Cargo volumes at Indian ports largely back to pre-Covid levels
ICRA Ratings anticipates that overall volumes at Indian ports will continue to rise, and that they would likely surpass FY2020 (pre-Covid) volumes in FY2022. The optimism is based on the sector's performance in 5m FY2022, during which all segments except fertilisers had good year-on-year growth. Overall cargo volumes remain relatively consistent in 5M FY2022 compared to the comparable period in FY2020, owing to robust growth in the container, iron ore, and other miscellaneous segments. Additionally, the good rise might be attributed to the base effect, as the same period previous fiscal year (FY2021) was adversely damaged by the pandemic-related lockdown. Apart from fertilisers, the only exceptions to volume growth are POL and coal volumes, which have stayed relatively stable. POL and thermal coal segments remained subdued in FY2021 as well due to demand contraction, and while 5m FY2022 volumes improved Y-o-Y, they remain below FY2020 levels.
Mr Sai Krishna, Assistant Vice President and Sector Head at ICRA, comments on this, saying, "Cargo volumes at Indian ports experienced a dramatic contraction of 14% in H1 FY2021, as a result of the rigorous lockdown measures enacted, which resulted in severe economic loss." However, except for February 2021, volumes increased Y-o-Y in H2 FY2021, owing to the relaxation of containment measures and a pickup in economic activity, with Y-o-Y growth of 3% in H2 FY2021. Volumes returned to nearly pre-Covid levels in 5M FY2022, despite the second wave of Covid-19, as economic activity rebounded. Overall cargo volumes are predicted to increase by 7-10% year on year in FY2022 and by 1-4% year on year in FY2020, owing to the economic recovery."
Consolidation has occurred in the sector over the previous few years, with larger competitors acquiring ports and port assets. This trend is projected to continue when some of the smaller businesses or strategic independent assets are acquired by larger, stronger players.
Mr. Ravish Mehta, Senior Analyst, ICRA Ratings, adds: "In FY2021, as a result of decreased cargo movement, the cash flows of several firms that had recently begun operations or completed debt-financed capacity expansions came under strain, notwithstanding the MoS and RBI's liquidity assistance measures." However, as expected, SPVs supported by stronger sponsors have maintained financial flexibility during the crisis, and their debt servicing has remained unaffected."
Going forward, with good volume growth forecast in FY2022, the segment's performance should increase as a result of the operating leverage. Port profitability should improve in FY2022 as a result of increased capacity utilisation and the advantage of operating leverage.