Muted cargo growth making port companies cautious on investment

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Since the last few years, a narrow-ranged port cargo growth of 4-5 per cent has made the domestic port sector cautious about its short-term investment plans.

“At this juncture, (from the industry perspective) it is difficult to think of building port capacity entirely for the third-party cargo. With the muted cargo growth that we (industry) have had it would be risky,” said an official with JSW Infrastructure. “A right mix of captive and third-party improves chances of survival, in the sense, shows better utilisations for the port. This, in turn, means better revenue visibility for the port as part of cargo (captive cargo) is assured,” he added.

Sajjan Jindal-led JSW Infrastructure currently has a total capacity of 75 million tonnes (MT) and aims to touch 200 MT before it goes for an initial public offering (IPO) in FY21.

“Port investments in the short-term are surely not encouraging given the cargo growth rate we have had. But overall, one needs to see on a case to case basis as it will vary depending upon port location and cargo demand in the region among other factors,” explained Anil Yendluri, director and chief financial officer of Krishnapatnam port.

Between FY13 to FY18, India's port cargo growth has largely moved in a narrow range and though has shown some spike in one-off financial years, it has not been sustainable.

“The muted cargo growth performance of the last five years is expected to continue and we are expecting port traffic growth of 3-5 per cent over the next five years for India due to lower coal movement,” informed Hetal Gandhi, director at CRISIL Research. “Investment momentum in the sector is expected to be low from $250-$300 billion with most of it going towards the container segment alone,” said Gandhi.

Essar Ports, Gautam Adani-led Adani Ports, DP World, APM Terminals along with the 12 major ports of the country comprise India's port sector among others. 

“Investment is also required for modernisation for all ports to increase its efficiency. Hence, investment is expected to be in pockets or locations where there is reasonably high cargo growth along with a shortage of capacity,” said one of the top private port companies of the country.

India handles bulk, liquid and container cargo. In the last couple of years, the country's cargo growth has seen a higher single-digit growth which is expected to continue as more cargo looks to get containerised, said industry officials.

Though the short-term investments look bearish, from the long-term perspective, the picture is bullish.

“From the long-term perspective, growth in trade and growth of the country is expected to improve further and there is place for some good players to be around as the capacities that we have as of now seem to be utilised but in the long-term, it may not be sufficient,” said Yendluri of Krishnapatnam port. “Agreed that the gestation period for a port facility is high but the life of a port is 100-200 years or even more and hence planning of new capacities should always happen,” he added. 

Krishnapatnam port handled 45 million tonnes last year from 36 million tonnes a year ago and has already clocked 29.5 million tonnes in the first half of current financial year. 

It takes time for recovery of investments made in the port projects, especially greenfield projects. Generally, companies look at 6-7 years from commissioning as the payback period, informed industry officials. 

"Segments like container, LNG (liquified natural gas) and liquids will play a major role in greenfield project development in the long-term," said Rajiv Agarwal, chief executive officer and managing director at Essar Ports.

Coastal movement is another area where port companies are seeing strong investments in the long-term.

“Presently, a coastal movement is viable beyond 400- 500 Km since shorter distance will not be able to offer sufficient savings to recover the cost of port handling. There is huge potential for the transportation of bulk cargo like steel, cement, automobiles, fertilizer, POL, containers and others. Keeping a view of the capacity constraint by road and rail, the coastal movement will definitely gain momentum in time to come,” said the official from one of the top private port companies of the country.

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