According to estimates released by the Indian Ports Association, the cargo volume handled by major ports in the country in the last fiscal year fell 1.7% from fiscal year 2011 (FY11). A key reason for the decline is the poor performance of iron ore loading, which fell by 30% year-on-year (y-o-y).
What does this mean for private port company Adani Ports and Special Economic Zone Ltd (APSEZ), which has seen the volume of cargo handled grow at a much faster 29% compared with almost unchanged performance at the major ports in the nine months ended December?
The company is likely to see a similar trend for the full fiscal year as well. Capacity constraints at major ports such as Jawaharlal Nehru Port Trust have helped APSEZ to an extent. Moreover, the company is expected to see robust growth in coal volume on account of the expansion in capacities by Adani Power Ltd and Tata Power Co. Ltd, which will support volume handled in future.
In the December quarter, too, substantial growth in coal volume handled helped the company report 34% y-o-y growth. The growth in cargo volume handled compared with major ports does look attractive for APSEZ. Still, some analysts said that this was lower than their estimates. Total volume handled in the December quarter is a bit lower than the September quarter. Coal cargo volume, too, was lower sequentially.
Even as the company is expected to perform relatively better than major ports, a slowdown in bulk cargo volume poses a key concern. “We believe consensus and management estimates on the bulk volume growth (accounts for about 81% of FY13E and FY14E volume) for APSEZ are aggressive and the linear growth assumptions for non-contracted bulk cargo continue to stand at risk,” according to Sandeep Mathew, a research analyst at Credit Suisse Securities (India) Pvt. Ltd in a December quarter earnings update.
Meanwhile, recent news reports indicate that the company has refinanced a bridge loan of $2 billion (Rs10,300 crore today) taken for the Abbot Point Coal Terminal, which is why the stock has risen 8% since its March-end, to Rs127. At the current level, the APSEZ stock seems to be factoring in most of the positives. True, the company’s infrastructure and location are plus points, but the outlook on volume growth is likely to determine the stock’s movement in the long run.
Source: Live Mint