Traffic at India’s 12 bigger ports witnessed a healthy growth of 3.1% year-on-year (y-o-y) for December on the back of the strong 14.8% y-o-y growth in fertilizer volumes and 10.5% y-o-y growth in petroleum, oil and lubricants volumes.
While the container throughput (20 ft equivalent unit, or TEUs) was flat for December, the tonnage handled has grown 10.4% y-o-y. However, iron ore and coal volumes declined 5.9% y-o-y and 7.8% y-o-y, respectively. Iron ore exports have been falling starting July since the ban of exports by the Karnataka government from 10 of its total ports. As a result, volumes at Mangalore port have been severely affected, witnessing a decline of 12.1% y-o-y for December and 50.3% y-o-y for April-December period.
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Container volumes stabilizing
As per the Indian Ports’ Association (IPA) data for December, container volumes at the 12 bigger ports saw a marginal decline of 0.7% y-o-y, while slipping 3.8% sequentially. The Jawaharlal Nehru port, which handles around 61% of the country’s container volumes, witnessed an increase of 3.9% y-o-y and 2.5% sequentially in volumes. The Chennai port, which handles around 16% of the country’s container volumes, registered a flat growth of 0.9% y-o-y, though volumes fell by 2.6% sequentially. The container data year-to-date for FY11 indicates that volumes have begun stabilizing at the current levels. During April-December, the bigger ports handled 5.6 million TEUs against 5.1 million TEUs during the corresponding period of last year, registering a y-o-y growth of 10.8%. Going ahead, we expect the ports to sustain the monthly run-rate and surpass the 7-million-TEU mark set for FY11. Company-wise, we estimate Container Corp. of India Ltd (Concor) to post 10.0% y-o-y growth in export-import volumes in FY11 against the management’s guidance of 12%.
Exports surge the highest in 33 months
Merchandise exports in December touched $22.5 billion, up 36.4% y-o-y and the highest in the last 33 months, while imports fell by 11.1% y-o-y to $25.1 billion narrowing the trade deficit to $2.6 billion for the month.
During April-December, exports grew 29.5% y-o-y to $164.7 billion, while imports increased 19% y-o-y to $247.1 billion, indicating that the government’s target of achieving $200 billion exports in FY11 is possible. Trade deficit stood at $82.4 billion during the period and is expected to be around $118-120 billion for FY11, lower than the earlier estimate of $135 billion. A revival in export-import trades has been seen in overall port throughput as well as container volumes.
We believe that sustained growth of the Indian economy with gross domestic product growth expected at 8.5% over the next few years, and emergence of India as a global outsourcing hub will facilitate the country’s container trade.
In the current decade, container traffic registered 12% compounded annual growth rate (CAGR) compared with 9% CAGR posted by the total traffic at the bigger ports. We expect this trend to continue and container traffic to register 11% CAGR over the next five years, driven by the addition of new container terminals and increased containerization.
We prefer companies that provide a decent blend of growth opportunities and are available at attractive valuations. Accordingly, we maintain a reduce on Concor as it is losing its pricing power in the high-margin export-import segment and is trading at expensive valuations.
We maintain a buy on Gateway Distriparks Ltd and expect it to register a CAGR of 14.1% in earnings per share over FY10–12 on account of being present at strategic locations, its ongoing expansion plans and break-even in the rail business at the profit after tax level.
Graphic by Paras Jain/Mint
Edited excerpts from a report by Angel Securities. Your comments are welcome at firstname.lastname@example.org