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Capacity additions in Ports will affect the margins of Container Terminals

High capacity additions in both state owned ports as well as private ports on both the west and the east coasts will dent the business performance of container terminals in the medium-term, a rating agency report said.

On the west coast, the over-capacity concerns stem from the state-run JNPT, the largest container port in India already handling over half of the volumes, planning to double its capacity with the addition of the fourth terminal.

Competing terminals at Mundra, Pipavav, Hazira and three existing JNPT terminals will be hit over the next three years because of JNPT's plans, domestic ratings agency Icra said in a report. With prime minister's penchant for setting up projects in Gujarat, Kandla port will see massive investment in container handling facilities in the coming years

On the East coast, the Chennai-Ennore-Kattupalli- Krishnapatnam cluster, which has seen significant capacity being installed, is also likely to face strong competition for volumes over the next 3-5 years, it said. Chennai port alone has an installed cargo handling capacity of 130 million tons while the port handled 51 million tonnes of cargo last year.

Gone are the days when Chennai port handled the requirements of four states. At present there are four modern ports in and around Chennai.

The pressure on realisation and margins is imminent as the lines drive a hard bargain on rates," a spokesman of the rating agency said. While the recent capacity creation in these regions is backed by prediction of strong demand growth, increase in exim cargo movement would be gradual and in the interim, terminals could witness pressure on volumes," he added.

Given the high leveraging of some private sector port operators and concerns on returns, he said "consolidation trends could gather further momentum going forward".

He, however, warned that credit profiles could come under pressure on account of any leveraged merger and acquisition transactions, recurring cargo related setbacks or any adverse movement on tariff related litigations.

On the non-container side, including bulk, liquid and other cargo, the agency said the decline in coal volumes in the first eight months of the fiscal is a "concern" over the long term. The government had resisted coal imports but had to give in when the coal inventory in thermal power stations became hand to mouth in recent months. The stations had two to three days stocks last months but things have improved as railways rushed coal stocks to plants in southern India,

"A prolonged decline in coal import requirement in the absence of diversification into other cargo categories can impact the returns for such port sector players," it said.

In the near term, the cargo and cash accrual outlook for the port sector overall is positive, it said.

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