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Decline in coal imports to hurt long-term returns of ports: Icra

Volume growth at major ports at 3% in first 5 months of FY18, as coal volumes drop 12%

Aditi Divekar  |  Mumbai 

ports, terminals, cargo, shipping

A continuous decline in volume growth at major could be a cause of concern over the long-term in absence of diversification into other cargoes, rating agency said on Wednesday.

"Overall volume growth at major has stood at a mere three percent during the April-August period in FY18 as volumes recorded a 12 per cent decline in the period under review, even as iron ore volumes picked up 29 per cent," said K Ravichandran, senior vice-president and group head, corporate ratings at  

"The continuing decline in volumes at a more rapid rate, as compared to the previous periods, is a concern over the long term for the port sector. A prolonged decline in import requirement in the absence of diversification into other categories will impact the returns for such port sector players," he said.

throughput at Indian registered a 5.7 per cent growth to 1,133 million tonnes (MT) during FY17, as against 1,072 MT recorded in the preceding financial year. The growth was supported by a 133 per cent growth in iron ore volumes at 82 MT, against 35 MT, as resumed in Goa, Karnataka and Orissa and also due to a 6 per cent growth in POL & Liquids (petroleum, and lubricants) and another 9 per cent growth in the other segments. However, volumes slipped 9 per cent on account of several demand-side issues, along with higher domestic production that continued to reduce the domestic demand-supply deficit.

In terms of growth outlook, port sector players will continue to experience healthy growth in in the near term, albeit somewhat lower compared to the recent financial years, as revival in iron ore exports, pick up in POL volumes as well as impetus for coastal shipping will be partially offset by lower imports and a slowdown in container volumes due to weak exim trade. Moreover, cash accruals of players will be supported by steadily rising handling rates, barring the projects where the tariff setting process is mired in litigations. Moreover, various initiatives under the Sagarmala programme are expected to aid the long-term growth trajectory of the industry.

While the government's keen interest in the development of the port sector is positive, resolution of pending tariff-related issues and a swifter redressal mechanism for the connectivity-related issues will be the key for the sector's growth over the long term.

Going ahead, volumes and EBITDA margins of non-major and private terminal operators could come under pressure on account of increasing competition from major that have seen significant improvement in their efficiency parameters in recent quarters. In particular, over-capacity in the container terminal segment could result in acute pressure on the margins of terminal operators. 

added: "Given the high leveraging of some private port sector entities and the issues faced in achieving optimal returns from the business, believes that consolidation trends could gather further momentum going forward. Credit profiles could come under pressure on account of any leveraged merger and acquisition (M&A) transactions, recurring related setbacks or any adverse movement on tariff-related litigation."

First Published: Thu, October 05 2017. 02:55 IST