Muted cargo growth makes port firms cautious on short-term investment

They say it is difficult to think of building capacity entirely for third-party cargo, but are bullish on investment for the longer term

Port cargo growth of only four to five per cent annually over recent years has made Indian companies in the sector cautious on investment for the short term. 

“At this juncture, (from the industry perspective), it is difficult to think of building port capacity entirely for 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, with better utilisation. This means better revenue visibility.”

The Sajjan Jindal-led JSW Infra has total capacity of 75 million tonnes and aims to touch 200 mt before an Initial Public Offer of equity (IPO), likely in 2020-21.

“Port investment in the short term is not encouraging, given the cargo growth rate we have had. Overall, one needs to see on a case to case basis, as it will vary upon location and cargo demand in the region, among other factors,” explained Anil Yendluri, director and chief executive officer of Krishnapatnam port in Andhra.

Between FY13 and FY18, India’s port cargo growth has largely moved in a narrow range. “This muted cargo growth performance is expected to continue and we are expecting port traffic growth of three to five per cent (annually) over the next five years, due to lower coal movement,” informs Hetal Gandhi, director at CRISIL Research. “Investment momentum in the sector is expected to be low, $250-$300 billion, with most of it going towards the container segment.”

Essar Ports, Adani Ports, DP World and APM Terminals, along with the 12 major ports of the country, largely comprise the sector. 

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

India handles bulk, liquid and container cargo. In the past couple of years, the country’s cargo growth  has seen higher single-digit growth, expected to continue as more and more cargo looks to get containerised, say sector officials.

Longer term

Though investments in the short term look bearish, the picture is bullish from a long-term perspective. “From the long-term perspective, growth in trade and growth ofthe  country is expected to improve further and there is place for some good players to be around. The capacities we now have seem to be utilised but might not suffice in the long term,” said Yendluri of Krishnapatnam. “The gestation period for a port facility is high but the life of a port is 100-200 years or more. Hence, planning of new capacities should always happen.” 

Krishnapatnam handled 45 mt last year, from 36 mt a year before. It has clocked 29.5 mt in the first half of the current financial year. 

It takes time for recovery of investment in port projects. Generally, companies look at six to seven years from commissioning as the payback period, say officials.  “Segments like container, LNG (liquefied natural gas) and liquids will play a major role in greenfield (new) project development in the long term,” said Rajiv Agarwal, chief executive officer at Essar Ports.

Coastal movement is another area where port companies see strong investment in the long term.

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