Jawaharlal Nehru Port Trust (JNPT), the largest container port in India, wants to use its sizeable cash reserves to buy out smaller cash-strapped ports to quickly ramp up capacity.
The Mumbai-based port operator has hired a consultant to carry out a feasibility study and identify potential acquisition targets, said Neeraj Bansal, chairman-in-charge, JNPT.
Among the options being evaluated on the west coast are the loss-making Mormugao Port Trust in Goa and Dighi Port, a private port in Maharashtra’s Raigad district owned by Balaji Infra Projects Ltd and IL&FS Ltd, which was last month admitted into insolvency court.
The ministry of shipping is also creating a special purpose vehicle to bring in government stake in the greenfield port at Vijaydurg Port in Maharashtra’s Sindhudurg district. This is expected to cater exclusively to the proposed 60 million-tonne per annum oil and gas mega refinery on the west coast.
The ministry is also in the process of giving JNPT the rights to develop Rewas port. The project had been awarded to Reliance Logistics and Ports, a Reliance Industries subsidiary, in 2002, but work on the project has not even begun.
“The ports sector is changing very fast,” Bansal said in a phone interview. “JNPT is exhausting its capacity to handle coal, steel and other cargo. The state requires these materials for power, infrastructure and other industries. At this time, when the port is making profits, we must invest in infrastructure creation and look for good investment opportunities,” he said.
“When the government buys an asset, it does complete due diligence. We’re not in a rush, we work with a lot of caution and there are a lot of processes involved. If I am going to invest in a debt-ridden company, I (need to be sure that it) will get value for money,” Bansal said.
Bansal declined to say how much JNPT is willing to invest in buying out competitors. As of March 2017, JNPT had reported Rs4,700 crore of free cash reserves. In FY17, JNPT reported net profit of Rs879.32 crore. It has not made its financial results for FY18 public yet.
JNPT has an annual container capacity of 4.8 million TEUs (20-foot equivalent units) and has plans to double this capacity by 2022. The first phase of this expansion was completed in February and the terminal is operated by Singapore’s PSA International.
Dighi port is part of the Dedicated Freight Corridor and the Delhi-Mumbai Industrial Corridor. Dighi Port has a capacity of 30 million tonnes and has started partial operations. On 18 April, BusinessLine reported that the port had been taken to bankruptcy court by an operational creditor. It also owes Rs1,600 crore to a consortium of banks. Goa’s Mormugao Port has seen losses mount in recent years after the Supreme Court imposed a ban on iron ore extraction in the state. Iron ore and coal used to contribute the bulk of the port’s cargo.
“JNPT is operating at close to full capacity today. Because of its capacity constraints, it has seen a lot of cargo traffic move to ports in Gujarat, like Hazira, Mundra and Pipavav, said K. Ravichandran, senior vice-president & group head, corporate ratings, ICRA.
These acquisitions will help JNPT regain its market share, Ravichandran said. “Trade is expected to grow 10-12% annually. JNPT is a profitable port and operates efficiently. It is AAA rated, has significant cash reserves and has spent the last couple of years building road connectivity.
The cost of an acquisition depends on the financial health of the port. “A highly profitable port will be priced at an EV/Ebitda multiple of 10-15 times. For a weak port, depending on how much debt it has, this multiple will be much lower,” he said.
Bansal of JNPT said: “We are looking at options to leverage our savings. Ultimately, we need to create more assets, so we have more muscle, more centres from which to serve the nation. The government is advocating for port-led development. If JNPT can create (a profitable port) here, why not do it in other places too?”
Source: Live MintPrevious Next
Huge Opportunities For Investment in Maritime Sector: Nitin Gadkari
India Tanker Shipping & Trade Summit 2019