The focus on transportation economics, legacy issues at government-owned ports, and rising demand for minerals and goods have turned analysts and investors positive on the Indian ports sector.
According to them, the domestic ports sector is expected to create greater investment opportunities due to its massive growth prospects, limited impact from volatile global trade, scope for efficiency improvement, and a potentially large captive consumer base.
"The Indian ports sector is on the cusp of renewed growth phase...Indian GDP (gross domestic product) has a subtle linkage to global trade. Hence, we expect the weakening global economy to have a muted impact on the country's cargo growth," Shankar K, analyst with Edelweiss Securities said in his note to clients.
He, however, warned that regulatory intervention and delay in approval pose major risks to the sector and prefers private ports due to their efficiency.
"The private sector is expected to take lead in driving government's ambitious target of more than doubling port capacity to 2.7 billion tonnes from 1.1 billion tonnes through a mix of greenfield projects as well as brownfield expansion (of terminals) in existing ports," he said.
Edelweiss Securities has recommended "buy" on Essar Ports because of the company's superior margins and expects benefits of financial leverage and external cargo handling to propel its earnings in coming years.
Another company Adani Port & SEZ has also received positive rating from brokerages. While Prabhudas Lilladher has assigned "accumulate" rating on the stock, Edelweiss Securities recommended its clients to "buy" the shares.
"Typically, port traffic grows at 1.5-2.0 times of the GDP growth rate, which India has not realised so far on a sustained basis. Even in its best growth decade between 2002 and 2012, cargo grew by only 9.2% CAGR (compound annual growth rate) compared to the average GDP growth of 7.7%," Shankar said.
"However, a large import driven trade coupled with higher containerisation offers vast growth prospects, which could be enhanced further by a rising bulk cargo trade and increase in vessel sizes," he added.
At 11:07AM, shares of Essar Ports were traded at Rs 86.25 on the National Stock Exchange (NSE), up 0.5% from previous close. Adani Port & SEZ shares were at Rs 112.65, down 0.04% from Monday's close.
