The combination of a benign export policy and revival in iron ore prices saw major ports reporting higher volumes in April – they rose 9.7% y-o-y, one of the highest growth levels seen in recent times. Our interaction with minor port companies as well as major ports suggest that trade flows in the first two months of this fiscal seems better than in the preceding quarter. Going forward, it remains to be seen whether trade flows can jump to levels wherein container TEU volumes can rise by 12-15% (as guided by managements of Concor/Adani Ports & SEZ—APSEZ). But, feedback/ corporate commentary from channel partners suggests slow pick-up.
Major ports record sharp 9.7% y-o-y jump in volumes
Volumes at major ports in April 2016 logged sharp 9.7% y-o-y jump in volumes versus a run-rate of 4% in the past 12-odd months. This has been aided partially by pick-up in iron ore export volumes (from mere monthly run-rate of 0.5MT to 3.5MT in April 2016). Iron ore traded has been helped by favourable government policy (zero export duties versus 10% earlier and removal of differential freight rate for exports). Among the ports that benefitted were Mormugao on the West coast and Visakhapatnam on the East. While thermal coal volumes were flat y-o-y at 8.7MT, coking coal declined 35% from 5MT to 3.2MT due to lower demand from steel companies. Container volumes, at 686kTEUs, were up 3.87% y-o-y.
Our interaction with companies/ports suggests mild recovery
We interacted with port companies and container train operators to gauge the trade flow activity. While commentary on coal volumes remained a little cautious, container volumes in first 2 months of this fiscal appear better than in the preceding quarter. APSEZ continues to work towards regaining lost coal volumes (signed take-or-pay with Reliance Industries for 4mtpa and agreements with TNEB/APGenco for coastal coal shipment from Dhamra port) even as it remains upbeat on container volumes following commissioning of CT4 and linked trans-shipment volumes (targets to grow from 350kTEUs in FY16 to 600kTEUs for FY17). JNPT, after having added new capacity of 800kTEUs (by DP World), is now working towards addressing evacuation bottlenecks and preparing for any pick-up in trade. Gujarat Pipavav Port is expected to work at 60% utilisation on expanded container capacity as guided earlier in the analyst call.
Outlook and valuations
Feedback from channel partners/companies at start of year appears promising, but it is still early days. We have a ‘BUY’ on Gujarat Pipavav Port (TP R175), APSEZ (TP R261) and Gateway Distriparks (TP R321).
Take-away from our interaction with key industry players
JNPT: The 330 metre container terminal has commenced operations and addressed capacity constraints on waterfront by augmenting handling capacity of 800kTEUs/annum. On land side infrastructure, the port is augmenting rail capacity. JNPT’s April’16 container volumes, at 370kTEUs, were flat y-o-y despite new capacity coming on stream. The port officials attributed this to EXIM trade, which has been weak for some time.
Gujarat Pipavav Port and Concor: For Gujarat Pipavav Port, the message is clear—as stated in last analyst call—that they could achieve 60% of utilisation on expanded capacity. Coal volumes are also likely to be at 60% utilisation. Coal India is working hard to enhance its market share. Concor commentary also remains positive on trade volumes in the recent 2 months and expects improvement in volumes for FY17, albeit on low base.
Adani Ports & SEZ: For FY16 consolidated, coal volumes fell to 63mt from 68mt in FY15. Coal volume at Mundra port plummeted partly because of volumes shifting to the company’s Tekra-Tuna coal terminal at Kandla. For FY16, Kandla witnessed 8.2% growth in volumes handled (92.5mt to 100mt), which was largely driven by 3.5mt of coal volumes handled by Tuna Tekra which was commissioned towards end FY15.
APSEZ expects to claw back lost coal volumes: 1) has signed 4mtpa of take-or-pay with Reliance Industries and expects to handle at least 2mt in FY17. 2) coastal coal volumes from Dhamra are expected to rise to 3.5-4mt in FY17 (0.5mt in FY16). 3) with PLFs at Tata Mundra (CGPL) and Adani Power Mundra plants expected to go up, incremental coal requirement would be 2mt.
Container volume growth to remain healthy: After handling 3.35 million TEUs, APSEZ remains confident of maintaining strong growth in container volumes, targetting 4.5mn TEUs in FY17.