The continuing decline in coal volumes handled in Indian ports, at a more
rapid pace, compared to the previous years, is a cause for concern for the long
term impact for the port sector since many ports and terminals have significant
dependence on coal imports according to a senior official of ICRA. (Indian
Credit rating Agency)
A prolonged decline in coal import requirement in the absence of
diversification into other cargo categories will impact the returns for such
port sector players. Mr K Ravichandran senior vice president corporate ratings
Coal volumes handled by Indian ports declined by 12 per cent during the
first five months of the current financial year while iron ore exports grew by
29 per cent during the same period.
Ports like Paradip, Haldia, Visakhapatnam, Krishnapatnam, Ennore and
Tuticorin depended on coal to large extent on traffic earnings. In fact the
Kamarajar port at Ennore has invested heavily on construction of exclusive coal
berths when the thermal stations in Tamil Nadu are backing down in view of the
spurt in demand for cheap solar and wind energy sources.
Chennai port will not be affected by this trend since coal handling in the
port was stopped by the Supreme Court on environmental grounds six years ago. About
40 per cent of the port cargo came from coal when the handling was banned.
Cargo throughput at Indian ports registered a 5.7 per cent growth to 1,133
million tonnes (mt) during FY2017 as against 1,072 mt recorded in FY2016.
The growth was supported by 133 per cent growth in iron ore cargo volumes
(82 mt against 35 mt) supported by a resumption of mining operations in Goa,
Karnataka and Odisha as well as healthy growth of 6 per cent in POL and liquids
(petroleum, oil and lubricants) and other cargo (9 per cent).
However, volume of coal was down by 12 per cent during the period as demand
side issues and higher domestic production continued to reduce the domestic
In terms of the cargo growth outlook, port sector players will continue to
experience healthy growth in cargo in the near term, albeit somewhat lower
compared to the recent fiscals, as revival in iron ore exports, pick up in POL
volumes as well as impetus for coastal shipping will be partially offset by
lower coal imports and slowdown in container volumes due to weak ex-im trade.
Moreover, cash accruals of the players will be supported by steadily rising
handling rates, barring the projects where the tariff setting process is mired
in litigations. Over the medium- to long-term, various initiatives under the
Sagarmala programme will aid the long term growth trajectory of the industry.
While the keen interest of the Union government on the development of the
port sector is positive; however, resolution of pending tariff-related issues
and faster resolution of connectivity-related issues will be the key for the
sector’s growth over the long term.
Going ahead, cargo volumes and EBITDA margins of non-major ports/private
terminal operators could come under pressure on account of increasing
competition from the Major Ports that have seen significant improvement in
their efficiency parameters in recent quarters. In particular, overcapacity in
the container terminal segment could result in acute pressure on the margins of
the terminal operators, said a release.
Mr Ravichandran added, "Given the high leveraging of some private port
sector entities (over 3x Total Debt/EBITDA) and the issues faced in achieving
optimal returns (Return on Capital Employed <10 per cent) from the business,
ICRA believes that consolidation trends could gather further momentum going
forward. Credit profiles could come under pressure on account of any leveraged
M&A transactions, recurring cargo-related setbacks or any adverse movement
on tariff-related litigations."