Home Finance ‘Port cargo volume to contract 5-8% in FY21’

‘Port cargo volume to contract 5-8% in FY21’

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The outbreak of COVID-19 and the extended lockdowns have adversely impacted the Indian port sector and cargo volumes would see a contraction of 5 to 8% in FY21, ICRA Ratings said in a report.

Though the sector remained operational during this period, the adverse impact on domestic economic activity as well as slowdown in global trade has led to a reduction in cargo volumes at major ports, it said.

Similar to the 22% decline in April 2020, May 2020 also saw a 22% decline in throughput. While, the decline was across major cargo categories, POL, thermal coal and container segments witnessed a significant contraction, it added.

Ankit Patel, vice-president and co-head, ICRA Ratings, said: “The recovery in the port sector will be contingent on the pace of recovery of the domestic industrial activity and the global economy.” “Further, factors like changes in global supply chain pattern during the recovery phase will also have an impact on the cargo profile. Of late, anti-China sentiment has also been building up momentum, which could also be a headwind for the trade growth.” he added.

ICRA said full-year outlook for the sector remains negative and recovery among the cargo segments should be relatively better for essential products such as POL and thermal coal, while for segments like coking coal and containers, recovery may be long drawn.

While the general cargo throughput may witness 5-8% contraction for FY21, the container segment may witness a decline of 12-15% during the same period, ICRA said.

It said due to the invocation of force majeure clauses at major ports, the project implementation of Sagarmala and other port projects may witness delays by at least six to 12 months.

Further, since the projects are mainly driven by the private sector, given the steep economic contraction, many discretionary capex plans may be further postponed.

On the credit profile of port companies, K. Ravichandran, senior VP and group head, ICRA Ratings, said “The credit profile of port sector companies is expected to witness pressure in the near to medium term, due to the impact of COVID-19 outbreak and the subsequent lockdown imposed.”

“Further, entities that have recently commenced operations or concluded debt-funded capacity expansions or have concentrated cargo profile like containers could come under severe pressure,” he said.

“Nonetheless, well diversified players (cargo-wise) and SPVs promoted by stronger sponsors should have higher financial flexibility to weather this downturn and their debt servicing is unlikely to be materially impacted,” he added.

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Source Name – The Hindu