ICRA Ratings expects the overall volumes at Indian ports to continue witnessing improvement and the same in FY2022 is likely to surpass FY2020 (pre-Covid) volumes. The optimism is based on the performance of the sector in 5m FY2022 wherein all segments except fertilisers have witnessed healthy Y-o-Y growth. The overall cargo volumes are largely stable in 5M FY2022 in comparison to similar period in FY2020 and are driven by healthy growth in containers, iron ore and other miscellaneous segments. The positive growth can also be attributed to the base effect since the same period during last fiscal (FY2021) was most severely impacted by the pandemic-related lockdown. The exceptions to volume growth (apart from fertilisers) are POL and coal volumes which have remained subdued. POL and thermal coal segments had remained subdued in FY2021 too due to demand contraction and while there has been a Y-o-Y improvement in 5m FY2022, the volumes remain lower compared to FY2020 levels.
Commenting on this, Sai Krishna, Assistant Vice President & Sector Head at ICRA,says, “Cargo volumes at Indian ports had witnessed a sharp contraction of ~14% during H1 FY2021, following the strict lockdown measures imposed which had resulted in severe economic contraction. However, in H2 FY2021, except for Feb 2021, the volumes witnessed Y-o-Y growth driven by easing of containment measures and a pick-up in economic activity with Y-o-Y growth of ~3% in H2 FY2021. In 5M FY2022, volumes reached almost pre-Covid levels despite the second wave of Covid-19, as economic activity improved. Overall cargo volumes are expected to grow by 7-10% Y-o-Y in FY2022 and by 1-4% compared to FY2020, driven by the economic recovery.”
The sector has witnessed consolidation in the last few years, with acquisition of ports and port assets by larger players. The trend is expected to continue as some of the weaker entities or strategic standalone assets get acquired by stronger and larger players.
Ravish Mehta, Senior Analyst, ICRA Ratings, adds: “In FY2021, due to the lower cargo movement, the cash flows of some entities which had recently commenced operations or concluded debt-funded capacity expansions had come under pressure despite the liquidity support measures provided by the MoS and the RBI. However, as expected, the SPVs promoted by stronger sponsors have had the financial flexibility to weather the downturn and their debt servicing has not been materially impacted.”
Going forward, with healthy volume growth expected for FY2022, the performance of the segment is expected to improve as they will benefit from the operating leverage. The profitability of ports should recover in FY2022 due to improved capacity utilisation and benefit of operating leverage.