Third-party cargo to be half of total in 3-5 years : Essar Ports MD & CEO - Essar | Creating Value

Third-party cargo to be half of total in 3-5 years : Essar Ports MD & CEO

Business Standard

Jan 10th, 2019

Essar Ports, one of India’s largest private-sector port operators, is banking on third-party cargo to ramp up its capacity utilisation and drive profitability. The company expects third-party cargo’s share of total throughput to reach 50 per cent over the next three to five years — twice as much as it is currently. In an interview with Jayajit Dash, Essar Ports Managing Director & Chief Executive Officer (CEO) Rajiv Agarwal listed technology upgrades, which will see Rs 350 crore worth of investments, as another priority. Edited excerpts:

Ramping up cargo capacities across facilities has been a thrust area for Essar Ports. What is the capacity you are targeting and what do you expect the investments to be? What factors will spur capacity ramp-up at your terminals?

Essar Ports is a leading private port operator with an operational capacity of 95 million tonnes per annum (mtpa). We expect this to be expanded to 120 mtpa in 2020-21. The expansion being undertaken is on account of enhanced capacity utilisation on account of increased consumption and production by our anchor customers from the steel and power sectors, besides a significant increase in third-party business. We have presence across Hazira and Salaya in Gujarat on the western coast, besides Paradip in Odisha and Vizag in Andhra Pradesh on the eastern. To date, we have invested over $1.6 bn (about Rs 11,000 crore) in the development of port terminal facilities. This year, we have already completed our investments across the Salaya terminal (20 mtpa), and Vizag terminal (24 mtpa). Now we are in the process of expanding the Hazira terminal by another 1,100 metres with mechanisation.

There is a wide gap between available capacity and actual utilisation at your facilities. How do you plan to improve capacity utilisation?

We are currently operating at close to 50 per cent capacity utilisation and plan to increase this to 75 per cent, given a boost in anchor customers’ consumption and production, and third-party business. Our facilities, located strategically, already generate a significant interest from industries in proximity.

Going forward, how do you see third-party cargo’s share of your overall cargo volumes and profitability changing?

We have already enhanced the share of our third-party cargo from five per cent to 25 per cent. We plan to increase this consistently to 50 per cent over the next three to five years. Overall profitability contribution from third-party business is also expected to grow along similar lines. Volumes will remain robust because it is not a factor of who comes but a factor of how the industry is doing. And, the industry is doing well, not only in terms of demand but also pricing. We expect our volumes to go up irrespective of who acquires Essar Steel. In fact, they might increase faster because, after this process, the acquirer will want to ramp up capacity for the steel plant at Hazira. That will mean more cargo.

How do you rate the performance of your terminals against the industry average in the ports sector? Also, what is your guidance on Ebitda and profits for this financial year and next?

All our facilities are state-of-the-art and located strategically. They deliver world-class operational parameters with loading rates in excess of 100,000 tonnes a day and unloading capability of over 60,000 tonnes a day. Essar Ports is operating at a healthy earnings before interest, taxes, amortisation and depreciation (Ebitda) of around 70 per cent, against the industry range of 55-63 per cent.

What infrastructure facilities do you plan to add at your facilities over the next three to five years?

We plan to invest close to Rs 350 crore over next two years in technological upgrade and advanced systems. These will make our facilities deliver world-class parameters. The facility will see enhancements through mechanisation as and when we add new berths and stockyards. Additionally, we plan to keep on undertaking brownfield and greenfield projects, both at new and existing facilities. Segments like container, LNG (liquified natural gas) and liquids will play a major role in greenfield project development in the long term.

What is your capital expenditure forecast for 2019-20? Do you feel the need to raise credit from domestic and foreign sources? Is the ports sector facing difficulties in raising funds?

Expansion of existing facilities planned in 2019-20 is to be funded through internal accruals.

Do you feel coastal shipping will be a growth driver?

Coastal movement is another area where port companies are seeing strong investments coming in the long term. However, it will be viable over 500 km of distance, as shorter routes might help recover costs. There is a huge potential for bulk cargo, such as steel, cement, fertilisers and automobiles, given the current constraints across traditional modes of transportation.