 "Mundra port")
On August 17, billionaire Gautam Adani paid a visit to Communist Party of India (Marxist) veteran VS Achuthanandan at his residence in Kerala. Bonhomie between communists and businessmen is unusual but this was a special occasion: Adani was in the southern state to sign the work contract agreement for the development of the Rs 7,525-crore Vizhinjam International Deepwater Multipurpose Seaport that day.
First proposed in 1991 (when the Congress was in power in Kerala), the project failed to take off for various reasons till the Congress-led United Democratic Front came to power in 2011 and awarded the project to Adani. Barring the Left Democratic Alliance, all other political parties and leaders of the Bharatiya Janata Party attended the ceremony.
Adani will invest Rs 4,089 crore in Vizhinjam, while the Kerala government will contribute Rs 1,463 crore for the work under the “land lord” model of port development. In this model, the government undertakes work for basic infrastructure and maintains it, while the terminal is set up by the private operator and services are offered to others.
The container terminal, with a capacity to handle 18,000 TEU (twenty feet equivalent units), will be the ninth port in which Adani will have a presence, making it the biggest player in the sector, ahead of DP World, a global major in the container business, which is present in seven ports in India.
In a league of his own
Adani is into the business of both containerised and bulk cargo with no comparable rival among Indian companies. Ruias-owned Essar group, too, has a presence in the port sector with eight terminals but they use these primarily for captive cargo.
Adani’s evolution from a pure commodity player and exporter to a major investor in infrastructure started through ports and then port railways. In 1994, he got the approval from the Gujarat Maritime Board for setting up a captive jetty at Mundra. By 1998, Gujarat Adani Port, a joint sector company promoted by Adani Port and Gujarat Port Infrastructure Development Company, was incorporated, and in 1999, a multipurpose terminal with two berths was operationalised. Adani Port merged with Gujarat Adani Port in April 2003. It diversified to set up single point mooring, which allows the operator to load and unload liquid cargo in the sea, in 2005.
As the company branched out into the business of special economic zone, it changed its name to Mundra Port & Special Economic Zone in 2006. It also started its double stack container business. A year later, it listed on the National Stock Exchange and Bombay Stock Exchange and raised Rs 402 crore. Though the company’s current stock price of around Rs 300 is below the issue price of Rs 440, its business has only expanded since then.
In between, there was yet another name change. The company was rechristened Adani Port & Special Economic Zone in 2012, since by then it had already acquired the rights to put up terminals in other ports including outside Gujarat at Mormugao.
Adani’s fast-paced expansion in ports has been widely noted. Edelweiss Securities Associate Director Shankar K says Adani’s port-handling capacity has increased more than 11 times to 147 MT in 2014-15 from 13 million tonne in 2005-06. Also from a single port company, it is now spread across the entire coastline of India barring the state of Karnataka.
In May 2011, Adani’s port ambitions got a leg up when his Australian company, Mundra Port Holdings, entered into an agreement with the Queensland government for a 99-year lease of the Abbot Point Coal Terminal 1. A new terminal is also being planned which will have a railway link just like Mundra.
Last year, the group bought the Dhamra port in Odisha from Larsen & Toubro and Tata Steel for an enterprise value of Rs 5,500 crore. Though the company spokesperson did not respond to a detailed questionnaire, at the time of the acquisition, Adani said the new port would give his group the opportunity “to replicate the development and phenomenal growth of the Mundra port on the eastern coast of India and thereby execute our pan-India strategy”.
The Dhamra port, with two dry bulk berths of 25 million tonne capacity each, is not the group's first move on the eastern coast. It has a 5-million-tonne coal berth at Vishakhapatnam port. Besides, Dhamra was followed by another agreement in March 2015 to implement the Rs 1,270-crore container terminal at Ennore, near Chennai. The container terminal will have a capacity of 1.4 million TEU.
Sustaining growth
The sizable Adani presence will, however, not give it a monopolistic position; instead it may need some strategic planning for getting enough traffic to sustain its investment. According to an Emkay Global Financial Service report, the Vinzhinjam terminal will require 65-70 per cent of the transshipment volumes and Adani will find it difficult to have pricing power given that Colombo still remains cheap in terms of container handling charges amongst all transshipment ports.
“The Vizhinjam port will compete with Tuticorin, Cochin, Chennai (to the lesser extent as calling from mainline vessels has increased at the Chennai port). The port will also compete with the Colombo port in Sri Lanka for the transhipment traffic,” says Nitin Arora, research analyst with Emkay. A case in point is DP Ports' Vallarpadam terminal in Kerala which is struggling to get enough cargo.
Besides, as Shankar says, at 145 million tonne (of which Mundra alone was 111 million tonnes), Adani is handling less than 15 per cent of India's port traffic — the 12 government-owned ports handle 581 million tonnes. “Hence, this does not make Adani a monopoly player.”
