Essar Ports looking at tapping third-party cargo

Essar Ports, the captive port facility of the Ruias-controlled Group, is looking at tapping merchant (third-party) cargo to ramp up its volume.

Essar Ports, which is being spun off as a separate entity from Essar Shipping, Ports and Logistics, is expected to be listed on stock exchanges shortly.

Currently, Essar Ports with an annual capacity of 76 million tonnes handles 40 mt of captive cargo, mainly crude for the Group's Vadinar refinery and iron ore for its Hazira steel plant.

Cargo volume

Essar Ports, the country's second largest in the private sector in terms of cargo volume, is on its way to double its capacity to 158 mt in the next two years. The actual cargo volume handled by then is expected to go up to 120 million tonnes, said Mr Rajiv Agarwal, Chief Executive Officer, Essar Shipping, Port and Logistics.

“As of now our ports handle almost 100 per cent captive cargo. This would change in the next two years with the capacity expansion. The cargo mix would also change with the port handling more dry bulk. We expect the volume of third party cargo to go up with the capacity expansion and reach round 30 per cent by 2013, Mr Agarwal told Business Line .

capacity expansion

Besides capacity expansion at Hazira and Vadinar, the group is setting up a 20 mt dry bulk terminal at Salaya in Gujarat, and 30 mt iron ore and coal berths at Paradip in Orissa.

While Salaiya is expected to be ready by March 2013, Paradip terminals are scheduled for commissioning in the second half of the same year. “We expect a three-fold increase in volume in the next two years,” said Mr Agarwal.

Currently, both Vadinar and Hazira ports operate under long-term contracts with group companies at tariff which are on par with other ports in the country.

Performance

According to Mr Agarwal, Essar Ports has the highest EBIDTA margins and its overall profitability is better than the major ports in the country.

Brokerage Credit Suisse in a recent research report said “Despite the pricing being closer to major ports, Essar Ports has the highest margin among the Indian ports. As merchant volumes ramp up, the margins should further improve as merchant pricing at Hazira is 10 per cent higher than contract pricing.”

However, the volume ramp up at both Vadinar and Hazira depends on expansion of Essar Oil and Essar Steel. Any delay in expansion at group companies would impact volume at Essar Ports.

Promoters' holding in Essar Ports will be 83 per cent on listing which will have to be reduced to 75 per cent as per the listing norms. “We have two years time to dilute our equity, ” said Mr Agarwal

Essar Shipping Ports and Logistics Ltd reported consolidated revenues of Rs 820 crore and a net profit of Rs 292 crore for the quarter ended December 31, 2010 (latest figures available).

The company shares closed 4.99 per cent higher at 103.05 on BSE on Wednesday.

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