Essar Ports is riding high despite a global economic slowdown and declining
trade. The company has formed a strategic alliance with Port of Antwerp International
(PAI), the international investment arm of Belgium's Antwerp Port Authority.
PAI has picked up a 4 per cent stake in Essar Ports for Rs175 crore ($31.3 million).
As part of this partnership, Essar Ports, the country's second largest private sector port and terminals company, will look at building a port city at its harbour at Hazira in Gujarat. The joint venture will also help the company to increase trade volumes by attracting cargo traffic from Antwerp, currently landing at other Indian ports, at concessional rates.
"This partnership with Europe's second largest port will promote growth of traffic between Port of Antwerp and ports of Essar and help us in developing world class port facilities with a focus on quality, productivity and environment," said Rajiv Agarwal, chief executive officer & managing director, Essar Ports.
The Antwerp Port Authority and Essar Ports will collaborate in the areas of training and consultancy services, port planning, traffic flow, quality and productivity improvement. The port city planned will be along the lines of the one at Antwerp, where several industrial units surround the port.
According to Agarwal, most of the proceeds from the stake sale will be used to reduce debt, which stood at Rs5,488 crore ($980.4 million) on March 31 this year. PAI is picking up the stake in the form of GDRs. Indian regulations do not allow Essar Ports to raise equity till the promoters bring down their stake to 75 per cent or below. Once that happens, the GDRs will be converted to equity shares. Currently, the promoters hold around 84 per cent in the firm.
PAI will also play a role in the management of the firm as well. Jan Adam, chief financial officer of the Port of Antwerp, will be appointed as a non-executive director on the board of Essar Ports.
Essar Ports reported a loss of Rs61.5crore ($10.8 million) for the fourth quarter ended March 31, 2012, as against a profit of Rs11.5 crore ($2 milllion) in the previous year. Its revenue in the same period rose 45.6 per cent to Rs294 crore ($53.1 million). The loss was due to a one-time provision on account of a contingent liability of Rs235.50 crore ($42.14 million). "This liability was due to 'recognition of interest on a corporate dept restructuring (CDR)'," the company's statement said."
Revenue for FY12 increased by 52 per cent to Rs1,131 crore ($202.4 million) from Rs746.5 crore ($133.6 million) revenue from the port business in FY11, erstwhile Essar Shipping Ports & Logistics (ESPLL) had a revenue of Rs2,086.1 crore ($373.2 million). Net profit for FY12 increased by 124 per sent to Rs63.9 crore ($11.4 million) from Rs28.5 crore ($5.1million) net profit from the port business in FY11, erstwhile ESPLL had a net profit of Rs70.2 crore ($12.5 million).
"We are witnessing expansion plans in most of our anchor customers. In case of Essar Oil and Essar Steel, the capacities are getting expanded which will result in cargo growth for us. We are going to start operations at our iron ore terminal in Paradip Port. Additional volume will come in for second quarter. So we expect a good year ahead. We should handle about 65 million tonnes (mt) of cargo in 2012-13. By 2014 out capacities will go up to 150 mt and we are confident of handling about 125 mt of cargo," he said. During the financial year Essar Ports handled cargo to the tune of 43.23 million metric tonnes (mmt) as against 39.55 mmt during Y11, an increase of 9 per cent.
Essar Ports develops and operates ports & terminals or handling liquid, dry bulk, break bulk and general cargo. It has an aggregate capacity of 88 mmtpa across two facilities located at Vadinar and Hazira in Gujarat.
The facilities at Vadinar and Hazira are used primarily by affiliated customers for the receipt of raw materials such as crude oil, iron ore / pellets, limestone, dolomite and coal, and for the dispatch of finished goods such as petroleum products and steel products.
The port expansion projects have been undertaken, in apart, to accommodate the increase in traffic expected to arise from plant expansions planned to be carried out by the company's affiliated customers, and in part to support the increase in business from non-affiliated customers being targeted by the company.
"We are adding about 60 mt in Paradip which will come on stream by this month. Again in Paradip, we are coming up with a coal terminal of 14 mt capacity by 2014. 20-mt coal terminal is also coming Salaya. Another 20-mt expansion is taking place in Hazira. Total investment that goes into these expansions is about Rs9,600 crore ($1.7 billion), of which we have already spent about Rs6,700 crore ($1.19 billion)," he said.
Essar Ports is also planning to venture into building container terminal projects and is on the lookout for partners. In fact, the company is in the race to build the Rs3,683-crore ($659 million) mega container terminal at Chennai Port. While there were seven bidders in the pre-bid meet, now the race is between Essar Ports and Adani to get the final project. Both the companies are now awaiting security clearance from the defence ministry.
Rajiv Agarwal, CEO & MD of Essar Ports, has spent 26 years in various industries including retail, BPO, telecom, shipping and logistics. He has been associated with the Essar Group since 1997 and was the ED of Essar Shipping Limited (ESL) from 1998-2002. He won CEO of the Year Award in 2009 at the Asia Retail Congress. A chartered accountant by training, he became a CEO in 1992, when he was just 28 years old. As per management philosophy, everyone should be responsible for his / her functions. In this brief interview, he talks about the status of port development in the country and its future.
Q. As a port operator what is your perspective of port development in India and what do you think of the future scenario?
A. The Indian story is definitely a growth story. We are an energy-hungry nation with billion-plus population. Infrastructure has to grow and requirement for raw materials will also go up. External trade is increasing by 20-25 per cent year-on-year. Logistics cost plays a crucial role in the overall competitiveness of the industry. Sometimes these costs will play a major role in determining the success of any industry. All this will throw up demand for world class ports. So, in the time to come there is a need to modernise our existing ports, deepen the draft, improve the mechanisation and increase capacity utilisation. I see a good growth potential in the port sector. Though we have momentary ups and downs in the development process, they get resolved in due course.
Q. How is the investment into the ports sector flowing?
If you look at various infrastructure segments, I think the ports sector is still attractive for investment because there are no major problems, unlike other sectors. I would say investors are pretty much keen to invest in the ports sector. However, the overall mood that the industry is passing through today will certainly impact the investment.
Q. Are you looking at any greenfield port development?
A. We have the intention. But right now, we do not have a project in hand. We would concentrate first on completing the projects we already have.