we had a vessel which unfortunately, you reelect last year had a dire and came a total loss. So that asset has now been sold and delivered to a scrap buyer. And the vessel is now, as we speak, is at a scrap — at one of the beaches where scrapping takes place in.

Archan Pathak — Centra Advisors — Analyst

Got it, got it. And secondly, our level cost for the issue of dementia normally used to range around INR100 crores to INR200 crores. But for this time, we have increased INR2,000 crores. So any special reason for that?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

What is that can you repeat that question? I can’t — it’s not very audible. Can you repeat that question for me, please?

Shivakumar— Chief Finance Officer and Executive Director

I’ve got that. Yes. His question was the enabling resolution that we do for issue of debentures was usually INR100 crores to INR200 crores. This time, it’s INR1,000 crores. Actually, that’s strong. Our enabling resolution was always you issue in tranches of INR100 crores to INR200 crores.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Correct.

Archan Pathak — Centra Advisors — Analyst

Okay. I might have a — and lastly, I was going through see details, and I noted that many of our tankers are 2003, it was built and very close to picking out the life cycle. So just wanted to get your view over any sort of modernization front. I look at the asset pricing chart and they are quite charts the price that cause discussed even in the last quarter regarding that with the lower freight rates, but the asset prices is hiking. And we talked about how we are — how there are challenges that the tanker owners are waiting for price to hike up and utilize to price and exit the market. So just wanted to get your view over how do you see that now with the rise in the tender freight rates, which happened with the recent war situation? There could be a slight off in the asset prices and whatever the modernization plan or any plan regarding increasing of sweep size?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So asset values, as we’ve already — as the CFO said in one of the graphs you’ve seen asset values continue to go up for the modern assets as well as for the older assets. Now as far as our modernization program goes, we would love to modernize because we recognize that we have older tanker fleet than we would like. We are okay on dry bulk, and I guess we’re okay on gas as well. But on the tanker fleet, we would like to bring that age, the average age of the tanker fleet a few years younger than it currently is. But the price points are very elevated, and we just think that we are better off eventually, maybe not in the short term, but possibly in the medium to long term, just remaining disciplined and only modernizing the fleet — even at the cost of maybe losing some ships, we’ll only modernize when we think the price points are right.

Operator

The next question is from the line of Samraj N Dwarka Share Brokers Private Limited.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

[Indecipherable].

Operator

Mr. Samraj, use the handset.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

[Indecipherable]

Operator

In the meanwhile, while we check some so we’ll move to our next question. That is from the line of Faisal Hawa from HG Hawa & Company.

Faisal Hawa — HG Hawa & Company — Analyst

So what is our total debt of foreign debt as on date?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So basically, as you know, we have — the bulk of our debt has been done through bond issuance. So it starts with the rupee debt and the rupee liability, which then gets converted into dollars. So we swapped the rupees into dollars on the currency, and consequently, get a benefit on the interest rate. And then we determine whether we are effectively taking that into floating of swap. So I guess, if your question is, what is our total debt? Our net debt is just over INR700 crores. We are sitting on cash of approximately INR3,000 crores. So I guess our gross debt is about INR3,700 crore and INR3,800 crores. Shiv, would that be right?

Shivakumar— Chief Finance Officer and Executive Director

[Indecipherable]

Faisal Hawa — HG Hawa & Company — Analyst

Cash debt is only INR700 crores?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No, that’s net debt — so that’s debt minus cash is about INR800 crores. Yes, it’s about a little over $100 million, $108 million.

Faisal Hawa — HG Hawa & Company — Analyst

So $108 million around — around INR2,400 crores is what.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Just hold on for a moment What INR200 crores? We had about $100 million. Yes, that’s a little over INR800 crores.

Faisal Hawa — HG Hawa & Company — Analyst

Net debt is INR800 crores, and total debt is cash would be INR3,800 crores?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

That is correct, yes.

Faisal Hawa — HG Hawa & Company — Analyst

Okay. So my question now is to Mr. [Indecipherable]. I mean just.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

I don’t know [Indecipherable] is on the line.

Faisal Hawa — HG Hawa & Company — Analyst

Okay. So nothing — we used to be a company, not many — at least two or three decades ago, and almost a bell weather on the stock market. We have survived the last 2, three decades, I mean if you were to say only three factors which have changed over the last three decades, which have resulted in kind of a underperformance of the company, what would be those three factors which have changed over the last three decades on the industry as well as our company?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So I don’t know exactly what the question is. But from the company perspective, I have no idea of. I don’t follow it. I don’t understand it. As far as the.

Faisal Hawa — HG Hawa & Company — Analyst

This has nothing to do with the. What I’m saying is that we used to be a bell-weather company around three to 3, 3.5 decades ago. And what within the industry and within the company has changed that now we are way beyond the mainstream companies of India?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Well, I don’t know who.

Faisal Hawa — HG Hawa & Company — Analyst

[Indecipherable]

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

I don’t understand valuation, I not admit because you see the flavors change. And we went through a phase very recently where the greater the cash burn and the greater the losses, the better the valuation you’ve gotten. And so the only thing we can do is to apologize to you for not producing a cash burn and for producing a profit as opposed to producing losses because that’s the thing that seems to get panty of people. Having said that, let me refer to the company itself. I think where the big change has comment, we were not very good at capital allocation, I guess, about 10, 15 years ago. We significantly improved on it. And if you see — if you just break up the last 10 years into two lots of five years, our average return from ’12 to ’17, which was 7% to 8% has now improved — Shiv, correct me if I’m wrong, but to somewhere around 12% to 15% from 17 to 22. So the company has, I believe, gotten much better on capital allocation, which I think will stand us in good stead for time to come. And — that’s the big one change. values, as I said, I don’t understand, because the return the greater the price to a.

Faisal Hawa — HG Hawa & Company — Analyst

In the latter part of the answer, I got the answer to my question. So basically, you mean to say that for a better part of the last three decades, we were not good capital allocators. Now that is not constantly changing.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. That’s what I believe.

Faisal Hawa — HG Hawa & Company — Analyst

And what is — what would be our ROCE and ROE at the end of FY ’22?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So I think it was a little ahead at 12% on reported numbers. And I guess on invested capital, so if you just strip out cash, which we keep for investment opportunities, I think we’ll be closer to the high teens, maybe 19% to 20% on invested capital.

Faisal Hawa — HG Hawa & Company — Analyst

And sir, once you feel that this capacity utilization of 70% in the industry moves up to, say, 80%, 82%, you feel a lot of pricing power to come into the hands of the shipping companies? And what is the sense of other shipping.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Hang on, you’re getting confused. So the 70% utilization is not in shipping. We — the slide that the CFO showed to you was the capacity utilization in the drilling business. And in the drilling business, which is now at around the 70%. I think as it crosses the 80% and moves closer to the 85%, the pricing power significantly changes from customer to service providers.

Faisal Hawa — HG Hawa & Company — Analyst

Okay. And that time may be quite near?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Well, that time will tell.

Faisal Hawa — HG Hawa & Company — Analyst

Yes. And sir, do you feel that this entire deglobalization, which is now happening, could have a very, big effect on shipping rates or shipping companies because, all the time, we may be looking at some shortages in some country or the other, and the spot rates would always be higher.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So we have seen that — eventually, this deglobalization, whether it’s going to work, not work, etc., it’s too premature to say. Eventually, people will keep producing from countries, which tend to have a lower cost base, be it in terms of capital or taxation or whatever it is, and there will be different sources of demand. That’s as far as the consumer is concerned. Now when you look at other commodities like, let’s say, a natural resource, right? I might suddenly say that I want instead of India importing 100-plus million barrels of oil, we should have around 100-plus million barrels of oil and stop importing. That’s not going to happen overnight, right? So on natural resources, the challenge so much more than on the consuming side of the transportation business.

Operator

The next question is from the line of Samraj N from Dwarka Share Brokers Private Limited.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Thank you Mr. Bharat and Mr. Shivakumar. If you could just take me on the spot current spot rates from the right up till the this, I’ll be really happy to be needed for?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

But I’ll tell you, I mean, I’m happy to give it to you by the piece of advice, in shipping, there is nothing like current because it.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Because we have the FFM are quite aware of it is.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So the best is to be guided by FFA. And FFA changes daily. So just to give you an example the FFA between last week and this week has gone up.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Could you speak Could you speak a little louder, sir?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. my volume is on maximum. Can you hear me now?

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Yes, I can tell you very clearly can you very clear.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. Now FSA is also — you should recognize change, as you know, every day, right? And the liquidity in the tanker space in the FSA is not as good as the liquidity in the dry bulk space in the FFS. So our dry bulk business, being guided by FFA is some basis on which you can prepare your excel sheet. On the tankers because of the lack of liquidity, it’s a bit more challenging. And this current — the only reason — I’m happy to give you any number you want, but it’s only valid for…

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Just as a guideline. So we want want against as I said.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes, so let me just complete. So as I said earlier, we are now in multiple asset classes because you have vessels which are eco scrubber fitted. You have another category, which is eco-nonscrubber. You have a third category, which is scrubber non-eco, and you have a fourth category, which is non-scrubber non-eco, right? There are four — so the same ship, the same ship, if it’s in the top category, will have on earning. And if it’s in the bottom category, will have a completely different earning, right? So it’s very, very.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

We just take it for ships. So that is non-Econonscrubber.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So the bottom of the pile is non-eco, non-scrubber. On the VLCCs in the spot market today, the earnings are negative $5,000 to $7,000 a day. On the Suezmax, currently, they are positive between $5,000 and $10,000 a day, depending on where you are. On the Aframax, they are somewhere between $15,000 and $30,000 a day, depending on where you are. On the product tankers, the MRs are $20,000 to $30,000, the LR1s are $30,000 to $40,000.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

A little slow I didn’t get it from the MR. Could you take me from the MR onwards, sir?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So on the MRs, again, everything is depending on where you are and what position you are in, so on and so forth. I’m only giving you the bottom category, right? Non-eco. So the MRs have a range. The LR1s yes, they’re called the LR1s, long range. These are roughly 74,000 deadweight deadweight. So it’s like the Panamax for the product business. So they vary between 30 and 40.And the LR2s are varying between 40 and 50.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

40 and 50, okay. So that leaves us just with the Kamsars and Supras if you please?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So the cancer currently are again bearing between, you can say, 20 and 30. And the Supras are in a similar range, 20 to 30.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Okay. So this guideline. So I just wanted to ask you, are we — I understand that you have back-tested your model for capex and all this. But are we being very ultracautious because if you see the recent — of course, these people were in a bit trouble before the rates went up. I’m talking about Scorpio, and they sold off their entire — almost the entire — I think, yes, the entire LR1 to Hafnia. And Hafnia purchased in one stroke. And of course, now they have done a leaseback to manage their balance sheet. But — and I think day before yesterday, Navios has gone in for four products, and that also new builds. That is I’m talking about the product tankers for.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

For LR2s against a long factor. But that is not business model. We don’t like to do 8- and 10-year charter transaction. Our preference.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

[Indecipherable]

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Hello?

Samraj N — Dwarka Share Brokers Private Limited — Analyst

I agree, it is your whole model today as on being more on the spot now.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Spot market and playing the volatility, the best we can. Sometimes it work in your favor and sometimes it works against you. So it’s a very different business model. right? Now on the question [Indecipherable]

Samraj N — Dwarka Share Brokers Private Limited — Analyst

[Indecipherable]

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes, on the question of whether we are being overly conservative, I mean my view is, look, in a rising market one will always feel where we being too conservative? Because when you have a rising market at every price point, you can make money. What we have learned in the past, and it’s a mistake we would not like to be repeated, is that long term, and I repeat the word long term, which means in the life, I mean, and life — who knows what the life of the organization will be, I truly believe that we will be much better served and so will our investors be better served if we are much more disciplined on capital allocation. In the short term, it may be

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Just being the devil’s that locate again, you see if you — I totally agree with you, when you’re talking about the container liner part of the market. because, there, the order book is now closing at almost 33%. And there was really a panic buying over there. So I’ll leave that out. But if you just see the product side of it that I’m talking about the MRs and the LRs, there’s the cost advantage, the yield — the freight yields on the capital investment of the ship works absolutely in our favor right now. So why can’t we consider product tankers? So they’re going by the going by the current logistics because of the — going by the current logistics in the Ukraine, Ukraine, etc., and refineries shutting down and opening up elsewhere. The — at least, on the product side, we can consider purchasing a few that’s would be my humble observation.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No, no, it’s a very valid observation, and I’ll tell you where the trap lies. It’s a death trap. No business I have come across is sustainable these kind of current deals, right? Now what is the mistake — one of the mistakes we made in the past is because we got tempted with very strong current deals, which were 40%, 50% on capital. It was obviously there a temptation that we should invest in steel, which has a current yield of 40%. Why keep money in the bank when you’re running 1% and 2%, right? That’s basically the logic. Now this was the exact trap that a lot of people fell into when Lehman happened right? Or even when the virus hit the world, right? So at the time of the pandemic, do you think what the product tanks were doing before Russia decided to invade the Ukraine, these product tankers were earning $8,000 and $9,000 a day, right? Now the is when you get tempted when yields are this strong. This is — actually, when yields are at — you should be selling a 40% yield asset, not buying a 40% yield asset. Because you know it’s not sustainable. Which business is going to allow you a 2-year payback on a sustained basis?

Samraj N — Dwarka Share Brokers Private Limited — Analyst

So — even at these — I would say that LR1s at 30 to 40 and 40 to 50 really not that of the mean because we’ve gone to a very low patch. That is why we are working in systems that — they’ve gone on the.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

It is significantly higher than the media.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

So what would be the mean according to your model, sir?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

About 18.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

18. Okay. I see. Okay. Now I I get a point. Yes.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Okay?

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Okay. But sir, just last question, Mr. Even going by some of the models, which are getting simulated from the year and the end of this particular calendar year, right up until 2025, ’26, we are saying the supply and demand of vessels in almost all categories except containers could be very, very favorable for owners. So I was just still wondering whether we should hold — keep up to the 18 mark or raise the mean a little bit say, 25, 30, something like that.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

We can repurchase you can raise it to anything you suggest, but by me raising it is not going to change things, right? We have seen what you need. Yes, a nominal supply clearly helps the market. But also, think of what happened. The nominal supply was as nominal when the COVID hit the world and when demand got destroyed. Now think, today, if you see the Jan to April data, China, which is one of the big players on energy imports, their demand is lower. And if you get another wave or some other thing, we are living in very, very uncertain geopolitical times. So I can raise it to anything I like, but that’s not going to help. So all we are saying is, yes, in a rising market, you will get penalized for being overly conservative, and that’s why we keep our operating fleet in the spot market, you see, so we at least significantly benefit in the spot market. But I know that only — we will be left belling the cat if we bought expensive assets and there was an unforeseen event, which then brought markets down. So we don’t want to fall into that trap again.

Shivakumar— Chief Finance Officer and Executive Director

Yes. Just to clarify, that 18,000 crore is not our number. It is a history. It is not some number that we have put as our cut off or anything. It is the actual history of the market that we are talking about.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes.

Shivakumar— Chief Finance Officer and Executive Director

So we have no role in increasing.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

We have nothing to do with it. But look, I’m saying I don’t know what the market will be on a Monday morning. If I had a ship to fix today, and if I have a shift to fix on Monday morning, I honestly cannot tell you what rate all sick set on Monday. So what is the use of taking any medium? And here, I’ve just taken out the precise number is 17,000 on the LR1.

Operator

The next question is from the line of Samad Singh from TPF Capital.

Samad Singh — Samad Singh — Analyst

I’m audible.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes.

Samad Singh — Samad Singh — Analyst

I just have two questions. My first question was, is there any opportunity to purchase assets from any Russian shipping companies who are looking to sell at a discount or are in distress?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So number one, we would have to look at whether any of the Russian entities we deal with either sanctioned, not sanctioned. If the sanctioned, the answer is no, whatever be the price. And if the entity is not sanctioned, it is something that we could consider. But we’ve got to be very, very careful because we’ve got to go through multiple layers of corporate veil to ensure that the end beneficiary is not sanctioned also. So it’s not an easy exercise.

Samad Singh — Samad Singh — Analyst

Okay. I was referring to, I think there was news of undergoing a massive tanker sale and.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes, we are aware, We are aware

Samad Singh — Samad Singh — Analyst

Yes. So would — is that something that we will be looking at or not?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No. So again, as I said, there are multiple entities involved and we would have to get a sign-off from multiple layers of legal checks and balances before we can answer that question. Because every day is a moving target. And every day, there are new entities is getting sanctioned or not sanctioned.

Samad Singh — Samad Singh — Analyst

Right. Okay. And just a question on capital allocation. I’m just trying to understand this buyback that we are currently going through. Is it fair to say that we will continue to repurchase the shares as long as the discount to NAV continues up to whatever, I guess, until the 75% promoter shareholding. Is that a fair assumption?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No. So we only look at what is the discount to NAV and at what price point is your NAS, okay? Now when we announced the price, which was 333, we believe that the discount to the NAV was excessive. And hence, we announced a price of 333. if you ask me, of course, today we can’t buy because we’ve crossed that discount to NAV, although our NAV has gone up, the share price has gone up, so we can’t buy. I mean the point is the NAV value of the business also changes every quarter, every six months, every year. And we will keep looking at what is the discount to NAV? And ideally, your best allocation is for if the market — if the shipping market is saying steel is worth a dollar, but the paper market, which is represented by investors, is saying that we think the steel is worth $0.50 on the dollar and not $1, why would we want to pay a $1. You have better served buying paper at $0.50, right? or $0.53.

Samad Singh — Samad Singh — Analyst

Right.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So are earlier, people said, why don’t you buy a ship. But if I buy a ship for $1, the investors are saying, it’s not worth $1. It’s worth $0.60. So how can the same investors say by ship?

Samad Singh — Samad Singh — Analyst

Right. No, I agree. I guess my question was one year from now, if the NAV — if the discount on NAV is accessing again, would you institute another buyback?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. So it will depend on — our window will only open a year from now, or a year from two months from now, so 14 months from here. And we will look at what is the need — so we will always — our priority will always be to buy steel, okay? Paper — to buying paper is second priority to buying steel. So let’s say my paper is cheap, my steel is cheap, my preference would be to buy steel. But if my steel is expensive, but my paper remains cheap, and I have surplus capital, then I’ll buy paper.

Operator

The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Can you hear me?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes. Yes, we can.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Yes. So just one question. whatever has happened on the, in that term, if we take the situation prewar, whatever was crude and the refined products export from Russia, if we were to assume that all these products will get redirected to, say, China and India instead of Europe, that is what would be the demand side impact includes the increase in first. Then second, on the supply side, if — so how much is the Russian supply of chip is what I wanted to understand. So I just wanted to say what the demand and supply side impact so that we can make.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

I think all that we can say is that if what Europe is importing currently from Russia is imported for — from areas which are further away, like, for example, the Persian Gulf, or from China, nonpipeline from China, etc., that obviously that supports the market and it adds to ton-mile. The question also is that, that particular product has got to be in surplus. Because if somebody wants product A and that product A is not available in the market, then that demand remains unsatisfied until somebody can supply the product A. So it’s not — it’s something that has to be dynamically looked at and managed, and that’s what we are doing in order to try and play the spot market and determine what we think is to happen today and tomorrow, and do we fix a ship today, do we fix it tomorrow, etc. But it’s — again, these are very, very.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

I was not talking from the bulk up market I’m talking from the energy market for.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

I’m also talking about energy market. I’m talking about the energy market. So I look at petroleum products. I look at crude oil, I look at gas, all the energy-related markets, coal is an energy-related market. Looking at all these commodities, everything will hinge on, where is the surplus capacity from where can it be sourced. And that is never have any media

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

That’s only the one part of the equation in the sense that how Europe is going to alternatively source it. But that will have incremental demand in fact. But what I was asking is another part of the impact of an assumed supply of — to some extent, it will be reduced, but it will be available. And if it gets — due to geopolitical reasons, if it gets diverted to Canaan and India, then what would be the tune that supplies in front of us right now. That will be available.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Sorry, what will be available, you mean the Russian ship?

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Russian supply of crude oil, and whatever.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

So the Russian say crude oil into China, there is the pipeline, which has been laid multiple years ago. So a lot of the import from Russia into China is happening on the pipeline. Of course, there is also a trade from Russia to China on ships. Some of it is carried on Chinese ships. Some of it is carried on Russian ships and some of it’s carried on third-party ships. So that trade, at the moment — but some of that trade is short haul. So if you take there’s a Russian port in the Pacific called and to China is a very short haul trade. So again, it depends, is it the Baltic, is it the Black Sea? Is it Asia Pacific? None of these things are easy to answer. I mean unless one truly, truly get deep into the business, it’s difficult to answer and even more difficult to understand.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Understood.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

But we are only focusing on energy, how to think of the grain market as well because between Russia and I think they were approximately 30% of the grain market. And is that easily — can that easily be sourced from other grain growing areas? I don’t know. These are very, very difficult questions to answer.

Vaibhav Badjatya — Honesty and Integrity Investment — Analyst

Right. Right. Yes, that’s what was it the supply would be there with Russia there’s no Internet — so I think it would be just the redistribution of who is supplying to who rather than Russia supply going off the market completely wasteland that’s why is what I could understand impact from. But I understand. It’s too much ’25.

Operator

Our next question is from the line of Amit Kadam from Laburnum Capital.

Amit Kadam — Laburnum Capital — Analyst

Hi. Good evening. Thank you for the opportunity. Sir, in one of your earlier calls, you — I believe you had indicated that you expect product tankers to lead the recovery. And if you look at what has happened over the last couple of months, there seems to be significant improvement there. So in your opinion, has the cycle finally turned, or is this a short-term phenomenon?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Again, I would hate to really stick my neck out on this because these — again, one thing we must all understand, whether it’s on this call or any subsequent call that these markets are determined by events. And there are certain events that have a bigger impact, there are certain events that have a less bigger impact. Now the longer the disruption that takes place of cargoes moving into Europe and other destinations that either to win from Russia, if there is a lot of disruption there and there is cargo movement, then logically, you should get the strength in the market continuing. Having said that, we are also hearing, right, this word called stackflation. And whether the demand for certain commodities is just going to get reduced because of inflationary pressures that the consumer is feeling or whether the inflationary pressure means there are some places where the demand will reduce. You’re also getting issues like China where lots of cities are in complete lockdown. The demand for oil has come off, and these are important consumers of energy. So there are so many moving parts that are playing simultaneously that it becomes extremely, extremely difficult to say that this is going to be sustained or not sustained a rally. I just don’t know, and I want to be honest about it.

Operator

Our next question is from the line of Samraj N from Dwarka brokers. We will move to our next question that is from the line of Himanshu Pathak from Oaktree Capital.

Himanshu Pathak — Oaktree Capital — Analyst

Yes. I had one question. When you replied that the market has become multi tire to eco, non-eco and scrubber, non-scrubber the combination, how different are the rates between the base, which is non-eco, non-scrubber and eco-non-scrubber and its scrubber ship you are able to get? And again, the asset prices, how different are they even within one class, are the asset prices significantly different? And the rates are so significantly different and are people ready to pay for more less polluting ships more 3% or 4% higher.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No. The market is.

Himanshu Pathak — Oaktree Capital — Analyst

[Indecipherable]

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

See, the rate is the same. What happens is when — suppose I have a vessel that is equal and a colleague of mine has a vessel that is non-eco, on the same rate, my ecoship makes me more money than my colleague’s ship, which is non-eco, right? Having said that, you’ve got to remember that as far as the customer is concerned, he’s paying you in x dollars per tonne, right? So he is not necessarily going to pay you unless now when you convert all that into time charter rates. So first, I’m discussing just simple voyage calculations. Then when you go into time charter, obviously, the customer does the same calculation as you saying, look, if I take in a vessel on time charter and I’ve got an ecoship, this is what I burn in terms of fuel.

And so I don’t mind paying $2,000 a day more. But remember that, that asset is also that much more in capital. right? So at the end of the calculations, there — it is — whether eco scrubber-fitted ship produces a superior return to capital to a vessel that is non-eco, nonscrubber depends on a multitude of factors and not just eco and scrubber. It depends whether — if you are playing ships in the spot market. Now obviously, the better the ship in terms of eco and scrubber, the easier it is to market, especially if you want to fix up for two years or three years or five years. Many owners like to do. But that’s not the game we play. In the spot market, it doesn’t make much of a difference.

Himanshu Pathak — Oaktree Capital — Analyst

Okay. And is the difference similar between single hull and double hull it was like in early 2000s?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No, no. It varies. There’s nothing standard differential because today, say, the scrubber differential, I think I said it to one of the earlier speakers, that differential now is down to $85. It was $100 a few weeks ago. Prior to that, it was — it peaked at $180 in the immediate cycle. In 2020, it was down to only $30. So that is also changing all the time. The eco is a lot more constant, but the scrubber benefit varies depending on the — depending on the differential. And these differentials like any other commodity are changing all the time.

Himanshu Pathak — Oaktree Capital — Analyst

So the prices are also very volatile between the scrubber ship versus.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Asset prices are volatile per se. Now some people will prefer a scrubber ship. Some people may not prefer a scrubber ship. So if you take, for example — I’ll give you a simple example. Take the Indian PSUs, right? They say we will not pay you any premium for the scrubber. So if I have a scrubber ship, and if I put it into an Indian trade, am I going to make any money from the fact that I have a scrubber? Answer is no, I will not.

Operator

We have the next question from the line of Samraj N.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Can you hear me, sir?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Yes

Samraj N — Dwarka Share Brokers Private Limited — Analyst

So Mr. Bharat, I just wanted to ask you whether you or management subscribes to the super cycle model, say, between end of calendar year ’22 right up to say, ’26, ’27 because of the reasons of EEXI and the yard slots not there, no one knowing, which is going to be the new design as far as fuel and propulsion is concerned. So don’t — do you expect a squeeze in those years? And then what probably could be the — just your hypothesis on the freight rates?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

I have said often enough. I have no hypotheses on the freight rate. And I don’t know what will be the impact of EEXI, CII, new types of fuel. I just don’t know. So I don’t want to fabricate something when I don’t know. All we can tell you is that there is going to be a lot of upheaval. There’s going to be a lot of uncertainty. And traditionally, whenever there have been upheaval and there has been uncertainty, it has tended to benefit shipowners.

Samraj N — Dwarka Share Brokers Private Limited — Analyst

Okay. Great. And that would be the ideal condition for you because you will be getting your volatility there?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Well, nothing is ideal or not ideal. We — as I’ve said, I think maybe 5, 6, eight quarters ago, a bad market is good for us as well. A good market is also good for us. So we are positioned where we can benefit from a bad market, hopefully, by getting cheaper assets to expand. We benefit from a good market because we build up more cash because of the operating leverage. We run a very high operating leverage. We are very conservatively leveraged on the balance sheet, we are highly leveraged on revenue.

Operator

Our next question is from the line of Amit Khetan from Laburnum Capital.

Amit Khetan — Laburnum Capital — Analyst

We were operating largely on the spot market on the tanker side. Have we increased our time charter exposure over the last couple of months, or have time charters not moved as much as the spot rate?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

The time charter — so we have increased it marginally. Out of 17 product tankers, for example, we have time chartered out, let’s say, for the next six to nine months, a little over two ships — a little over two ships, right? Out of the 17 that we operate in the spot market. So the answer is — have you time chartered out? Answer is yes, we have at, of course, numbers that were meaningfully higher than the average of last year. Will we time charter out more? It will again vary on what the rates we get. So we are always assessing it. And we would not like to time charter out everything, nor would we — in bad markets, we are happy to run everything spot. But in strong markets, I don’t think we are happy to charter everything out.

Amit Khetan — Laburnum Capital — Analyst

Got it. And lastly, if you could provide some commentary in terms of how has your strategy changed for the different segments as a result of the war? Are you — you would have done some situation or scenario analysis. So any — what’s your sense of how it’s going to impact the industry? And if there has been any change at your end in terms of how you are thinking of the different segments?

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

No, we are not, we are not thinking at all of changing our strategy, which has played out pretty well, let’s say, over the last five to seven years, six years. So if something is playing out well, you might will stick to it.

Operator

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Ms. Anjali Kumar for closing comments. Thank you, and over to you, ma’am.

Anjali Kumar — Head of Corporate Communications

Thank you very much. And this was a rather engaging discussion we have today. So thank you to everybody who participated. And as usual, this — the transcript and the audio link of this call will be up on our website in the next couple of days. And also, please feel free to reach out to our team at any time at July. Thank you so much, everybody.

Bharat Kanaiyalal Sheth — Deputy Chairman and Managing Director

Thank you.

Operator

[Operator Closing Remarks]