The cargo volumes at major Indian ports registered a 5.1% growth during 5MFY2019, over 5MFY2018. The growth in cargo throughput was strongly supported by a jump of 19.9% in coal volumes and 8.7% growth in container volumes. Continuing on the increasing momentum witnessed in H2FY2018, the coal volumes have rebounded largely on the back of improved demand and domestic coal supply disruptions, which has resulted in healthy import requirements, as per ICRA sector note. The exceptions to volumes growth were iron ore and other cargo which declined by 11.2% and 4.3% respectively.

K Ravichandran, Senior Vice President and Group Head, ICRA said, ''Since many ports and terminals have significant dependence on coal imports, the overall weakness in coal cargo has been a cause of major concern for the ports sector over the last two years. However, a healthy revival in coal import requirement would positively impact the returns for coal dependent port sector players who were facing low utilisation levels during this period. Over the long term, a sustainable pick-up in industrial activity and power demand will be crucial for the sustenance of healthy coal imports as domestic production also ramps up to meet the incremental demand. Container volumes continue to grow on the back of improving trade activity. Iron ore volumes have declined on account of re-emerging mining restrictions and as international prices remained under pressure reducing the scope for export growth.''

As for new port development, the government under the Sagarmala project had set ambitious targets under the four pillars - port modernization (including new port development), port connectivity enhancement, port-linked industrialization and coastal community development for phase-wise implementation over the period 2015 to 2035. Recent MoS data indicates that out of the initial 700 projects identified, about 577 projects valued over Rs 8000 billion are at various stages of execution. However, only about 61 projects have been completed till date and another 162 projects are in implementation, while the balances are either at tendering or DPR preparation stage.

ICRA believes that on all four pillars of Sagarmala, there has been some progress especially on the port capacity enhancement, efficiency improvement and port connectivity where there are visible results. At the same time, there are several large projects even in port modernisation/capacity enhancement segment that are still at conceptual/feasibility stage and may take about 3-5 years before they reach advanced stages and then get implemented. On port connectivity, there has been gradual progress on both road and rail connectivity projects.

Ankit Patel, Assistant Vice President and Co-Head, Corporate ratings, ICRA mentioned, ''While these incremental projects could also take a long period to complete and start yielding results, we believe that directionally, this is a positive as the development of good evacuation infrastructure would drive the development of more industrial clusters. Parallelly, the orders rolled out on the National Waterways and the policy initiatives put in place to help coastal shipping like the removal of cabotage restrictions, the coastal berth scheme, etc are all positives. While ICRA continues to maintain that financial resources would be a constraint for achieving the ambitious plans within the stated timeline, there is definite evidence that in the last three years, there has been gradual progress and given that several projects are in intermediate stages now, a more rapid progress should be expected over the next 2-3 years.''

Overall, ICRA note says that diversified port sector players will continue to experience moderate growth in cargo in the near term supported by the continuing growth in POL volumes, growing container volumes as well as the impetus for coastal shipping. Given the high leveraging of some private port sector entities (over 3x Total Debt/EBITDA) and the issues faced in achieving optimal returns (Return on Capital Employed <10%) from the business, consolidation trends are likely to gather momentum going forward. Credit profiles could come under pressure on account of any leveraged M&A transactions, recurring cargo related setbacks or any adverse movement on tariff related litigations.