Essar bets big on ports business

Ruias-owned Essar Shipping, Ports and Logistics Ltd, which is in the process of de-merging its ports and shipping businesses into two entities, is betting big on the ports sector, and lining up fresh investments of Rs 3,300 crore in the next three years to double its cargo handling capacity.

After the de-merger, the existing company will be Essar Ports and the new entity, Essar Shipping, which will handle its shipping, offshore and logistics businesses, will be listed. With the company poised to make substantial investments in both these businesses, it has proposed to create two entities to follow independent financing and growth plans.

“After the AGM approval of the de-merger proposal last year, the required court hearing is scheduled on January 27, 2011, and we expect to complete the process by February. A month after that we will get the new entity, Essar Shipping, listed,” Mr Rajiv Agarwal, CEO and Managing Director of ESPL, told Business Line .

The company, which has invested about Rs 5,700 crore for creating port infrastructure envisaging handling of dry bulk and liquid cargoes so far, has already tied up finances for the fresh investments of Rs 3,300 crore.

With this investment, the company's cargo handling capacity will be going up from the present 76 million tonnes to 158 million tonnes by 2012-12, making it the second biggest port operator after Mundra, which is expanding its capacity to 170 mt by 2013-14.

Essar is bullish on the port business, especially in the wake of projections that the Indian ports sector will need to enhance its cargo handing capacity from the present 900 mt to 1600 mt by 2014-15 and 3,000 mt by 2020.

“We will end the year with a throughput of about 42 mt — generally the capacity utilisation rate in the ports sector is between 70 and 75 per cent. Next fiscal, we expect to touch a throughput of 70 mt and capacity of 124 mt,” Mr Agarwal said.

It expects to garner revenues of about Rs 750 crore from the ports business this fiscal, targeting a top line growth of about 70 per cent for next fiscal.

The new port capacities include two new berths at Paradip port of total 30 mt capacity and expansion of its Salaya and Hazira facilities by 20 mt each. “In addition to these, we are looking at setting up fresh tank storage capacities for third party services. We may also look at increasing our presence in the domestic container handling market,” Mr Agarwal said.

He said that while for port projects a 15-16 per cent RoI could be “healthy returns”, the profitability of BOT projects could be dampened due to certain Government pricing regulations.