Académique Documents
Professionnel Documents
Culture Documents
Code:-2911
By
Tapan Jatakia
Sagar Bhatt
Sydicate house
Manipal-576 104
ANNEXURE –B Student Declaration
We, Mr. Tapan Jatakia and Mr. Sagar Bhatt, hereby, declare
that the Grand Project titled, “Indian Ports…An emerging
Gateway to Investments” is original to the best of my
knowledge and has not been published elsewhere. This is for
the purpose of partial fulfillment of the requirement for the
degree of MASTER OF BUSINESS ADMINISTRATION to SIKKAM
MANIPAL UNIVERSITY.
Place: - Ahmedabad
Sign:-.............................
Sign:-.............................
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ANNEXURE –C (EXAMINER’S CERTIFICATE)
The project report of Mr. Tapan Jatakia and Mr. Sagar Bhatt on
“Indian Port Industry & Coverage On Mundra Port SEZ”
is approved and is acceptable in quality and form .
Name:- Name:-
Qualification: - Qualification:-
Designation: - Designation:-
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ANNUXERE – D (UNIVERSITY STUDY CENTRE
CERTIFICATE)
Certified
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Preface
This Project assists us to study the organizations and observe the real
life situation existing in a company. This will help us to relate how to put the
theory in to practical use. Thus, this practical work will be of great help to us
to survive in such a cutthroat competition and to be successful.
We have put our best efforts to get the necessary information and after
that we have analyze the data in an appropriate way. We pleased to submit this
report for the purpose of evaluation by the evaluator. Thus, any constructive
suggestion for improvement of this report is always welcomed and
implemented.
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ACKNOWLEDGEMENT
Any purpose and its fulfillment require deep routed efforts for its
completion. Many characters play a vital role. This is more when a project
undertaken is directly to a cause.
We would like to thank Prof. Dr. Renu Choudhary, our Project guide,
not only for giving us the opportunity to work on this project, but also for
providing us with sound guidance and the necessary facilities to carry out the
project. She constantly insisted and helped us in learning new things. She
provided us a lot of learning opportunities.
Finally I would like to thank all those who were directly and indirectly
concerned in making my project successful. To put it in a nutshell a difficult
and arduous journey was made simple and quiet enjoyable due to their support
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EXECUTIVE SUMMARY
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bag, it. I have also done competitors analysis of MP-SEZ with Mumbai &
Kandla Port.
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Introduction
Of
Indian
Economy
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INTRODUCTION
India was a rather marginal participant in world trade during the early
years after independence. Since 1980, however, the structure and orientation
of Indian export trades have undergone fundamental changes in line with
world trend in the industry adopting new maritime transport technologies as
they emerge & searching for organizational form which allows them to
improve their efficiency & ease their integration in the transport component of
the logistic chain. Substantial progress has been made in diversifying the
export base - manufactured goods have increased.
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improve port’s functional efficiency which ultimately results in a strong
further growth of the Indian port sector.
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INDIAN ECONOMY AT A GLANCE
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Chart 1: GDP growth trend
Source: RBI
The per capita income of India is also rising rapidly mainly attributed
to sharp economic growth. Growth in per capita income accelerated from
7.4% in 2005-06 to 8.4% during 2006- 07 and stood at INR 34, 271. Per capita
income growth averaged 6.1% per annum during the Tenth Plan period
(2002--07) and 7.1% per annum during the last four years (2003-04 to 2006-
07), which was more than double of 3.4% per annum recorded during 1980s
and 1990s. As the strong growth in the economic activities is expected to
continue, per capita income is also expected to grow rapidly and is likely to
reach INR 43, 000 by the end of current fiscal.
45000
40000
35000
30000
25000
INR
20000
15000
10000
5000
0
2005 2006 2007 2008
Year
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Improving Purchasing Power
With rising per capita income and increasing size of earning class,
people’s spending power has also risen substantially in recent years. Indian
middle class, which includes households with annual disposable income of
INR 1, 88,340 to 9,41,270 is expected to go up to 583mn by 2025 from current
50mn. Per capita income of India is expected to triple over the next two
decades and India would become the 5th largest consumer market by 2025,
from the current 12th place, surpassing Germany. Besides this, increasing
urbanization also boost spending power of the people and results in rising
consumer class. All these factors make India big consumer market thus
attracting global corporate giants towards it.
Above 45 56 66 78 95 116
65
Major portion of India’s population falls into the age group of 15-64
which is earning population. In 2006, this particular age group constituted
around 62.9% of total population and is expected to constitute around 68.4%
by 2026. The rapid rise in young population will boost domestic consumer
spending, which will be the main driver of Indian economy. Due to larger
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portion of population falls into earning class, India’s dependency ratio is also
very low compared to other emerging economies.
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Chart 3: India’s demographic pattern
15-64
5% 65+
32%
63%
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Chart 4: IIP movements Source: Economy Survey 2006-07
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The government is ready for slower growth but not higher inflation as this will
affect large sections of Indian society. The Indian government expects
economic growth to slow, for the first time in last three years. Indian economy
expected to grow at 7.5-8% for FY2009, lowest in last three years.
Looking Forward
In a healthy domestic demand environment and global demand, the
Indian economy continued to exhibit robust growth for the next 5-6 years.
Real GDP growth accelerated to 9.6% in 2006-07 from 9.0% in 2005-06. The
good thing about this growth trajectory was, this economic growth achieved
despite challenges like rising inflation, fear of global slowdown and
infrastructure constraints.
India has the potential to grow at a sustainable rate of ~8% in the next
couple of years provided the government continues its fiscal measures to boost
the economy also government need to address issues like higher inflation, poor
infrastructures and employment creation on urgent basis. Further, government
needs to improve performance of agricultural sector on which larger portion of
population depends.
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Introduction of
Indian Port
Industry
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INDIAN PORT INDUSTRY
Indian ports are divided primarily into Major Ports and Minor Ports
(Non- Major). As of 5th of July 2008, there were 12 major and 187 minor and
intermediate ports spread across nine coastal states along its 7,517 kms
coastline (excluding Andaman & Nicobar Island). The classification of a
Major Port compared to a Minor Port is not based on the capacity or cargo
traffic but on control and governance. Port trusts, which are regulated by the
Central Government, manage 11 out of the 12 Major Ports. They come under
the purview of the Major Port Trusts Act, 1963. Only exception is Ennore,
Major Port at Ennore is a corporate entity incorporated under the Companies
Act, 1956 while all Minor Ports are regulated by the respective state
governments and many of these ports are private ports or captive ports.
Other than the ports in the public sector, there are a number of public-
private joint venture ports and private sector ports. Over the last seven years,
there have been significant developments in minor ports, which are under the
respective state government jurisdictions. This has been possible because of
the proactive policies of the state maritime boards, more particularly in states
such as Gujarat, Andhra Pradesh and Orisa etc. The three such minor ports
under the state government jurisdiction in the private sector are located at
Mundra in Gujarat, Pipavav in Gujarat and Kakinada in Andhra Pradesh. The
state government of Gujarat has been a pioneer in formulating proactive
policies for development of ten minor ports in joint and/or private sector along
its coastline out of which two commercial cargo ports are operational.
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Table2: Indian Port Overview
Port Type West Ports South West Ports South East Ports East Ports
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Ranking of Indian Ports:
From the chart shown below it is very clear that Kandla & Visakhapatnam
Port stands ahead among all major ports in India with a total cargo 65 MT in
the year 2007-08
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Fig1: Location of Indian Ports
Source: www.mapsofindia.com
There are several organizational modes for seaports, depending on the role that
port authorities assume. These are usually labeled as landlord port, tool port
and services port
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(Netherlands). In general, this is the most common form of organization
for large ports.
2. Tool port: As in the landlord model, port authorities are also the owners
of infrastructure, but in this mode of organization, they also own the
superstructure (buildings, etc) and the equipment (cranes, etc). Private
firms provide services by renting port assets, through concessions or
licenses. Examples of this category are Antwerp (Belgium) and Seattle
(US).
3. Services port: In this model, port authorities are responsible for the port
as a whole. They own the infra- and superstructures, and they also hire
employees to provide services directly. The port of Singapore has usually
been used as an example to illustrate this type of organization, since its
port authority (PSA) is the owner of all assets and it provides all
services. However, there are already advanced plans for PSA to
introduce private participation and thus become a tool port.
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Table 4: Port Management Models
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Drivers for Port Industry:
Ports handle approximately 95% of India’s total trade in terms of volume and
70% in terms of value so it becomes very important to see what actually
drives the port industry.
Out of these above two factors Passenger traffic & Inland Water
Transport (0.12% of total cargo handle by Indian Ports) accounts very less &
can be neglected while looking for the future prospectus of Port Business. But
Cargo traffic plays a crucial role in estimating the fortune of Port Business.
Cargo Traffic:
1. Total cargo traffic carried by both major and minor ports in fiscal 2007
was approximately 649 million tonnes, of which approximately 464
million tons, or approximately 71.5%, passed through Major Ports and
the remaining 185 million tones passed through the Minor Ports. Over
the last seven years, cargo traffic at Major Ports has grown at a CAGR of
7.6%. In comparison cargo traffic at Minor Ports has grown at a CAGR
of 13.3%. As a result the share of minor ports in total volume has
increased from 23.6% in fiscal 2000 to 28.5% in fiscal 2007.
2. Major Ports handled a total traffic of 464 million tons during fiscal 2007.
Petroleum products remain the largest principal commodity of the cargo
with one-third of the total cargo traffic at port during fiscal 2007 being
petroleum products. Container traffic increased to 16% during the same
period, over the 14% during fiscal 2006.
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Indian Port Performance
1. Indian ports lag behind their foreign counterparts. Earlier, Average Ship
Turn Around time (“ASTA”) in India used to be exceptionally high (11.9
days in fiscal 1985), and despite having progressively declined, stood at
approximately 3.5 days in fiscal 2007, which is the highest among Asian
ports which have an average turnaround time for container vessels of
approximately 13 hours, and where ports such as Hong Kong have a
turnaround average as low as 10 hours.
2. Inefficiency of Indian ports resulted in higher through-port and sea
transport costs, making cargo shipped from Indian ports cost-inefficient
and non-competitive in international markets. Coupled with this, the long
waiting time discouraged large cost efficient vessels and ship liners from
touching the Indian ports. Consequently, Indian container cargo had to be
transshipped in Colombo, Dubai or Singapore, resulting in additional
costs and transit times.
Performance parameters:
The readiness of ports to handle increased quantum of container traffic is
based on the following parameters:
1. Favorable physical infrastructure:
a. Availability of adequate draft to handle large vessels, 15 Meters or
above is considered favorable
4. Efficiency parameters:
a. Average turnaround time for ships, benchmark – less than 12 hours
b. Average pre birthing time, benchmark – less than 3 hours
c. Average parcel size, benchmark – more than 20,000 tonnes
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5. Berth Occupancy Factor (BOF):
The berth occupancy factor is the time that the berth is utilized divided by the
total available time.
UNCTAD guidelines for BOF for conventional general cargoes as given in
table: (Source: IPA)
Table 13: BOF
1 40 Dedicated berths
2 50 One berth 60
4 60 Common berth
5 65 Up to 3 berths 70
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Research
Methodology
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Descriptive researches
There are two methods for data collection which are very useful in
collecting data.
Primary Data and Secondary Data. Our project report is totally based on
Secondary data.
Secondary Data
Secondary data are data that were collected by persons or agencies for
purposes other than solving the problem at hand. They are one of the cheapest
and easiest means of access to information. Hence, the first thing a researcher
should do is search for secondary data available on the topic. The amount of
secondary data is overwhelming, and researchers have to locate and utilize the
data that are relevant to their research.
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OBJECTIVE
SCOPE
Scope of this report is a bit broad, as this Project report tried to unearth
various investment opportunities in whole Port Business
It helps investor to understand Industry, Company, Business Models
through financial as well as non financial analysis
All in all, Report gives a brief idea about an emerging avenue to an
investor to invest his hard earn money
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Analysis
Of
Ports in
India
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SWOT Analysis for Ports in India:
Chart6: SWOT
Strengths Weaknesses
High growth Old infrastructure
High market share Limited water depth
Financial means available Old and inefficient cargo handling systems
Most ports located at
strategic locations
Poor hinterland connections
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Table 5: Port Traffic
400
310
300
200
120
95
100
0
1981 1991 Year 2001 2007
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Chart8: Commodity-wise share at Major port
Commodity Share %
17%
34%
3%
13%
16% 17%
POL Iron Ore Container Coal Fertilizer Other Cargo
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till May 2009 and tax exemption to 100 per cent for Export Oriented
Units till 2010 which expects to boost exports & will help to achieve 5%
share in world’s trade by 2020
6. As a result of liberalization and economic reforms undertaken by the
government, India has become fastest growing economy after China
7. GDP has grown from 4.4% for the year 2000-01 to 8.4% for 2007 &
more specifically 11.4% in case of trade, hotels, transport and
communication whereas Growth in manufacturing is 8.6 %. But recently
India’s GDP growth rate experiencing some slow down ~8% due to
inflationary scenario, but still transportation sector would be least
affected & will continue to show ~11% growth rate
8. India’s liberalization policies have led to a volume growth of 8% per
year in foreign trade and India is expected to sustain this growth rate in
the coming decade as well
9. India’s Total Export Import data as mentioned in table below
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Fig 2: EXIM Share
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alone is the major contributor to the positive balance-of-trade of Asia. China’s
balance-of-trade with the US & Europe is positive, while it is negative with
that of rest of Asia.
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Commodity wise demand forecasting (MT):
Liquid Bulk:
POL: India is an important energy consuming country. Oil and gas with a
total share of 40% appear to be primary energy sources. POL import (160
MT) amount to some 26% of the total import of India and POL export
some 8% of the total export.
Crude Oil:
The production of crude oil remained stagnant during past sixteen years
whereas the refinery crude throughput has increased 2.5 times during the
same period.
Taking into consideration the fact that indigenous production is likely to
move at the same laggard pace, the imports of crude oil are estimate at
198.60 MT & total crude traffic through the ports including coastal
movements as 230 MT by 2011-12. In addition to the EXIM, The Bombay
High supplies the crude to Vizag & Kochi refineries through ships.
No. of registered vehicles on road stood at 92.94 million in 2007 with
CAGR of 8.52% & especially demand for luxurious vehicle has gone up
recently ( Luxurious vehicles consumes more fuel )
In Rupee terms, the crude oil imports cost INR bl 2,448.90 during 2006-07
against INR bl 1,717.02 in the previous year
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Source: Ministry of Petroleum & Natural Gas
1. Petroleum Products:
The consumption of petroleum products has grown at CAGR 2.7% during
the period of 2002-06 & will likely to move with increased pace of CAGR
3.8% with estimated consumption of 135 MT from present 112 MT.
Projection for 2011-12 of export of petroleum product will move up from
present 32.39 million tons worth INR bl 801.72 to 90.39 MT & oil product
imports at 16.96 million tons for INR bl 403.89 in 2006-07 were up 45.2
per cent over 11.67 million tonnes of products worth (INR bl 255.75)
imported last year.
LPG is used for household cooking purpose as well as for industries such
as glass, petro chemicals, baking & confectionary, ceramics, printing,
beverages, auto, etc., Demand for LPG is on uphill, prevailing growth rate
in LPG consumption is ~10%. Projected domestic demand for LPG is 11.9
MT for the year 2007-08 as compared to consumption 10.30MT (2006-07)
& imports will be 3.58MT (INR bl 90.34) as compared to previous year
imports of 2.719 MT. With above scenario, the projected traffic for LPG
imports during 2007-12 will be 4.728MT which in turn to increases port
traffic.
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CHEMICALS & OTHER LIQUIDS:
Dry cargo:
1. Global trade in iron ore has increased with some 505 M tons in the
period from 2001 to 2005. Iron ore import by China has grown by 31%
per year in this period in order to feed China’s steel industry. Australia
and Brazil are prime sources of iron ore. India is another main producer
of iron ore catering for the Indian domestic (steel producing) market and
for export. The main mining areas are located largely in Eastern and
Central India (Jharkand, Orissa and Chhatisgarh) and in Karnataka in
South India. Goa and Andhra Pradesh are other iron ore producing areas
2. The steel production in India is estimated to be of the order of 79MT by
2011-12. This will require about 119 MT of iron ore by the steel
industries (assuming 1.5 tonnes of iron ore required for per tonnes of
steel. Presently, about 13% of iron ore required by Indian Steel Industry
is moving by coastal shipping. Assuming the domestic iron ore resources
will be consumed on a higher level & to be moved through hinterland
modes, the coastal share may be reduced to 9-10%.
3. The pellet movement will be around 7MT on account of palletisation
plants. Hence the total overseas & coastal movement of iron ore & pellet
traffic through Indian ports during 2011-12 given in the table below
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4. Other broad reason for increase in iron ore demand is growth in steel &
steel based industries like infrastructure, automotive, real estate, etc.
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Table 8: Demand projection by 2011-12 for iron ore & pellet
COAL:
1. Coal production is nationalized at present and private investment in coal
mining is only allowed for captive mines supplying coal to designated
sectors as power, steel and cement.
2. Next to crude oil, thermal coal mainly from Orissa is another key energy
resource for the power sector. India’s coking coal usually lacks the
quality needed for steel production. Poor quality domestic coking coal
therefore is blended with imported coal which leads to increased import
of coal. Due to the increasing demand for power (since industrial growth
& changing lifestyle, people are moving more towards luxurious utilities
which consumes more power), import of coal has shot up recently to
many folds
3. India present imports of thermal coal mainly from Indonesia (13 MTPA),
China (4 MTPA), South Africa(5 MTPA), & Australia(3 MTPA), but
China’s share will be lesser in future & all other sources’ contribution
will increase which tend to increase in trade through sea route.
1. Coking coal:
Coking coal is primarily utilized by steel industries which requires about
0.9 tonne of coking coal for producing one tonne of steel. The projected
steel capacity by 2011-12 under two scenarios given by two different
studies namely “Iron & Steel Review” and “Indian Infrastructure” are
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78.6MT & 125.10MT respectively. So under these two scenarios 50MT &
78.8MT will be the import respectively (assuming 0.9 tonnes of coking
coal for per tonne of steel & 70% of requirements would be met by
imports)
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Total 88.94 114.00
Container:
1. The economic modernization in India has resulted in strong growth in
the value of India’s exports. India’s export mix is changing with higher
value goods (e.g. high tech, pharmaceuticals, engineering and
automotive components) growing at a faster pace than resource based
and agricultural products. The growth and changing mix of cargoes will
logically result in further unitization of the country’s general cargo trades
2. Share of containerized cargo at major ports has gone up from 8% in 1996
to 16% in 2007 & will likely to move with this pace. Present container
traffic is 5 MTEU out of which 4.11MTEU (82.1%) contributed by
Laden container, 0.71 MTEU (14.3%) by Empties & 0.18 MTEU (3.6%)
by Transshipment
3. Increasing containerization in general cargo (consumer durables,
engineering comp. machinery, auto comp., food products, infrastructure
I/P, apparel)
4. According to a study conducted by ESCAP, the rate of growth in
container traffic projected for India is 9.4%. However, the estimate for
container traffic has been made based on future growth in GDP (8%) and
past growth in General Cargo traffic. The level of containerization has
been assumed to grow @ 2% every year from the present level of 64%
of the projected general cargo traffic and is expected to get stabilized at
75%.
5. Further, according to ESCAP study, the transshipment traffic from
Colombo to India is estimated to reach 4 million TEUs by 2011, of
which 80% is expected to either originate or destined to Indian ports.
6. By Regression Analysis Total Container traffic including Laden, Empties
& Transshipment cargo (Port Region-wise) can be projected for the year
2015-16 as given in table: (Mn TEU)
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Table 10: Total container traffic by 2015-16
2006-07
2006-07
2005-06
2005-06
2004-05 2004-05
Year
2003-04
2003-04
2002-03
2002-03 2001-02
2001-02 2000-01
2000-01
0 1 2 3 4 5 6
MTEU
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capacity; therefore, assumed that same level of import for FRM (i.e. 8.49 MT)
will remain till 2011-12.
Alumina:
There is proven reserves of Bauxite in district of Orissa. Three firms
namely, UAIL, L&T and Vedanta International have formulated definitive
course of action for establishment of Alumina plants for exports of initially 1
MT each and 2 MT in the subsequent years. NALCO is already exporting
Alumina to the tune of 1 MT and is poised to reach 2 MT by 2007.
Accordingly, the total export of Alumina is assessed at 6 MT by 2011-12.
Steel Products:
As per the report by SAIL, consumption of steel in India is expected to
reach around 55 to 60 MT per annum by 2011-12 & likely to touch 66 MT by
2013-14. Besides the likely import of steel on the basis of CAGR of 7.1% as
indicated in the National Steel Policy by 2011-12 will be around 3 MT. In
keeping with likely production of 78 MT of steel in our country by 2011-12,
import of about 3 MT & consumption of about 57 MT, likely export of steel
product by 2011-12 will be about 24 MT (78+3-57)
1. Cement, whose imports has increased recently due to low supply from
domestic manufacturers irrespective of high demand & also Govt. has
reduce the import duties substantially on import of cement
2. Nylon, whose use has increased for many industrial as well household
goods
3. PVC (Polyvinyl chloride) use for manufacturing wires & pipes
4. PET (Polyethylene terephthalate) for PET bottles
5. Other like Polyethylene (P/E), Polystyrene (P/S), Polypropylene (P/P),
ABS Acrylonitrile butadiene styrene), Silica gel catalyst
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Other Liquid Bulk:
Common liquid bulk includes many chemicals like Glycols, Lube oils,
Cleaning agents, Plasticizers, Surfactants, Amines, Epoxy resins, Fuel
additives, Solvent, other intermediate chemicals all of these above chemicals
are use in one or the other way
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TRAFFIC PROJECTIONS
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Kolkata 45.01 58.47 172.32
Total (MT) 510.47 739.41 1595.07
Source: IPA’s Port Development Plan
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Obstacle to the growth of Indian Port Industry
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All these results in India’s ranking of 29 on the list of “world
merchandise trade” in 2005 published by World Trade Organization (WTO),
India’s share of world goods exports in 2005 was approximately 0.9%, which
is lower than the exports of many other countries with much smaller
economies, including Thailand.
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What are we doing to accelerate the growth of Ports?
The Indian ports industry is not been isolated from such international
developments and there is a need to develop port facilities in India to service
the large container ships. Also one another reason which makes capacity
addition necessary is-
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National Maritime Development Programme:
Under this plan, the total capacity of all ports is expected to increase 2.14
times from 736.9 Mn tones currently to 1575.3 Mn tones by 2011-12
Table 17: NMDP
NMDP has envisaged an outlay of INR bl 558.04 till FY14 for the
development and capacity expansion of 12 major ports. Under this
programme, 276 projects have been outlined for all ports put together.
Private sector participation: Under NMDP, major thrust is on private
sector participation; hence, ~62% (INR bl 346) of the total investment
outlay is expected to be contributed from the private sector
Funding plan under NMDP (INR bl)
Table 17: Funding Under NMDP
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Other Ongoing projects:
Table 18: Other ongoing projects
Upcoming projects:
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Cargo berth Pradip ( iron ore Not awarded 5.1 10.0
berth)
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Completion of Container Terminal GTI & Expansion berth towards
NSICT;
Construction of Container Terminal 4, Marine Chemical Terminal, Second
Chemical Terminal
Road, Rail and pipeline connectivity projects and programme.
Mumbai Port:
Mumbai Port plans to take up the project of laying a dedicated freight rail
line from Wadala to Kurla at an estimated cost of INR bl 1.3
Kandla Port:
Tuticorin Port:
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Mormugao Port:
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Railway Terminal at Tondiarpet and shuttle train connection between Port
and Railway terminal
Ennore Port:
Two PPP projects, both relating to the development of deep draught berths,
one for handling iron ore and other for handling of coal on BOT basis at an
estimated cost of INR bl 5.20 and INR bl 4.15 respectively
Deepening of entrance channel to handle 1,25,000 DWT vessel estimated
cost INR bl 1.46 & Extension of breakwater;
Construction of Iron ore and coal mechanized terminals; Container
Terminal; Fertilizer Terminal
Kolkata Port:
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Financing Projects
The overall requirement of funds during period 2011-12 for the whole
port sector (Major + Non Major Ports) is estimated to be around INR bl
689.72, also a provision of INR bl 10 earmarked to create a Corpus Fund
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Paradip 36.10 11.97 16.39 43.52
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Available funds investment in fixed asset:
Table 23: Available Funds
Particulars INR bl
Balance 356.28
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Strategies for port development projects
For implementation of above projects effectively it is very important to
draw a well define strategy for the same, three strategies could be worked out
as follows…
Present & Expected allocation of traffic from India’s hinterland clusters to port
systems, backed by rational is summarized in table below:
Strategies:
1. Develop large port in Mumbai System (JNPT IV/Rewas): The
Maharashtra port system handled around 56% of all container traffic in
2005-06, the port system is expected to maintain it’s dominance in
overall container trade in future. The two new capacities being created at
the Maharashtra system are – the fourth container berth at JNP (JNPT
IV) and the Rewas Port. While Rewas Port is being developed privately,
JNPT IV presents a substantive investment opportunity. After completion
of its second phase, JNPT IV is expected to have a handling capacity of
4.4 million TEUs. Phase 1 and Phase 2 capacities if 2.2 million TEUs
each are expected to come on stream in 2010-11 and 2012-13
respectively. There is a high degree of certainty of cargo build up at
JNPT 4. The existing 2 terminals at JNP - JNPT and NSICT (DPW) – are
already operating at full capacity. Being the largest container port in the
country, there is presence of entire logistics value chain serving the port.
The port is also well connected by important liner services. The
upcoming projects of NMSEZ/MiSEZ can also add to cargo potential.
On the other hand, JNPT 4 may face high competition in case large
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capacities are planned at Rewas Port, as of now plans for Rewas are not
clearly known. Also, Backup land area and cargo evacuation facilities at
JNP are constrained. New terminal development will need to rely on
NMSEZ for additional backup land.
2. Develop terminals in Gujarat (Mundra/Kandla) and Maharashtra
systems: While ports in Maharashtra will continue to handle the highest
container volumes, Gujarat ports are expected to see the highest growth
in traffic as they are close to the Northern hinterland and presently
handle relatively low container volumes. Existing transport infrastructure
to Gujarat ports is constrained, as there is a need for change in traction
from electric to diesel locomotives, which makes transit time higher
from TKD vis-à-vis JNP. This constraint, however, will be addressed
with the construction on the western DFC, as Ahmedabad-Palanpur has
been identified as the preferred alignment, this will better serve Gujarat
ports as compared to than the other alignment option via Ratlam (MP)-
Kota. The construction of DFC will facilitate the shift of Northern
Hinterland cargo to Gujarat ports. Currently, the two ports in the Gujarat
system with announced capacity expansion plans are Mundra and
Kandla; therefore, these present an investment opportunity. The port of
Hazira is also being developed, and is planned to have a container
terminal, the port is situated around 25 Km from Surat and 120 nautical
miles north of Mumbai. The port of Mundra offers good core
infrastructure of draft, birth length and availability of backup land that
would be useful for future expansions. The immediate investment
opportunity, however, is for investing at JNPT 4, which envisages an
addition of 4.4 million TEUs. Thus if both opportunities for investing in
Gujarat and Mumbai are perused then this will involve large capital
investments.
3. Strategy for East Coast: On the East Coast, terminal opportunities are
likely in Chennai/ Ennore systems. Both Chennai/ Ennore are likely to
play a leading role in Intra-Asia trade. Ennore as a site would be
preferable to Chennai, as Chennai has land constraints and would face
65 | P a g e
congestion problems. In addition, Ennore is adjoining an industrial area
that can provide captive traffic and has good transport connectivity.
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Privatization of ports
In the last decades, we have witnessed profound changes in maritime
transport, which have modified the balance between capital and labor at
seaports. Ports are now increasingly becoming capital-intensive industries,
while in the past they used to be labor-intensive. This change has generated an
excess of employees in most ports around the world. The development of
containerized transport is another factor that has significantly modified ports'
operations. Containers have allowed large cost reductions in cargo handling,
but they have also imposed new needs on ports in terms of equipment (gantry
cranes, specialized terminals improved pavements, etc). On the other hand,
economies of scale obtained by the transport of large quantities of containers
and bulk cargoes have led to the building of increasingly larger specialized
ships that require substantial port investments in new infrastructures and
equipment which bring the concept of PPP (Public Private Participation) in
port industry.
Even though the public sector has usually been present as port
organizer, it is not evident that public organization of this industry is
necessarily the best option. In particular, tighter public budgets and increasing
fiscal needs have led many countries to seek private participation in seaports.
Private firms' involvement in ports is not new for the provision of services,
since many firms were already present in ports around the world, but it is quite
innovative in the construction of port infrastructures. International experiences
have shown that private participation in both these aspects (operations and
infrastructure) has improved significantly the outcomes of some seaports.
These experiences make a case for a revision of the traditional organization of
seaports around the world, changes that will prepare ports for a more
competitive market and less financial help from governments
67 | P a g e
3. Last, the private sector is generally more able to search for business
opportunities, and to respond more swiftly than the public sector to
changing conditions in competitive markets
Due to above reasons Major ports experiencing a fall in traffic while
on other side there is a significant growth in traffic at Minor ports which can
be understood from under mentioned chart.
80
percentages
60
40
20
0
1996 1998 2000 2002 2004 2006 2008
Year
68 | P a g e
2. Transferring to the private sector parts of the seaport for their
development by private operators (Build, Operate and Own, BOO).
Short-term financial needs justify the use of this form of privatization
3. Introducing private participation in the port in order to build or
renovate facilities required for service provision (Build/Rehabilitate,
Operate and Transfer, BOT or ROT)
4. Captive Jetties Model: To encourage the port based industries, private
companies have been granted permission to construct captive jetties.
As per this model, port based industries created port facilities to import
their industrial raw material and to export finished products. This
jetties are allowed to use till the industry continued by the respective
companies.
Under this model:
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8. Management contract: The port of Bristol (UK) is an example of this
type of contract, where facilities are owned by the local government,
but the port is managed privately
While choosing among the various options for private participation one
need to consider following two cases:
II. Services that require exclusive use of assets: These services require the
use of one of the scarcest resources at seaports (space). Thus, within this
group, we would include terminals for cargo handling, storage areas,
repairing docks and fuel suppliers. It is more complicated to introduce
private participation in these services, since operators need to use assets
that are considered to be optimally owned by the port authority
PPP in Indian Context:
The Major Port Trust Act, 1963 permits private sector participation in
ports. Also, FDI up to 100% under automatic route is permitted for
construction & maintenance of ports & harbors. The Government has put in
place a scheme for private sector participation in major ports, mainly in
container terminals, specialized cargo berths for handling bulk, break bulk,
multipurpose & specialized cargo, warehousing/storage facilities, dry docking
& ship repair facilities. The preferred route under the scheme for selection of
the private operator is through open competitive bidding & the mode of
participation is on BOT basis, with a concession period not exceeding 30
years. Other than full controlling or operating private participation in ports two
more new areas could be Polatage & Dredging Operations.
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operational. Private interest has mainly been restricted to container terminals.
P&O was the first company to sign a BOT contract for a container terminal
with a major port, when it received the contract to develop a container
terminal at JNPT in 1997. There has been interest in setting up captive
facilities in major ports since the late 1980s. BPCL and IOC have captive oil
jetties in several major ports.
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Gateway
port
an
emerging
opportunity
72 | P a g e
Gateway port an emerging opportunity
Around 50% to 55% of India’s container traffic volume is transshipped over
international hub ports. Of this transshipped container traffic, ports of
Singapore, Colombo, and Dubai account for more than 50% of the volume As
a step back from international transshipment hubs, a few large container ports
in India will emerge as “gateway ports”, these in turn will be aggregation
points for India’s EXIM container traffic. These gateway ports would be
serviced by either mainline vessels, or will be serviced by liners transporting
between them and larger transshipment hubs. Currently nearly all domestic
transshipment traffic is handled at Jawaharlal Nehru Port (the port also
handles 53 % of all laden container cargo). In 2005-06 JNP handled (176,000
TEU) 97% of all transshipment cargo handled at Indian ports. The only other
ports handling transshipment cargo were Mumbai (5,000 TEU) and
Visakhapatnam.
1. Mundra port in Gujarat has seen swift increase in traffic flows in recent
years, in 2005-06 it handled around 0.3 million TEUs of containers
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(more that the combined traffic of Kandla and Pipavav). The port has
excellent core infrastructure in terms of draft, birth size and backup area.
It however currently suffers from less than optimal cargo evacuation
efficiency, and is also distant from the East-West container route. Also,
its current level of cargo traffic is far less than ports in Maharashtra
2. Currently, the ports on the western coastline transship majority of their
containers to Dubai, Colombo. Only JNPT handles some trans-shipment
on its own. While the port has many positives in terms of traffic volumes
and efficiency of existing private operators, it is constrained due to
shortage of backup area and congestion in evacuation of cargo.
3. Chennai handles more than half of the total traffic of the hinterland.
However, like Mumbai, the port suffers from a huge congestion problem.
There is also not adequate storage infrastructure. The connectivity to the
NH is through city roads which remain congested. Moreover, the port
has a draft of only 10.7 –11.4m which is not suitable for larger vessels.
4. With the center's go-ahead Vallarpaddam is expected to start operations
by 2010 with an initial capacity of 1 mn TEUs. The port has a planned
deep draft of 15m, and is proximal to the East-west trade route. With the
uncertainty over Vizhinjam, it is safe to assume that Vallarpaddam will
be the most probable site for emergence as a gateway port along the
western coastline. The port, however, is yet to come on stream and its
immediate hinterland has limited cargo potential.
5. Ennore has not yet started its container terminal. However, going
forward Ennore shall assume great importance on account of its
proximity with one of the largest ports in South India: Chennai. The port
also has a draft of 15m and an ability to handle vessels greater than 8000
TEUs. The port however, is at an early stage of development and its
immediate hinterland has moderate cargo potential.
Ports of Singapore, Dubai & Colombo are the strong competitors of Indian
Ports in the race of becoming Gateway Ports, due to their superior
Infrastructure & Operational efficiency over Indian Ports. In the present
74 | P a g e
scenario around 50% to 55% of India’s container traffic volume is
transshipped over international hub ports. Of this transshipped container
traffic, ports of Singapore, Colombo, and Dubai account for more than 50% of
the volume. Currently nearly all domestic transshipment traffic is handled at
Jawaharlal Nehru Port (the port also handles 53 % of all laden container
cargo). In 2005-06 JNP handled 97% (176,000 TEU) of all transshipment
cargo handled at Indian ports. The only other ports handling transshipment
cargo are Mumbai and Vishakapatnam. (Source: MoC&I GoI)
22.4
40
16.6
3.3
14.2
3.5
Singapore Colombo Dubai Port Kelang Port Salalah Others
100
50
20
3 0 3
0
Loaded Container Empties Total Transshipment
Type of Container
JNPT Momugao
75 | P a g e
Even though due to infrastructural and operational inefficiency Indian
Ports are lagging behind in the race of becoming Gateway Port, but one
unbeatable advantage that India has which gives India an incomparable edge
over other competitive ports is strategic geographical location, as India is at
midway in shipping routes to join East-West seaports.
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International Shipping Routes:
Fig 4: International shipping routes
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Financial Statistics
1. EBITDA margins for all major ports, put together, are expected to rise
steadily from 32% in 2007-08 to 49% in 2011-12. Robust margins are
expected on the back of decreasing employee costs, change in business
model towards higher contribution from concession fee income, and
operating leverage. Net profit for the 12 major ports, put together, is
expected to increase from INR 14.9 bl in 2007-08 to INR 31.1 bl in
2011-12 at a CAGR of 20%. The net profit margin is also expected to
improve from 27% in 2007-08 to 38% in 2011-12
2. Cargo related charges are the most important category of revenue, in
2007- 08 this is INR bl 25.61 & for 2013/14 it will be INR bl 31.84 this
is 34% of total revenue. Vessel related charges form the second category
is important. It will be around INR bl 26.64 for 2013-14, which is 28%
of revenue. But all ports planned to use BOT contracts for development
in terminals. As a result the incremental revenue for cargo related
charges will be collected by the BOT operators on their account.
3. The highest increase is projected to be in concession fees and lease, and
4 fold increase to INR 21.46, which makes it the most important
category of revenues. The highest increase in operating revenue comes
from Ennore, however the starting point for Ennore is rather low since
this a relatively new port. Other ports with high increases in operating
revenue are Kandla, JNPT, Cochin and Tuticorin, but relatively low
increases are coming from Paradip and Mormugao (each 4% per year)
4. Total operating expenses increased from INR bl 37.29 in 2007-08 to INR
44.41 in 2013-14. Profit after tax (net earnings) for the 12 Major Ports of
India is projected at INR 14.94 in 2007-08, rising to INR 39.50 in 2013-
14. The highest increase is in Ennore with 137% each year, followed by
Cochin (91% per year). Only Kolkata and Tuticorin are projected with a
decrease in PAT
5. The solvency for Kandla and JNPT will increase to 98% in 2013-14; the
solvency for all Ports will increase except for Tuticorin, in Tuticorin the
solvency will decrease to 42%, which will be the lowest ratio of all ports.
By the year 2013-14 there will be 4 ports without long-term loans, these
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ports are not using their borrowing capacity, only one port (Tuticorin)
increasing their long-term loans with a substantial amount.
6. The 12 Major Ports of India project to invest more than INR bl 160 from
their own resources during the 7-year period (2007-08 to2013-14), over
the same period the 12 major Ports expect the private sector to invest
some INR bl 250 via BOT contracts. At the end of the 7- year period the
internal funds available for investments in fixed assets have augmented
to INR 160. The own equity for the 12 Major Ports at the end of the 7-
year period amounted to more than INR bl 380. Assuming a normal debt
equity ratio as 1 to 1 (in line with TAMP); which indicates a borrowing
capacity of INR bl 380. At the end of the 7-year period the outstanding
long term loans amounted to INR bl 26.05. The unused part of the
borrowing capacity is more than INR bl 350.
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CMP INR 570
(5/09/08) Scrip
COVERAGE code:
592921 (BSE),
MUNDRAPORT
(NSE), MSEZ.IN
(Bloomberg),
MPSE.BO (Reuters),
Mkt Cap:
ON 334 bn,
Avg. daily vol: 1.56
mn shares
52 week H/L:
1324/388.10
Stock Movement:
Monthly Returns:
80 | P a g e
COMPANY AT A GLANCE
Areas of business:
Port: Mundra Port & Dahej Port
SEZ: Special conomic Zone – Mundra
ICD’s: Dry Port Network
Logistic: Container Train Operations
Subsidiaries of company:
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Economic Zone (MSEZ) and Adani Chemicals Ltd (ACL) were merged with
MPSEZ in April, 2006.
Advantage Mundra:
MPSEZ is one of the first private sector ports in India. With a strong
competitive edge such as deep water draft facility, connectivity to the
hinterland, SEZ and the increasing industrial area close to the port, the
company is one of the early entrants in the port business. The growing
industrial base in the country has increased the volumes at a CAGR of 43
percent from FY03-FY07. The entry of MPSEZ into container business and
ICD business will provide end-to-end logistics solutions to its clients.
Location Advantage:
Mundra Port has a depth of 17.5 meters which offers the deepest
waters on the Indian coast. Mundra Port has a deep water draft which ranges
from approximately 15 meters to 32 meters in depth at a short distance from
the shore. This makes it one of the deepest water draft depths on the west coast
of India, which enables it to handle the future generation of large size vessels
carrying bulk, container and crude oil cargo. Further, because of the natural
protection provided by its location, Mundra Port is able to handle cargo
throughout the year in all weather conditions, including during severe weather
of the Monsoon season characterized by high rains, winds and waves, with
82 | P a g e
minimal costs, delays and damages that often impact other more exposed
ports.
Relationship Advantage:
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Strategic arrangement with the Indian Railways and MICT allows Mundra
Port & SEZ to get revenue share for the infrastructure created by it. It gets a
share of the revenue on the cargo moved on Mundra-Adipur railway track.
Similar revenue-sharing agreement is in place for the private container
terminal operation at the port. Mundra Port is connected by rail, road &
pipeline to the transportation network of India, particularly the inland regions
of western & northern India including Delhi. Railways & roadways are
important links for the transportation of goods to & from any port to the cargo
centers at Mundra Port. The multi-model connectivity through sea, air and rail
link in the SEZ would make product delivery efficient and cheap.
The company has already entered into a few strategic long term
contractual agreements, which provide the company with guaranteed cargo
volumes and revenues. The company already has long term arrangements with
MICT, as Container Sub-concessionaire for its container operations at Mundra
Port and IOCL for its crude oil cargo operations. Going forward, the company
signed a MoU with Maruti –Suzuki India to board 2, 00,000 cars per annum,
also port has entered in to agreement with Adani Power & TATA power
importing coal for their new power plant each having a capacity of 2600MW
& 2000 MW
Tariff Advantage:
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Expanding Capacities:
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MPSEZ has a storage capacity of more than 800000 square meters in the back
up area at Mundra port.
The crude oil facility at Mundra port is currently focused on one single
point mooring terminal (SPM). The SPM is operated through a long term
agreement with IOCL. The SPM can handle large crude carriers of 360000
deadweight tonnage (DWT) and an overall capacity of 25 million tones per
year
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Double stacking on trains to aid container traffic growth - the Bhildi
and Luni gauge conversion is to be completed by Jan 2009. This will enable
double stacking of container trains leaving from Mundra to Bathinda and will
also reduce transit time vis-à-vis Mumbai to Batinda.
MPSEZ has signed the port service agreement with coastal Gujarat
Power ltd in April, 2007 for Construction of terminal for handling coal &
other cargo in the vicinity of power projects at Mundra Port This Terminal will
predominantly handle coal for Tata’s 4000 MW thermal UMPP Project The
terminal has a Capacity of 30 MT, with provisions for expansion. Terminal
comprises of Jetty with an approach road with a depth of approx 22 meters.
The terminal will be capable of berthing 2 vessels simultaneously with a
capacity of 220,000 DWT (Cape Size). The terminal will have an Elaborate
Ship Un loader, Conveyor System at berth and stacker reclaimer at yard for
mechanical handling. The Commercial operation of the firm is targeted to
commission by January 2011.
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Milestones
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2002 May Agreements signed with Guru Govind Singh Refineries Ltd.
(GGSRL) for Crude Oil handling at Mundra
2001 October Mundra – Adipur Private railway line completed and trial
runs commenced
2001 February Concession Agreement signed with GMB for developing,
operating and maintaining a port at Mundra
1999 October Multipurpose Berths 3 and 4 at trerminal I became
operational
1998 October Multipurpose Berths 1 and 2 at Terminal I became
operational
1998 May Gujarat Adani Port Ltd. incorportaed, a joint sector company
promoted by Adani Port Limited and Gujarat Port
Infrastructure Development Company Ltd.
1994 January Approval obtained from Gujarat Maritime Board (GMB) for
setting up captive jetty at Mundra
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Investments Rationale:
Net sales increased by 41% from 5.8 INR bl to 8.7 INR bl led by
growing EXIM in the country & back up by hinterland connectivity
also due to strategic location & improved operating efficiency, which
fetches traffic from Mumbai, Kandla & JNPT.
Capex has increased by 140% from 5.7 to 13.7 INR bl which signifies
strong investments
PAT grew by 12% from 1.8 INR bl to 2.1 INR bl (197% CAGR from
FY04-FY08). Whereas PBT shows a robust growth trend it grew by
108% YoY from 1.7 to 6.3 INR bl (221% CAGR from FY04-FY08
Upfront premium income from the lease of land to SEZ units for the
year stood at Rs 828mn (Rs 309.8mn pertaining to premium income
for agreements was signed prior to FY08). Against the 150 acres that
were leased to SEZ units in FY08, I have forecasted 300 acres & 750
acres for FY09E & FY10E respectively. Expected earning for FY10E
depends heavily on the income from SEZ operations (~55%
contribution).
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Market Cap grew by 59% from 139.25 INR bl to 221.54 INR bl which
signifies better liquidity in Market
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Current ratio increased by 44% from 2.42 to 3.49, Acid test ratio
increased by 45% from 2.37 to 3.44, Cash ratio up by 735% from 0.28 to 2.32,
Debt to Equity & Debt ratio has fell by 54 & 30% respectively. Whereas
Interest coverage ratio has improved marginally by 16% from 3.77 to 4.37
T otal cargo volumes grew by 56% CAGR from 11.8 MMT to 28.8 MMT
from FY06 to FY08. I expect cargo volumes to register ~40% CAGR
over FY08-10E, mainly led by better cargo throughput at new terminals.
Specifically crude cargo grew by CAGR 742% from 0.1 MMT (FY06)
to 7.1 MMT (FY08) & container traffic grew at CAGR 54% from 3.6 MMT
(FY06) to 8.5 MMT (FY08), which led to higher profit margin.
Traffic at port 1,624 vessels called at port which is 43% more than a year
back (1,138)
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From above graphs it is very much clear that traffic at port has shown
CAGR 55% from FY06-FY08 & stands on 29 MMT in FY08 with 7th rank
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among all ports. More specifically the traffic of Crude & Container has gone
up which led to high profit margin.
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From the chart below it is clear that for FY08 most of the revenue
came from SEZ business & next to that crude contribute 17% & 12%
contributed from container cargo handling. With the growing containerization
this contribution will further improve.
Indian Ports growing at a CAGR of 11% for last 5 years FY08 Total
cargo handled ~ 649 MMT (Major Port 464 MMT & Minor Port 185
MMT) YOY growths 11.9%
Only two privately owned fully operational landlord ports: Mundra &
Pipav combine Cargo handled 32.9 MMT which is 18% of cargo
handled by Minor Ports
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Current Capacity of Indian Ports is 765 MMT which currently
operating at 85%, still shortfall of 150 MMT. According to Planning
Commission Report capacity addition of 1575 MMT by 2012
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Two Stage Valuation Model for MUNDRA PORT SEZ:
I chose two stage valuation model for the valuation of Mundra Port
SEZ, assuming the firm as a growing entity. The port presently in high growth
& will be in high growth stage for next 10 years. But after 10 years Mundra
may not be able to continue the same growth rate, because of competition &
privatization of other Govt. ports & hence based on these assumptions, 10
years hence the company may experience stable growth rate
Current Inputs
Current EBIT INR 4,717,080,000.00
Current Depreciation INR 1,022,870,000.00
Current Tax Rate 42.17%
Current Revenues INR 8,170,230,000.00
Capital Invested (Book Value) INR 51,358,792,000.00
High Growth Period
Length of high-growth period (n) 10
Reinvestment Rate (as % of
EBIT(1-t)) 71%
Growth rate during period (g) 83%
Cost of Equity during period 50%
After-tax Cost of Debt 17%
Debt Ratio (D / (D + E)) 44%
Stable Growth Period
Growth rate in steady state 5.73%
Return on equity in stable
growth 8%
Reinvestment Rate in Stable
growth 10%
Cost of Equity in steady state 50%
After-tax Cost of Debt 17%
Debt Ratio (D / (D + E)) 44.10%
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Output
Enterprise Value INR 251,582,328,990.58
EV/EBIT 53.33
EV/EBITDA 43.83
EV/EBIT(1-t) 92.22
EV/Sales 30.79
EV/Capital Invested 4.90
Equity Value INR 230,902,128,990.58
Equity Value Per Share INR 607.64
From this valuation model the present equity value per share comes
as INR 607.64
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Balance Sheet of MUNDRA PORT SEZ:
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Profit & Loss A/C for MUNDRA PORT SEZ:
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FINDINGS
&
SUGGESTIONS
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FINDINGS & SUGGESTIONS
The Planning Commission states that major ports need to add a 546 MT
capacity during FY07 also during period of 2011-12, taking the total
capacity to 1,002 MT from 456 MT in FY06.
We believe that Indian Ports have been performing well from last decade
due to Policies adopted by the Government mainly due to Liberalization,
but still Indian Ports are way behind as compared to International
counterparts this is mainly due to Operational inefficiency &
Infrastructural inadequacy.
Reason behind this is very apparent, that is scarcity of funds coming from
Government, now to overcome this problem Port’s organizational setup is
in transformation phase, from Public Service model to Landlord model
where in Private sector participation will play a crucial role & thus help
Indian Ports not only to match but to overtake International Ports &
becomes a strong contender to emerge as a Gateway Port & Transshipment
Hub for Asia Pacific.
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CONCLUSION
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CONCLUSION
With Indian merchandise export and import registering healthy double
digit growth, the country’s port traffic’s growth momentum is expected
to continue and the traffic is estimated to reach 980 mn tonnes (at
CAGR of 12%) over 2011-12E.
MPSEZ has shown a CAGR of 46% in the top line & 77% in the
bottom-line in the last 3 years (FY06- FY08). Mundra Port & SEZ has
a double advantage of an operator of a functioning port as well as a
developer of SEZ. EPS on post issue equity of Rs 400.68 crore is Rs
5.19 which now has reached to Rs 5.54 (2008/03) which signaling
improving earnings.
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BIBLIOGRAPHY
1. 11th Five Year Plan 2007-12
http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v1/11th_vol1.p
df
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12. http://www.investmentcommission.in/ports.htm
13. www.pppinindia.com
14. www.portofmundra.com
15. www.nseindia.com
16. www.sebi.gov.in
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