The Great Eastern Shipping Company Limited (500620) Earnings Call Transcript & Summary

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 ended June 30, 2020. [Operator Instructions] I now hand the conference over to Mr. G. Shivakumar, Chief Financial Officer at The Great Eastern Shipping Company limited to start the proceedings. Thank you, and over to you, sir.

Thank you very much. Good afternoon, everyone, and welcome to the results call for Q1 Fiscal Year 2021. We also have with us Mr. Bharat Sheth, Deputy Chairman and Managing Director, who will take part in the Q&A later. And he'll probably make a short statement after I finish with the presentation. So let's start with the presentation now. First of all, the -- we'll have some forward-looking statements here. And our market is extremely volatile. It changes within a couple of weeks from boom to bust and bust to boom. So you have to take all our statements in light of that. Coming to the financial results for first quarter of FY 2021, we had an extremely profitable quarter. In fact, the most profitable quarter since the September 2008 quarter, which was just before the start of the global financial crisis. This quarter was, of course, helped by huge turmoil around the pandemic and which resulted in tanker rates spiking to levels not seen before, at least not in the last 20 years. And therefore, very strong earnings on the tankers. So let's go forward. You've seen these reported results. We reported a profit on a stand-alone basis of INR 465 crores for the quarter and INR 468 crores on a consolidated basis. Last year, we reported a loss in the same quarter of the same -- the first quarter of the previous financial year, both on a stand-alone and consolidated basis. In the past, we have spoken about how these results may not necessarily -- are getting affected by a lot of extraneous factors, which we need to strip out to see the real impact of the operational performance. In fact, our Chairman also referred to it in his statement in the annual report. So let's just go forward and look at that. So what we are going to discuss are normalized financial results. And this is what we have done to normalize. You know that we have to revalue our foreign currency loans and the current assets and liabilities as at the end of each quarter. That impact has been remote from the results, whether it's a positive or a negative. The second impact that we've removed is on the NCD currency swaps. We have raised a large amount of funds through issue of nonconvertible debentures, which are issued in rupees in India. However, since we want to have dollar debt to match our dollar assets, we have swapped those liabilities into U.S. dollars by using foreign currency swaps. And therefore, we've created synthetic U.S. dollar fixed rate loans. The mark-to-market change of these derivatives affects the reported numbers. And we think that those are extraneous and should be taken out. Therefore, when we calculate the normalized numbers, it's after making the necessary adjustments to the reported numbers to reflect the effective cost of the synthetic U.S. dollar loans. I realize that this is a little complicated. But we can discuss this separately in case anyone wants to have more detail on this. And I suggest we don't take it up an explanation on this call. So here are our normalized financial highlights. We discussed that we have INR 465 crore reported profit for Q1 FY '21. If we remove the effect of those 2 items, we come down to INR 422 crores for what we call the normalized net profit. Again, this is not a GAAP number. It is not as per any accounting standard. This is what we believe correctly reflects after taking out the impact of the foreign currency movement and the derivatives movement. For the same quarter in the previous year. We moved from having a loss of around INR 50 crores to having a small profit of INR 17 crores on a stand-alone basis, similar on a consolidated basis as well. So now let's go forward to what the ratios look like based on this. But before moving forward, the important thing to see is cash flow. How have the cash flows been? And it's an important thing in our business because accounting standards are what they are. And the truth comes in the cash flows, you'll see that we had very strong cash flows even in the quarter when we declared a loss that is Q1 FY '20, we had a nearly INR 200 crore net cash inflow. In this quarter, we've had a net cash inflow in excess of INR 500 crores. Looking at the ratios, we had, on a stand-alone basis, again, this was a spectacular quarter in terms of the tanker rates, as I said, some of the rates we saw have not been seen before, at least in the last 20 years. And therefore, we had a 30% return on equity. And a 20% return on capital employed. So leaving aside the return ratio, which is just annualizing of the first quarter's profit, what's happened is that we've actually dropped our -- being able to deleverage significantly between last year and this year. You can see that in the net debt-to-equity number, we were at 0.45, and we are down to about 0.24. And we'll discuss this in a little more detail later on in the presentation. The other data point that we look at every quarter is the net asset value per share. So we are at around INR 456 per share net asset value on a stand-alone basis. And on a consolidated basis, we are between INR 494 and INR 536 per share. Again, see, those of you who have been following us for some time know that this range given is because it's not very easy to put a number on the offshore asset values because they are not as liquid as shipping. So we get a range of valuations from the brokers when we take a value. This INR 456 NAV was INR 454 as of March. We had very strong cash flows during the quarter. However -- which added to the NAVS. However, we had a drop in the values of ships between March end and June end of about 7%, which compensated for each other. Of course, we also paid out the second interim dividend of INR 2.7 per share during the quarter. So looking at over the past 1 year, we started at INR 383 crores, we paid out 2 dividends totaling to INR 8, and the NAV improved from INR 383 crores to INR 456 crores, which is about a 20% return on the NAV in the last 1 year. Looking at the performance and the number of days did not change too much. So there's nothing much there. What did change is the e TCYs earned between Q1 FY '21 and Q1 FY '20. You can see that the crude tankers earned on average less than $15,000 a day in Q1 FY '20, and as against that, we earned $40,000 a day in Q1 FY '21. This was even stronger than Q4 FY '20, which is also an extremely strong quarter. So the product tankers earned went from earning $14,500 last year to $18,000 in Q4 to $27,000 on average in Q1 FY '21. And also the LPG carriers. The LPG carriers are mainly on -- predominantly on time charter. There was a very small spot fixture in between. But otherwise, these are all time -- earnings on time charters. Dry bulk, again, predominantly on the spot market, and the markets were quite weak, so we earned an average of $7,200 a day, which was a drop -- 30% plus drop from the numbers of Q1 FY '20, which was close to $11,000 a day. Coming to revenue visibility and coverage, we don't necessarily go out to do a lot of time charter, unless we get good rates. But still, we have managed to lock in about close to 30% of our capacity of the remaining 9 months of the year. This is from 1 July to March 31, on the shipping side. On the offshore front, we have locked in a very large part of our capacity. So we have revenue visibility of almost INR 1,000 crores between the 2 companies, and this is on a TCY basis. Again, the absolute numbers don't necessarily make much of a difference. What we need to see is what is the extent of cover that we have. We are happy to operate predominantly on the spot market. We are happy to go into a largely time chartered regime as well, depending on the rates that we get. The fleet profile, all of you are aware of, we run 46 ships, of which 33 are tankers and 13 are bulk carriers. And we run 23 offshore assets, of which 19 are vessels of different kinds PSVs, ROVSVs, AHTSVs and MPSSVs, and we run 4 jackup rigs. One data point again on the debt repayment schedule. This is something that we plan, and that's why we are putting it in front of you, our intention. And those of you who have seen us for some time know that we had a large repayment campaign FY '20, which was in excess of $150 million. We went through that without any issues. But we are now trying to ensure that we don't face a large repayment amount in any year. And therefore, we plan out our repayments -- our borrowings in such a way that our repayments are not more than $80 million in any year. And this is the repayment schedule over the next 5 years. Our debt currently stands at about $553 million equivalent. And we have an effective all-in U.S. dollar cost of debt of less than 4% on this. And 85% of the debt portfolio is on a fixed rate, has already been fixed. So it's not exposed to floating LIBOR. Coming to what happened in the markets over the last quarter. First, look at -- let's look at the impact of COVID-19, and this is how we have felt the impact. Others may have felt it differently. So apart from the trade, we are only looking at the operational disruptions here? So we have an issue in dry docking because you can't send -- one is the yards were not quite available for the dry docking days. They themselves had for some time closed down, and the manpower is not available to do dry docks. After that recovered, there's a -- there are still travel restrictions and the inability and quarantines and the inability to send supervision from the office for dry docks, and we have tried to get around this by doing remote supervision. There's a problem in crew changes, and this is a global problem because of the travel restrictions and people not wanting outsiders to come in or transit through their countries. It's been a huge problem doing crew changes. After the partial lifting of the lockdown in -- towards the end of May, we have managed to do a few crew changes. We manage about 500 crew moves by the first half of July. And we are making significant progress there, though it's a significantly higher cost than we would have otherwise paid. But we are focused on ensuring that the people get home and they are replaced by fresh crew. Lastly, sale and purchase transactions. Because of all these travel restrictions, it was almost impossible to do any sale and purchase transaction or execute any sale and purchase transaction during the last 3 to 4 months, and therefore, there are no -- there was no real chance of doing any transaction. Coming to the supply side, and this is something that we have dealt with at length over the last few quarters. And let's look at some data. Across the board for the 4 main sectors that we operate in, whether it's crude tankers, product tankers, dry bulk or LPG carriers. We are sitting at -- with very low order books. And you can see those graphs, the crude tanker order book sits at 8%; the product tanker order book is at 6%; the dry bulk order book is at 7%; and LPG at 11%. In this, only LPG is actually higher than -- marginally higher than the lowest point in the last 20 years and still around that only. And this gives a little bit of confidence because the overhang of future supply is not there. And this has been a problem in the past. And if you see the historical average, and you look at what it was in 2008, '09 you can see that the order books for tankers were in excess of 40%. And for dry bulk was actually at 80%, which is unbelievable when you look back now. Going to scrapping. We've seen quite low scrapping, whether it's for -- again, scrapping was not really possible in the lockdown era. But even without that, the scrapping over the last 5 to 6 years has been very low. If you look at crude tankers, we've had only about 10% scrapping for crude tankers, product tankers has seen only about 6% scrapping between 2014 and 2019. Dry bulk has had a little more, but still only 13% scrapping in these years. And what this has led to is a building up of what we call scrapping candidates, and let's look at that now. We've taken an arbitrary cutoff of 15 years, but this is when vessels start to get a little vulnerable to very poor markets. So if you look at the red bars, this is the fleet -- proportion of the fleet, which is more than 20 years old and is the most vulnerable to weak markets where they have difficulty finding employment and therefore, become prime candidates for scrapping. So you have about 4% to 5% of product tankers, crude tankers and dry bulk carriers, all at above 20 years of age, and therefore, forming a potential scrapping pool. Above 15 years, you have almost 20% of the crude tanker fleet, which could potentially face some pressure in the -- if you have weak freight markets. Similarly, for product tankers, though not so much for dry bulk because a big building boom in dry bulk started around 2005 and went all the way up to 2011. So that aging of the fleet will happen a little later for dry bulk. So this may form a little bit of a safety net, where if the markets go down to very low levels, you could have some removal and therefore, bring the market back into a little bit of balance. As we have said in the past, there are only 2 permanent things in the shipping supply: one is new ships which are built; and the other is ships which are scrapped. On both fronts, we seem to have a reasonably good picture with a low order book and a fairly large scrapping pool. The story of the last quarter for tankers was the oil contango, which was widely reported and which caused the floating storage play. And let's look at what that was like. And this is on an inverted curve, which is the 3 months forward price of Brent versus the spot -- versus the front fund price. And you saw the contango peaking in March, April till the agreement was reached with OPEC with -- between OPEC and the other large oil producers. And that contango has come down to near 0 now. And after being at $8 plus for 3 months, it's come back to near 0 now. Therefore, the contango [indiscernible]. And therefore, the economics of the contango have disappeared completely -- of the storage play have disappeared completely, resulting in ships coming out of storage. Again, they have not come back to 0. So you'll see that about on average since middle of last year, and this is probably a function of the IMO 2020 transition. Quite a few crude tankers were dedicated to storage. So more than 2% of the fleet was in storage since mid-2019. And that really took off in March, went up all the way to 10%. And now it's come down to about 7.5%. So still a lot of capacity tied up in floating storage, which could come back and cause a further oversupply of ships in the short term. On the product tankers side, we saw the storage peaking at just under 9%. That's dropped off much quicker and is now standing at about 5%. Coming to the demand side, a couple of graphs just to show how dramatic it's been. And so here you have the crude oil demand change, which happened. And in April, and that's where we had the real impact, right? So we had 12 million barrels per day drop in demand, and this is estimated by industry reports. People give numbers up to 20 million, but let's take it as 12 million for this purpose. This is sort of a consensus. At the same time, we had an increase in supply by 1.2 million barrels a day, which meant that you had a huge surplus building up, which was probably at least 400 million barrels of surplus, which went into storage in the month of April. And that's what caused a huge contango. We had the cut in production, which took effect in May, which saw the crude oil production drop by almost 9 million barrels per day, the supply dropped by about 9 million barrels a day. And further drop in supply to almost 11 million barrels a day in June. And that's what has made the market weaker. Coming to the demand for products. And you can see the big green column, which is jet fuel. And logically, we -- I mean, it's obvious from what we know about what's happening to jet transportation, that it's come nowhere near what it was before. So it still stays at minus 60% versus a year ago. On the other hand, you can see gasoline, which went down to minus 30% is now down to minus 13% in the month of June, similarly for diesel and naphtha, et cetera. Coming to the dry bulk market. This is just a breakup of what constitutes dry bulk and iron ore is the big one and followed by -- so coal -- between steam coal and coking coal also constitute about 1/4 of all iron ore demand. So let's look at a couple of indicators. One is world Steel production. Steel production in the first half of CY '20 Jan to June, China stayed in positive territory with a small positive -- growth in steel production. However, world steel production actually dropped off and had negative growth during the half year. And that obviously affected the dry bulk market. We had a very for 6 months for the dry bulk market. Now let's look at the other indicator and probably why the market was so weak for the last few months. And you have the Brazilian iron ore exports. As you know, this is the longest haul trade. Basically, it is Brazil to Far East. And therefore, the longest haul and ties up more ships than any other trade on a per voyage basis. And that production had dropped off very significantly -- or the exports had dropped off very significantly between end of 2019 and between February and May 2020. And therefore, we saw very poor rates for dry bulk in this period. Starting June, we have seen much better exports out of Brazil, which is probably what has led the recovery in the dry bulk rates. We've seen capes go back to the 20,000 plus mark, $20,000 plus mark in the spot rates -- in the spot market. Coming to a Greatship, which is our oilfield services subsidiary. We've already seen the fleet count, and we've seen the extent of coverage. The good news is despite our facing this terrible market, they have a lot of coverage, at least for this year. But let's go and see what's been happening in this market. Oil -- offshore E&P spending, which is the primary driver of demand for our assets has dropped from $295 billion, down to $130 billion in calendar 2019. That's a 60% drop. And you can see that in the results of all the oilfield services companies and the distress which is there in the oilfield services business. And adding to the problems, a lot of oil companies have reacted to the pandemic and drop in oil demand by announcing cuts of between 20% to 30% further in E&P spend. So taking it below $100 billion, which is a level not seen since maybe very early 2000s. We are already at levels below the 2005 E&P spending level. Obviously, this is reflected in what's happening in the markets. And some regions have witnessed early terminations, renegotiations of rates. Again, this is an update on market. We are not talking about our situation. Charter rates have come under pressure. There has been some scrapping of rigs, et cetera. But still, there is a significant oversupply. Global fleet utilization is estimated at between 60% to 70% for jackup rigs, and this is down from the mid-70s that we saw last year at around the turn of this year, at which point we thought that the recovery was underway, but it's been cut short by the pandemic and the impacts. Vessels have global fleet utilization for vessel is probably at 50% or lower. Now coming to slippage, again, because of the market situation, having been the way it is, vessels and rigs which are under construction at the yards have not been getting delivered anywhere near their expected rate or the contracted rate. So it's probably at 80% to 90% slippage. So if at the start of 2019, you had 100 vessels to be delivered -- you expected 100 to be delivered, less than 20 of them have been actually delivered in calendar 2019; similarly for rigs, less than half of the rigs, which were expected for delivery have been delivered. This is something that we put up and have discussed in the past, the age profile of the offshore assets. Again, this is the global fleet, not our fleet, our fleet of assets are much younger than this, especially on the rigs. The -- if you look at the bottom of that table, the number of rigs, which is more than 30 years old as a percentage of the fleet is almost 40%. These rigs -- just as we described, some of the crude tankers as being vulnerable, these rigs are vulnerable and may have to be removed at some point in time. Similarly, there are -- there is about 20% of the PSV and AHTSV fleet, which is more than 20 years old and therefore is vulnerable. And therefore, could -- have to be removed or may not come back into the market at all, effectively removing that as a source of supply or competition. So this is 1 small bright spot in the offshore -- for the offshore business. The other bright spot for the offshore business is that the debt repayment profile. So the net debt for the offshore business stands at about $80 million. The net bank debt for the offshore business stands at about $80 million. The repayment schedule is for the next 2 years, is only about $23 million each. That's for the next 9 months and for the 12 months following that, and it slowly ramps up to $97 million in March 20 -- in FY '25. Against this, we have close to $140 million in cash. We also have significant contract coverage for the offshore fleet. Let's look at a little bit of the history. I mentioned earlier that the last 5 years have been terrible for the offshore oilfield services business. And let's look at how Greatship has dealt with this. The cash on the balance sheet was at about $118 million in March '15 -- March 2015. 5 years later, it is was at $138 million. Gross bank debt in March '15 was $555 million in March '20, it was $225 million. The net bank debt-to-equity was $0.75 million and now it is at $0.22. Greatship has moved into defensive and consolidation mode. Paying down debt and preparing for the bad market. It was also helped by a lot of contract coverage, our conservative approach to the business, where we knew that we were taking a lot of leverage, so we went out and as far as possible, we got 3- and 5-year contracts for our rigs and for the vessels where we could. And that's why we are still standing here and still on a very sound footing even in the midst of all the distress in the business. Now coming to some key valuation considerations. And we've spoken about this before, but let's look at them in a more formal way. Those of you who have been following us know that we did a lot of CapEx in FY '17, FY '18 and a little bit more in FY '19, and therefore, we went up on the net debt too. We borrowed a lot. We used a lot of our cash. We went up quite a bit on our leverage, which is we measure in 2 ways: net debt-to-market value of the fleet; and also on net debt to equity. We went up from being at 0.2, less than 0.2 to going up to close to 0.5 on a net debt to equity, and that's come down now to 0.25 on a net debt to equity and a little lower than that on a net debt-to-market value of the fleet. This is, again, a function of the timing. We levered up when the prices were cheap. And now we are paying off debt. We haven't sold too many of the assets that we bought. Most of this debt reduction has happened from operating cash flows. And remember that it's not just debt reduction, which has happened. We have been paying dividends. We have undertaken a smallish buyback as well last year. So a lot of cash has been generated from these investments. We made $400 million worth of investments in that period, all of which has delivered a very solid IRR close to 15%. And that's what has enabled us to do -- to bring down again the net debt. The second valuation metric, and since we discussed net asset value every quarter, this is what has been happening to our consolidated NAV. We went up to over INR 500 in FY '14. It came down very significantly, largely because of what happened to offshore asset values. We came down to around INR 400 a share. It's been built up in the last 3 years from INR 400 a share to excess of INR 500 a share. And the stand-alone NAV, which was down to probably below INR 300, has gone up to INR 450 a share. In the midst of all this, our stock price trades at a very low 0.4 net price to NAV. And that's something that I thought we should highlight to you. Finally, an interesting slide, which we thought, market cap versus consolidated cash and equivalents. The blue bar is our market cap. And this is the market cap. And the previous slide also, the price -- the stock prices, the price as of 30th of June, which is not very different from today's price, it was at about INR 210 a share at that time. So not even a 10% difference from there. And so the market cap was standing at a little over INR 3,000 crores. Our cash and equivalents stands at just under INR 4,000 crores as of 30th of June. To summarize, the market positives for shipping, historically, low order book and potentially scrapping -- and potential scrapping. On demand and supply, and you may wonder why we are saying finally balanced when demand for tankers have dropped off 10 million barrels a day, let's say. But remember that dry bulk was at $4,000 a day or $5,000 a day capesizes in April and May. And in July, we're making $20,000 a day. So that shows that the market is more finally balanced than we think. And therefore, these markets can turn very quickly. The LPG market itself, which was at $10,000 a day spot; in second half of June 2020, is now trading in the $40,000 plus range. The market negative for shipping is certainly on the commodity demand uncertainty. We don't know how the world economy is going to recover from this pandemic, how long the pandemic itself will last and what impact it will have on commodity demand. So that's a market negative. On the offshore side, E&P spends having been reduced significantly, and there being so much negative growth in demand is a big concern. So that's a negative. And we also spoke about the age of the fleet and the requirement for removal of a large part of the fleet, which could be a positive. Overall on the company, the positives are a deleveraged balance sheet, proven ability to manage shipping cycles, which I think we've proved quite well from FY '17 onwards when we bought dry bulk ships when the dry bulk market hit a multi-decade low. We bought crude tankers, LPG ships at the low points in the market. And as I mentioned, we've made very solid returns on those investments. And finally, capital available as a result of the deleveraging, capital is now available for future buying opportunities. That brings me to the end of my presentation. I'll now hand over to Mr. Bharat Sheth for some final comments before we throw the floor open for Q&A. Mr. Sheth.

Thank you, Shivakumar, and to all my listeners. I hope all of you are well under these very challenging circumstances. Just a very quick thing on what is it that we, as an organization, have been focused on in the last few years. And when I say last year, let's just call it, 3 to 4 years. One is capital allocation. And in other words, when is the good time to buy, when is the good time to sell, when is the good time to go long freight, when is the good time to trade in the spot market. And on capital allocation, I'm really happy with the results that we have seen since FY '17. So since then, we have acquired 16 assets, and we have sold 2 assets. And our target return on anything that we buy over the next 3 to 5 years, we have internally set a target of somewhere to get a dollarized return on unlevered capital of somewhere between 12% to 15%. I'm happy to state that on all our 16 assets, we have successfully achieved that, of course, albeit on a mark-to-market basis as of June 30 valuations. We sold 2 assets and the way we track the 2 assets also that we sell, we look at whether were we better off holding to that asset, were we better off selling that asset. And even on the 2 assets that we've sold, we were clearly better off selling the asset when we did sell the asset. So currently, our track record has been 100 positive, 0 negative. So that's a job well done. On the second big focus area has been operational excellence. And I'm really happy here. This is the one that satisfies me at a personal level a great deal. We have achieved an uptime across the 46 ships at 99.5%. It's possibly the best performance since the company's inception. Equally gratifying is that we have done it with a cost saving of approximately INR 50 crores. It's a little over INR 50 crores, actually. So here again, I would say that it's a job well done. Of course, this has only been for the last 12 months. The first quarter continues to show a strong operational performance. We have achieved an uptime on the ships of 99.4%. And I hope that we can continue with this because this itself means multiple million dollars of annual savings. The third area is on the way we now manage the cash. So there are always competing demands on cash. And the way we have prioritized it is we must always have sufficient cash on what we call risk capital, i.e., we must have an extended runway due to the volatility of our business. And that extended runway should never compel us to take poor quality decisions. So that's one very important thing. It must give us plenty of operational freedom, and as Shivakumar just mentioned, the worst thing you can do is in very poor markets, start short in freight. And we have unfortunately done this in the past. We wanted to get away from that in the future. And I'm happy to state now that we have the luxury of actually running all 46 ships, if we so choose on the spot market, even in very, very poor freight structures. So that's a big positive. We will now only go short freight when we think, and again, we are not calling markets because we don't believe we have the capability of calling markets. So that's a big recognition internally within the organization. But we will only short markets in future. Now when we see strong double-digit dollarized returns on book value. And that's a big change from the way we've run the business in the past. So I believe that the superior way of capital allocation, significant enhancement on operational performance sitting on plentiful of cash that allows us to ride that market, invest in bad markets because that's when you really should be leveraging the balance sheet, having the luxury of running all 46 ships spot, however bad the market is, will stand us in very good state in the years to come. Our focus also now is on the way we manage the interest rate structure on fixed and floating and also the rupee-dollar asset liability mismatch at times. So that's going to be another focus area, and we hope to be able to report to you success in that area as well. Just a few opening comments on our focus areas, and I'm happy now to take any questions. I guess, if there's anything to do with numbers and finances, will request the CFO to answer that. And I'm happy to come in whenever you people feel it's important to hear from me.

[Operator Instructions] We have a first question from the line of Jeet Gala from Centra Advisors.

Thank you, CFO, sir, for such an elaborate presentation. And thank you, Bharat, sir, for giving us an opportunity to talk to us because I've been an investor in the company for more than 2 years now. And this is the first time I'm getting to talk to you. So my first question is basically on the supply side. So since you've seen in the presentation that the order book is at decade lows, plus we know since 2008, lot of shipyards have basically been shut and not all of the shipyards are going to come back very easily. So looking at these 2 metrics, that is number of ships which are going to come in versus the number of ships which are going to die, how is this equation looking like considering IMO 2030? Okay. So do you think, whenever the market really improve, a lot of supply will easily come back, say, for example, in 2023 or 2024 onward because the life of a ship is 15 years, and we don't know exactly what will happen in 2030 norms. So how does this overall setup really look like? I mean 2004 to 2008 was a demand-led rally. So do you think whenever the next upcycle come, how long it will really sustain and what is your preference? I mean would you like a demand-led upcycle or would you like a supply-led up cycle? So how does the entire setup really look like?

Yes. All right. If I can answer that, obviously, you've asked multiple questions in that 1 sentence. So let me just quickly summarize it. First of all, the asset life of various ships, different kinds of ships is not 15 years, but ranges from 20 years up to 30 years. So gas carriers, in particular, have the longest life. Now your question was, yes, shipyards have -- number of shipyards globally have shut down and that has very clearly reduced the possible new supply that can come in the market. I don't think that is going to change because many shipyards, I believe, are permanently impaired. And if you were to ask me, I just think that's just the bad space to be in, shipbuilding itself. So I just -- and of course, we are also seeing consolidation in Japan -- shipbuilding wise, in Japan, in South Korea, and in China. I think more and more of these dominant nations in shipbuilding have recognized that shipbuilding is really a bad space to be in. So from a supply side, if you ask me, I don't believe that we are going to get a big concern coming from that part of the equation. Now let us look at demand. Demand is impossible to predict. And as I said earlier in my talk, we ourselves have recognized the futility of trying to predict what's going to happen. All that we know is -- and we've seen this multiple times, that this is an industry that is much more dependent on events rather than on the supply demand of -- demand for commodities and supply of ships. So we have seen years in which supply has been significantly higher than demand, and yet you've had rates go up from 50% to 300% within weeks. So why does it happen? At the end of the day, right? It's all about a few extra cargoes that are available and there are very few ships in a particular position. In our business, positioning of a ship is much more important than the headline use of supply demand. So you could have an area of this world, some ocean, some part of the world, where the number of cargoes available happens to be more than the number of ships available. And the moment that happens, this market can go up multiple hundred points, right? So ours is an event based. And I'll give you an example right now. So we have, at the moment, congestion in China, both for dry bulk. We've got a ship there, which has now been waiting for, I think, in excess of 30 days. And we are also discharging a cargo of crude oil, in China, where also we have waited for close to 20, 25 days. Now there is a lot of congestion that has built up. What does that congestion do? It sucks out large chunks of ships from the market. And the moment that suck takes place, you suddenly find freight markets rally or you can get hit, the famous Katrina. What happened when Katrina hit the area where you had a significant part in America, you'll recollect what happened when a lot of the refining capacity got impaired for a few months because of flooding, et cetera. And you saw that market went up 5x, 6x. So ours is an event-based industry. And that is one of the reasons why it is so difficult to track and why after 72 years of this -- of being in this business, I would be the first to tell you that these are markets which are really impossible to read. And it's a waste of time trying to even reap these markets. It's really a waste of time. And I can now share with all of you that we started this year, believing in quarter 1, the crude market will earn $14,000 a day, and we ended up earning $40,000 a day. So there is no point predicting these things any further. So the way we want to be positioned, right, is we must benefit. And like we've got to learn to play the volatility that's to me the -- amongst the most important things we can do. And if we can play the volatility, i.e., benefit from strong markets and equally benefit from weak markets, that will eventually lead to much, much better results in the future.

Okay. Okay. Understood, sir. And sir, like we have a cash flow statement, so if we try to map a ship flow statement, saying that what are the expected number of inflows of new ships coming in over the next 3 years versus what are the expected scrappage, which is expected to happen, do you see any significant mismatch which is going to happen? Or it's very difficult to predict that too in any other years?

Well, the one thing that you do know and not 3 years because it really -- shipyards today are probably full until end of calendar '21. So there is still spare capacity for '22 and what ours is a very fragmented industry. There are multiple shipowners, what different people want to do with their cash is up to them. So for us, sitting here to forecast what lots of people would do with their cash is impossible, right? But what we can tell you is even assuming that every shipyard slot in the world gets committed into different asset classes because some are building -- some owners are building containerships, some are building LNG ships, some are building chemical tankers, some are building cruise ships, so on and so forth. So it's very, very difficult to get a real fix on it. What we can say and as the CFO had highlighted, there is potentially a lot of ships which are waiting to be scrapped, right? Now partly the scrapping has got pushed back because of the current pandemic situation and partly because we had a spurt in the market. So just take Great Eastern, for example, we had to 20-year-old tankers, which we had -- if you had asked me 12 months ago, what is Great Eastern's plan on these 2 ships? We would have said to scrap it, right, because they are coming to the end of their life. The moment the market bounced and we had strong earnings, what did we do? We extended the life of these assets, right, so we can squeeze out another 12, 18 months. We can't squeeze out another 10 years. But you can squeeze out another 12 -- and basically, it's a free equity option, right? So likened it when I spoke to the Board yesterday, I said I likened it almost to 20 over match, how it is, right, where you don't know who wins it till the very last ball is bowled. And that's what happens in our business. Till the ship is scrapped, you don't know what that last day of equity value will give to you. So that's how we treat all this.

Right, right. All right, sir.

So basically, by keeping earning days as long as you possibly can, you are building free equity auctions.

Okay. And sir, could you give us some light on what is IMO 2030 all about? And how is it significantly going to stop the new additions, which are going to come in, the ship addition?

Well, I can't say that it will -- see, 2030 is a long way off, right? And basically, I think the way the world is headed is, everybody is getting more and more conscious on environment and sustainability and emission controls, et cetera, right? So what will be the new -- and I'll tell you, yes, let me just add one more point to your issue on supply. I think currently, very few people know what is the best kind of asset to build because of ever-changing technology. So there is talk about hydrogen, there is talk about LNG, there is talk about dual fuel. Some people are talking about some very high-powered cell technology. The question is, can you get to an elect -- like a EV, electric vehicle, could you get to electric ships, which are then battery run? So the whole propulsion system, right, is under huge debate. And obviously, when you're building an asset for 20 and 30 years, the last thing you want is to get the technology wrong. And this could be a reason why people are holding back from placing orders for ships. Now if people do hold back from placing orders for ships, I think, obviously, it's good for the industry in that -- it's good from the sense that supply overhang is not going to be as much as we have seen it in certain years. But I mean, these things don't really trouble us and they used to trouble us at one point of time, now they don't. Because we've just positioned ourselves to benefit every which way. Good markets, bad markets, we should be able to exploit the situation.

Sir, what has been your overall experience? I mean a demand-led boom is better or a supply-led boom is better?

So the first thing is no boom is good for any commoditized industry, because more money is lost in booms than in busts, right? So we don't like secular boom. We got coordinate ourselves in the boom market of 2003, '08. We made multiple mistakes. We don't wish to repeat those mistakes. You've got to be very, very disciplined in strong markets as I think that famous statement that when the music is on, you can't be on the sidelines, you've got to join the party. And as night follows days, things like this can happen again, and you lose every bit of discipline. So I'm a great believer that eventually, you need the volatility rather than a secular bull market.

We have next question from the line of Chintan Sheth from Sameeksha Capital.

My question pertains to the point you made that we are -- we have the cash available right now with a low leverage. And market is -- you already explained in detail that the market is looking positive. Are we looking at any acquisition of new ships in the coming 3 to 5 years or at least in the near term 3 years?

So I can only really comment on the rest of this year. So currently, we are not because whilst values have come down as the CFO said by approximately 7% as an average, we would like to see cheaper price points. And I'll explain to you why. So as I've said, events like this pandemic can happen again, right? It's not even -- we haven't even overcome the current pandemic. The question is, you keep getting these black swan events. We saw it at the time of the Lehman crisis. And this is sort of the second big black swan event we are seeing within a decade, 10 to 12 years, right? And we just want to be positioned whereby if we buy assets, they've just got to be so cheap that we can ride very comfortably through these kind of black swan events. And until we get to those price points, we are happy to sit on the cash. All we can think of what else to do with the cash. There's always restructuring of capital as an alternative, there is dividends. We can -- there are multiple uses of the cash, right? It just does not have to be steel.

True. And secondly, if I look at historical quarterly or annual numbers in terms of like TCY day rates, I tried to calculate the EBITDA rate for past decade or so. And in each time, our cash profit used to be lowest point, I got, was around $5,000 a day EBITDA, we have been able to generate in a weakest of the market. That is what in the downside we can expect or this quarter, we did around $17,000 order -- $18,000 order EBITDA -- core EBITDA per day in USD terms. I'm just trying to understand...

So again, I have -- yes, honestly, I've never done this calculation. So off hand, I don't think I can answer it. But what I can say to you is we've always -- even in very bad markets. We've always earned a depreciation, right? And Great Eastern's depreciation and the CFO can step in if I'm making a mistake, but I think it's in the region of INR 550-odd cross per annum?

About INR 450 crores.

Right. So that's about INR 30 to INR 40 a share.

Yes.

And we've always earned that depreciation, at least. And whilst to me the way I look at depreciation, right, it's really just an accounting charge. And if, let's say, we were not governed by these multiple accounting rules, what depreciation do you provide when the volatility is so great that a ship that you build -- and we've actually experienced this, a ship that we have bought 15 years ago and the ship -- and we sold it at the same price at what we had bought 15 years ago. Now when you get a situation like this, right, all you do is claw back your depreciation as profit on sale. That's all that happens. So to -- really speaking, none of us know the actual depreciation of the asset until it is correct.

True. And any plans for any of the shifts going into -- exiting our fleet right now?

Not now, but I think next year, we will come across at least 1 ship by memory that will be the end of the life. But as I repeat, if you had asked me this question last year, I would have said 2 ships. And so if the market suddenly bounces and we get back to a contango, who knows, right? Can crude oil get back into a contango? Of course, it can.

[Operator Instructions] We have next question from the line of Vaibhav Badjatya from HNI Investments.

And I must thank you for the fact that you provided normalized numbers also in this presentation. So on the normalized numbers, when I look ROC, obviously, I'm not looking at current quarter ROC, but just as a benchmark now, would you say that this current quarter ROC or normalized numbers is we should look at the Indian comparable returns and judge it accordingly, right? This is the right way to look at it now, right?

Sorry, Shiv, do you want to take that? I couldn't probably...

Yes. We had a discussion about this in the last quarter call, if I'm not mistaken. So yes, you should take it based on the normalized number. But also remember that a large part of our return comes from the capital -- change in the capital value of the asset. So ideally, we should look at it on an NAV basis. Over a longer period of time. But yes, cash and the ROC on a normalized basis is certainly a better indicator of our performance than the ROC on a reported basis.

Got it. So -- but it must be compared with the Indian government bond yields, if somebody wants to look at what returns you are...

What comparable you take -- I don't know what comparables should be taken. But for judging us, our results on a normalized basis are better -- are more indicative than the results on a reported basis. That's all. I mean, that's all in.

Got it. And lastly, in the initial remarks made by Mr. Bharat, I do not understand the description provided in shorting of the trade markets. Can you elaborate on the same?

Yes. Certainly, I will. I said -- yes, yes, so when we have a ship, any ship, right, you have an option of either trading the vessel, what we call in the immediate spot market, means run it for the next 20, 30, 40 days depending on the trade, you have an option of -- and then you come up for repricing, right. After 30 or 40 days. The other option you have is to say I don't -- I think the next 3 to 4 months, the market is going to be very bad, so why don't I fix the ship for the next 4 months. That's another option you can play. Another option you can say is, I don't want to take the risk of ups and downs every day of my life. I've got a weak heart, so let me fix my ship for the next 1 or 2 years, right? Or you can say, I've got a bank that is breathing down my neck. I want to fix my ship for the next 5 years. Right? And so you have these multiple options. Now every time when I say fix, so if you fix your ship for 2 years, effectively, you have gone short of the market, right, because you have sold freight for 2 years. So let's say that had we sold freight a year ago for 1 year, we would have missed the big rise in the market that we witnessed in April and May, right, we would have clearly missed it because we wouldn't have had the ships. So if you are trading spot, right, that's what we are saying, effectively we are saying, I don't want to take a position beyond 20, 30 days. I don't know what the markets are going to do, and therefore, I'll stay long off the market. Means you're long freight, because you've kept your options running every 20, 30 days. And because our markets can turn so quickly, and I think as the CFO said, we had an LPG market on the 27th of June, earning $10,000 a day, on the 27th of July that ship is earning $40,000 a day, right? Now if you just think about it on a 40-day business, your delta is $30,000 on a 40-day business, that's an extra $1.2 million, INR 10 crores cash to your bottom line, right, and it quickly builds up, when you have 5 of these things, you've got INR 50 crores, so on and so forth. So you've got to really be careful on when you want to go short, i.e., go and cover your ship for 1 year or 6 months or 2 years. And then you just say, okay, now I've got fixed income, and I'm not going to play the volatility, or you say, I've got the balance sheet strength where I'll take the good and the bad, but my eventual average of the good and the bad will be better than if I were to lock in today for 2 years. And these are difficult calls to take, right? And as I said, this is what we want to get better and better at.

We have next question from the line of Bhavin Gandhi from B&K Securities.

Thank you for the elaborate presentation as well. Sir, my first question is relating to the offshore business. And obviously, if I look at the NAV, and if I look at the book values, there seems to be an impairment on the offshore fleet. So can we -- are we thinking about taking an impairment on this because this has been a drag on our overall ROC profile for the company? Or is there any other way we can restructure the balance sheet on the offshore side?

Well, I mean, first of all, we follow certain accounting principles, which is being adopted by the -- accepted by the Board, accepted by the auditors, which determine impairment, right? And looking at that, that's when we take long-term averages, and then we do a discounted cash flow statement and we come up with an implied value. Looking at that at this stage, there is no need to take an impairment. And let me tell you the story of impairments. So we in the past have impaired assets, which have then suddenly bounced in value. Now we never revalue, right, we never revalue up. So when you impair an -- and I can tell you, we've seen even in the offshore business, and this has happened to us. Our own rig multiple years ago went from $2 million to $40 million. So I think you've got to have a consistent policy on impairment, not look at quarterly or annual fluctuations. And then just say that this is the formula that we will use. If we need to impair, of course, we will impair. And it's not that -- but we don't want to make it a unilateral decision, because as I just said, we don't know what tomorrow is going to bring. And one thing -- I mean I do believe this, right? I could be in a minority view, mine could be the only view. But I think eventually, years of underinvestment that you will see by these upstream companies eventually means you will see the price of oil going up. Now when that is going to happen, I can't say. And we've seen offshore markets remain challenged for 10, 12 years. And then whenever they have turned, because of years of underinvestment, they've gone up 6, 7, 8, 10x. So imagine if you impaired an asset, right, and then you're not going to revalue that asset, what -- what have you achieved?

Got it. Sure. Sir, in which case -- how do we think about the offshore business as such? I mean given the way you've described the -- you have been harnessing your skills to ride out the volatility and actually use it to advantage. You don't get to play this in the offshore market. So how are you thinking about offshore as a business doing and whether would you want to deploy more at some point in time?

So I think the way we are looking at offshore currently is that we would like to deleverage, although it is already deleveraged as the CFO presented in one of the slides, the net leverage in offshore is not much more than shipping. But what we have found is the difference now that we really granulated this at a philosophical level, shipping gives us lots more optionality to go long short, right? As and I just explained to the previous questioner, we can fix for 10 days, we can fix for 30 days, we can fix 1 year, we can fix 5 years. And you can do all kinds of things. Offshore, your options are very limited, right, plus, it is a much more geographically concentrated business. So you can't just move freely from one geographical location to another geographic location that you can in shipping. And when we look at the net result, so if I play volatility well in offshore, there's no way for me to short that market. So let's say that I said, okay, this is a high point of the cycle, we want to go short. We can't go short. In shipping we can. So shipping, we can really massage the transaction in multiple, multiple ways. And therefore, I guess, we are focused on really building our skills to play that game better than we have in the past. That's where all our energies are going now, yes.

Sure. Sure. And just one final thing from this side. So you -- Shiv sir, mentioned about the discount to NAV that we've seen. And given that we've been so -- I mean, traditionally, we have been very choosy about the kind of assets that you want to buy. Can we look at the larger buyback -- I know you have an embargo right now but can the buyback size be much larger than it is today, let's say, if the prices remain here?

Well, so first of all, this is something that we cannot consider till end of this year because I think our window doesn't open up until then. There are all these SEBI rules, et cetera. And under of current set of rules, I don't think we can look at it till the end of this calendar year. At that point, we would always also look at what is happening to steel because eventually, we are a shipping company, right? And obviously, if we can get cheap assets. I mean, cheaper when I say asset, meaning steel, if I can get cheap steel, that will always be my priority #1. But if I can't get cheap steel, and I find my underlying -- if the paper is a much cheaper way to acquire more of that same steel, then paper will always be an option. So again -- and you must remember that, unfortunately, again, because our rules are so very bad, here you don't have freedom. You don't have freedom on buybacks. You have restrictive, you have huge leakages on taxation because of buybacks. You have all these price points you have to determine on buybacks. If you do a buyback, I guess, you can't immediately raise capital. There are just too many restrictions. So we've always got to be very careful.

We have next question from the line of [ Saloni Hemnani ] from India SME Investments.

My first question is, sir, regarding the scrapping part. You mentioned that the ship asset values coming down and the age of the vessels above 15 years as a percentage of fleet is really high. But there hasn't been a significant increase in scrapping. So any specific reason for that apart from the reason that happened because of the COVID in the March quarter?

Yes. So 2 things. One is many scrapyards globally shut down because of labor problems. And also when you go to a shipyard, you must remember, you've got to get your people off the ship. And because of travel restrictions, nobody could get on, get off the ship. So April, May and June, we saw very, very poor scrapping. That was one reason. The second is, of course, as particularly for the tankers, we saw a huge bounce in tankers, both on the clean side as well as on the dirty side, means crude oil and petroleum products. And again, if you could even squeeze in 1 extra voyage of 30, 40 days, you made just lots of cash. And therefore, you deferred your decision to scrap that ship unless the ship had no trading life left in her. So everyone who could defer scrapping a ship in certain asset classes, particularly tankers and cash ships, they chose that option to defer the decision. So I think it's a combination of scrap yards not having the labor, shipowners not having the ability to get their people off the ship before it reaches the scrapyard and the way the markets behave. So 3 things all interplaying.

Right. Okay. And my second question is, I actually missed the numbers of the time charter rates of July that were mentioned earlier. Could you please repeat that?

Can I request the CFO to send it to you? Is that just easier?

Yes. I think we should do that separately, yes.

Yes. Yes. I'll get -- we -- the CFO is on the call. So we'll have it sent to you.

We have next question from the line of Vikram Suryavanshi from PhillipCapital.

Sir, one is that cash as the risk capital for us. So what are major consideration that maintaining the high level of cash, the risk capital while deciding that? And second question is about, if you look at in 2007, I think prior to earlier cycle, we ordered 3 VLCCs, but post that, we never had exposure to VLCC market. And while listening to you the way we are developing our skills for shorting the market or having an open position and really benefiting from the volatility. How is our thought process for VLCC market? So these are my 2 questions.

Yes. Sure. I'll answer the one -- your first question was what?

Cash as a risk capital...

Okay. Okay. Yes, yes, yes. So what -- as I said, the way we look at the cash, obviously, for the period that it lies in a bank, it doesn't do much for us. But so long as it increases the purchasing power of that cash, we look at that as an effective return. So let's say my dollars currently are running me about 0.5% in terms of cash. Currently, we're running 0.5% on the cash. But let's say that the ship's value, as the CFO said, has come down 7%. Now any asset that I were to buy now as compared to 3 months ago is now 7% cheaper. So I've effectively increased my purchasing power, right, my 7%. So in that sense, cash has earned me the 0.5% in the bank and my purchasing power has gone up by 7%. Now let's say, ship's values were to come down another 7%, then my purchasing power has gone up by 15%. So that's the value of cash. The second thing is we want, as I said, other than -- risk capital is just to ensure that we always have cash whatever happens to debt service, to meet all our debt obligations. That, to us, is all about reputation of the organization, and that is obviously cannot be compromised. The third thing that cash enables us to do is to say that, look, we have 46 ships. We are under no pressure to go and fix the asset for some any fixed income business unless we think that's the right thing to do. And it gives us so much operational flexibility. And in a business like ours, where 1 day you can be earning 1,000, and then you can be earning 5,000 and then you can be earning 500. Having that level of cash just gives us lots of comfort that we will never be put in a corner where we are taking suboptimal decisions.

Got it, sir. Yes.

So for us, that is really, really important.

Is there any reference, like overall asset size, how much percentage broadly should be cash or it is just based on 3 parameters what you have also discussed?

Well, so obviously, until we find a right opportunity, and if we have to build up cash, we will. We haven't set any internal target, once we are above this level of cash, that -- I mean, if we build up more cash, we build up more cash. What we don't wish to do is build up the cash and then misallocate it in terms of capital. We've -- it has unfortunately happened to us in the past. We just don't want to repeat those mistakes again.

Yes. And I really knowledge for that discipline for us.

Yes. I think if you look at this organization over the -- hopefully, for the multiple decades ahead of us, this will really stand us in good stead.

Right. Yes, and for my second question on VLCC market?

Yes, sorry. So on the VLCC, the question is, would we look at acquiring VLCC? The answer is, yes. It's the most volatile of all asset classes in the tanker segment. And if we saw the right opportunity, absolutely, we will get into that sector. We missed it, which was our fault. We had a lovely opportunity to acquire some VLCCs in '17. Had we done it, we would have made a lot more money. But that's life, you miss some, and you get some.

We have next question from the line of Nidhi Chawla from SBI Mutual Fund.

Most of the questions we have answered. I just wanted to understand, when we were looking from fiscal year '16 to '18, if I look at your decisions to acquire the assets and where the rates and asset values were, and when I look at it today, and I know you've answered in many other questions. I would still want to understand, I mean, if you really -- I know it's a very difficult situation right now to assess. But still, if you have some pecking order in terms of the new investment that you would be looking and the sectors that are looking much more lucrative to you given your -- where the order book stand, where the overall cycle you look at. And how are you looking at those various sectors, if you would be able to summarize, that will be really help with Mr. Bharat. And yes, sir, I'll come back later.

Yes. So I'd love to help you in any which way I can. So let me first tell you that we are very agnostic to which sector we invest in. So whether if we got an opportunity in dry bulk first, we would look at that. If we got an opportunity in gas first, we would look. If we got an opportunity in crude, we'd look at that, so on and so forth. But we will focus on the 4 sectors where we have currently built up significant skill set. Crude oil, petroleum products, LPG and dry bulk. These are the four. We are not going to, at this stage, think of going to a fifth because we really want to be the best that is in the world in these 4 sectors. Now -- so within these 4 sectors, we are agnostic. But having said that, we have kept internal caps, so that we don't place 100,0 bets, even though we are -- we believe that we are improving on the way we handle the volatility, we would never place 100, 0 bet on any 1 of these 4 sectors. So we've kept internal caps that, however, bullish we are in any particular sector, we will not have more than X hundred million dollars exposed to that particular sector. So we'll never take a 0,1 bet. Because something can happen and things can still go wrong. There's no guarantee in life on anything. So we will be responsible in the way we do it, but within those caps, we are completely agnostic. But yes, if we are getting better at volatility, and I hope we will eventually get much better than we have been in the past, we will prefer to buy more of the assets, which have a much greater volatility in the market.

Right. So that will be -- so then it is more to the previous question what you answered, that will be on the crude and the product side.

Well, there's volatility as much on the gas, I've just explained to one of the previous speakers, the LPG market was $10,000 on the 27th of June and $40,000 today. That's huge. And can go back to $10,000 tomorrow, I don't know.

Sir. Actually, I was more also trying to understand and trying to pick up your brains because that time when you were talking even in the con call meeting, you basically had -- we used talk about the rates being low and even though the rates are low, the values were coming down. I know the understanding of the value story is not very clear. I was just looking at in terms of the situation in the current market. Is any particular segment looking lucrative today to you? Or is it -- I mean, nothing is clear as of now?

No, no. It is very clear. What is very clear is that we would not be biased today of any asset class. Especially, I mean, look at it. If my paper is trading at $0.50 on steel, what am I matter of doing if you were in my position.

No, no, sir. The point is already taken. And I've had a very long discussion with Mr. Shiv recently on a con call and I would actually come back to that question, and most of the people have asked you this. But on the cash level, sir, I mean, I'm not saying, I mean, you're completely right in terms of how you manage the business. What I -- I mean, pardon me if I'm wrong in this assessment. But -- even in the last buying cycle that we did, we spent around INR 1,900 crores to INR 2,000 crores over '16 to '18. When the cycle was actually -- if I look at order books today, the shipping cycle position today, in whatever way, it looks like that opportunity is not visible today where we are sitting on the asset level, the prices. But we are sitting at double the cash levels that we have. So do you really think that we need so much convertism and in terms of the capital protection in this kind of environment? And secondly, would we have so much -- I mean, such kind of quantum opportunity available for us to deploy such cash?

Okay. So let me answer that. Whist the cash that is reflected on the balance sheet, sounds like a lot, it's really not that much. And I'll explain to you why. So the risk capital is capital we don't touch. So that cash is out of bounds. That's to just make sure that as a company, we honor every single commitment with all our lenders. So that's -- you've got to strip out all that cash. Then thereafter, the cash that we sit on, what we call investable surplus, that possibly in the region of $200 million maybe to -- if you stretch ourselves, maybe $225 million to $250 million. So that's whatever that mathematics is in INR 1,700 crores, INR 1,800 crores, INR 1,900 crores. Now -- so the question is, will we get to the same price points we got in '16 and '17, right? It's something today I cannot answer. I don't think anyone in this world can answer. But if we get to those price points, would we be able to deploy the money? Absolutely, we'll be able to decline that capital. But would we be saying, okay, forget some discipline now, let's go and invest at a higher price because we are getting very anxious or we are sitting on too much cash. I don't want that discipline broken because it's very tempting when you -- actually, the most difficult -- one of the most difficult things in life is sitting on the cash and not doing much with it. It's not easy to sit and earn 0.5%. But, trust me that this will stand us in very good stead for years and years to come. So long as we are disciplined.

Sure. So the question -- I agree with that, but it is just that even the cash flow generation is expected to remain strong, right, and the leverage that we have today on the books, we would have more ammunition to play actually over the next 2 years, if you really want.

Well, I hope we do. I hope we do. The more the cash we build up, I promise you that we will put it in good use. And what do I define as good use? Whenever we invest in steel, i.e., in ships, we should be in a position to generate hell or high water somewhere between 12% to 15% dollar returns on unlevered capital. And if we can do that on unlevered capital, that would right, be a job really well done.

Right. I think it's just a question that whether you would want dividend to...

I'm sorry to interrupt, we'd like you to come back in the question queue. [Operator Instructions] We have next question from the line of Anuj Sharma from M3 investments.

Thank you for the comments. I had a question based on the narrative you have given. Now I think we have gone long freight and we have played the strategy assuming volatility will remain. And I think a volatility has played out. But how do we capture the intense peaks, which we saw? So is there a way we can refine further wherein we can get closer to peaks or it will always remain a random event that we were there at the right place, right time we got or we can refine it further?

So I think it's a very good question. I don't know if we'll ever get the peaks. For peaks, you need luck. And just like when you hit a trough, you get into bad luck. So it is never our intention to get to the peak or to hit peaks because that depends on luck. What we just want to get good at is so long as we can consistently capture 80%, 90% of the peaks, I think we would have done a very good job. And that's where we are focusing our energy on. We have a little team that's really working hard on trying to see how best can we get -- how can we get better and better at this. And I am confident that -- it's much more difficult, of course, than capital allocation. And capital allocation, I think our track record over the last 4 years speak for itself, as I said, at the beginning, 18, right, 0 wrong. So that's a great record to have. Now on the day-to-day volatility it is much, much more difficult, being -- having the right ship at the right time is going to be important. But having said that, what you also need is having multiple asset classes in the same category of assets, so then you can spread around. You have some ships in the Persian Gulf, you have some ships in the East, you have some ships in the Atlantic, Mediterranean, so on and so forth. So whilst everything may not benefit, maybe you will capture X percentage of that benefit. So I think a combination of luck. It's a combination of having the fleet size and of course combination of our internal skills. And I'm not saying we won't make mistakes, right. So we will make some mistakes.

Right, right. And sir, my second question is, you have clearly explained your discipline and wanting to buy assets cheaper. But let's suppose the charts which you have put up show that there could be a trend which is other way round. Clearly, it has not moved away. But let's suppose there's an upturn for a long time, would you be willing to participate on the way up and clearly, it's not a volatile trend, but let's a directional move up, would you want to give up the discipline and possibly repurchase some on the way up, just your thoughts?

If you ask me personally, the answer is no. We've got caught in this in the past. We have bought assets. Because the temptation is -- so let me just quickly tell you this. You've got money lying in the bank at 0.5%. On the way up, you suddenly get dollar yields at 20%, 30%, 40%, and there is huge temptation to buy on the way up because you can immediately boost your bottom line, et cetera. But as night follows day, this will end up in grief. And we don't want to end up in grief for sure ever again.

All right. All right. And sir, my third question is, what -- there would be assets which would be bought as a portfolio. So company is willing to sell. And I know you have a very strict evaluation of ships for buying. So if there is a portfolio of a company wherein you are not able to evaluate the quality, but that's available at a very lucrative price versus buying à la carte ships at a reasonable valuation, but quality is insured as per your parameters. Would you never look at buying company with a portfolio...

So let me tell you, we did that whilst we didn't buy any company, of course, we have bought ships from very good stables without even seeing the ships. And we bought in blocks. So the question is would we do that again? If it came from a great stable and there are some people who keep their assets incredibly well. Although I believe now Great Eastern keeps its ships, we probably run now the best ships in the world, and I'm not exaggerating that. Whenever you have time, come and have a look at some of these ships. But yes, the answer is we would be happy to buy in block, but would we be looking at buying companies, I don't think so. And the reason is because there's always a challenge on cultural shift. And we want to preserve our culture to the best we can.

We have next question from the line of [ N Samrat ] from [ Dwarka Wealth Managers ].

Just 3 small ones. At the end of March, the dollar versus the rupee at the end -- last Friday of that quarter INR 75.58. So I just wanted to have a quick answer. This particular quarter till what dollar price were you hedged, sir?

Sorry. Can I request the CFO to answer that?

Yes. I'll take that. I don't understand what you meant by till what price are you hedged. We have a natural hedge.

Yes. Natural hedge. I mean basically, let's say, that was INR 75.58. So till what particular level would you be hedged, I mean taking the algorithms into question?

No, no. We don't have any such things. So we have very, very minimal hedging that we do, because we have a natural edge. We have dollar liabilities and we have dollar assets. And whatever is extra, we just keep it in dollars because our next purchase -- utilization of the money will also be for buying dollar assets.

So Mr. Shiv, just want to say, INR 75.58. So from there, you wouldn't be, say, hedged or INR 1 or INR 2 from there on, something like that, you have...

No, no, no. So as the CFO mentioned, we have very little forward sale on our dollar balances. Sometimes we will do it. As I said, right at the start, this is another focus area. We really want to get better and better at currency management because we always have this challenge, right, how much do you keep in dollars, how much you keep in rupees, so on and so forth. So -- but we don't want to speculate. So this is out of bound for speculation.

No, sir, I was -- okay. That's one thing. And I was talking about that -- the dollar loan, the dollar loan part. So.

Yes. So our dollar loans, even on the liability cover because as the CFO very rightly pointed out, we have a natural hedge, only in extreme cases, would we cover our dollar liability by buying forward dollars. Yes. But normally, we would not, but once in a while -- because, again, look, we are -- we want to focus on shipping. That's our core business. That's what we are spending our energies on trying to specialize it. And if we just get those calls continuously right, correct. I think that should stand everybody good state.

And sir, just on back of the envelope calculation, what would be our cash breakeven point for tankers and bulkers, just approximately per day, dollars per day?

Yes. So again, everything hinges on what you define as cash breakeven. But if you just take as an average...

Minus the depreciation. That's all.

So I'll just keep -- well, again because we have corporate debt, then we just do an internal allocation on assets, right. Because when you do a bond, you are not necessarily taking the bond raise on a particular asset. So you raise an X amount of money, you switch it into dollars and then you buy multiple assets. And then we do an internal allocation. So we just treat everything as you know, just take whatever is your interest liability and just trade it at random.

Okay. So what would be the takers' and the bulkers' cash breakeven point, sir, running the costs per day, dollar cost per day.