Rebound in coal volumes positive for port sector players: ICRA

10-December-2018

Terming rebound in coal volumes and steady progress on the Sagarmala project positive for Indian port sector players in the medium term, rating agency ICRA Wednesday maintained stable year-end outlook for the port sector.

“ICRA has given a stable outlook for the port sector, in its year-end assessment. The prospects for the Indian port sector players in the medium term are expected to be favourable, supported by continuing healthy growth in cargo of major volume drivers – Coal, Crude and Containers,” the rating agency said in a statement.

Coal imports, which had become a concern over the last 2 years, have been witnessing a rebound and could continue to with the momentum witnessed in first half of FY 2019, it said. Demand revival from the power sector and key consumer industries would be critical for sustained pick-up in coal imports, it said.

Besides coal, ICRA expects that over the medium to long term, overall cargo growth will gain further traction, driven by domestic requirements of crude oil, for meeting domestic petroleum requirements; and containers, given the cost and logistical advantages associated with containerisation, the agency said.

Cash accruals for the major players will be supported by steadily rising handling rates, barring the projects where the tariff setting process is mired in litigations, the statement said adding, however, iron ore imports which increased over the last 4-6 quarters, could decline with continuing curbs on mining activities thereby higher reliance on domestic iron ore which could lead to decline in exports.

“ICRA notes that the major ports are already being targeted for modernisation and efficiency improvement under the Sagarmala project. Over the last two years, there has been progress on the port capacity enhancement, efficiency improvement and port connectivity,” it said.

The Ministry of Shipping has chalked out a road map over the next five to ten years, wherein significant investments would be made in the sector to boost trade and development.

In the long run, ICRA said it believed the implementation of the project could lead to increased cargo for the ports, however, several challenges remain, given the vast scale of the project and the significant funding resources and PPP participation required to make the targets a reality.

Further, several non-major ports have under-performed owing to cargo ramp-up issues amidst stiff competition for hinterland cargo.

Given the low returns and high leveraging being faced by certain private sector port players, the sector could see further consolidation, it observed.

“Credit profiles of companies could come under pressure on account of any leveraged M&A related impact, cargo related issues or any adverse movement on litigations,” it said.

Source: PTI