Logistics

Higher capacities to help Essar Ports scale up earnings

Amit Mitra Hyderabad | Updated on May 11, 2011 Published on May 11, 2011

A Multi Support Vessel owned by Essar Shipping. (file photo)

Essar Ports Ltd, the new entity that will replace Essar Shipping Ports and Logistics Ltd (ESPLL) on the bourses after the completion of the de-merger process towards the end of the month, is expected to get better earnings visibility.

This is primarily due to the fact that it has scaled up volumes, with the company planning to further double its cargo handling capacity and divert one-fourth of its capacity to handle third-party (or merchant cargo) contracts in the next two years.

Long-term deals

Currently, ESPLL's ports division handles about 88 million tonnes of cargo at its Hazira (30 mt) and Vadinar (58 mt) facilities. Almost the entire capacity is for Essar Group companies on a take-or-pay contract, which are usually long-term contracts valid for 15 years.

“As merchant volume ramps up, the margins should further improve as merchant pricing at its Hazira port is 10 per cent higher than contract pricing and 20 per cent higher at its (upcoming) Salaya facility,” says a recent analysis by Credit Suisse.

Doubling capacity

ESPLL, on Monday, announced May 19 as the record date for the completion of the demerger process — while the current company will become Essar Ports, the shipping, logistics and oilfield service business will be spun off into a new entity, Essar Shipping Ltd, which is expected to get listed by next month.

“We are putting in a fresh investment of about Rs 3,000 crore to almost double the existing port capacity to 158 mt, including a new dry bulk terminal at Salaya and a coal and iron ore berth at Paradip by 2012-13. After the expansion, we intend to handle third-party (or merchant) cargoes to the extent of 25 per cent of our capacity,” says Mr A.R. Ramakrishnan, ESPLL Director, who will be the Managing Director of Essar Shipping Ltd, once it is listed.

Investment plans

Essar Shipping will invest $600 million to acquire 12 vessels, with deliveries starting from August this year and lasting for the next 18 months. In addition, it is putting in Rs 2,400 crore to procure two jack-up rigs by next fiscal for its oil field services business, which has higher margins than shipping.

“We have tied up funds for the expansion of both the post-demerger entities,” he told Business Line.

The new entity's strategy will continue to focus on long-term contracts to hedge itself against volatility in the spot market freight rates.

“Today, while tanker rates in the spot market are anywhere between $12,000 and $15,000 a day, the Time Charter Yield (TCY) is almost double for the same vessel,” Mr Ramakrishnan pointed out.

Published on May 11, 2011

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.