Cargo at Indian ports has turned positive for the first time after seven consecutive months in October and November 2020, recording a 3% and 1% Y-o-Y growth, respectively. During March-September 2020, the Indian port sector has been adversely impacted due to the Covid-19 outbreak and the subsequent lockdown introduced by India and other major economies. Although the sector was classified under essential services and remained operational post the initial period of lockdown, the adverse impact on the domestic economic activity as well as slowdown in global trade has resulted in steep contraction in cargo volumes at the Indian ports. While positive growth in the past two months is positive, for the 8M FY2021, cargo has reported a 12% decline; however, the same is significant improvement compared to the 22% decline recorded in Q1 FY2021. The pace of decline has moderated sequentially every month for key cargo segments, indicating continuing signs of a recovery.
Ankit Patel, vice president, and co-head, ICRA Ratings, mentioned, “POL, coal, and container segment have witnessed a contraction with ~13%, ~23% and ~12% Y-o-Y decline during 8M FY2021. However, there are definite signs of recovery given that in October-November these three segments recorded significantly better performance than previous months. The pace of 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 the global supply chain pattern during the recovery phase will also impact the cargo profile. Despite the expectation of a better H2FY2021, due to the significant underperformance in H1FY2021, ICRA expects volume contraction of about 10% in full year FY2021.”
Regarding the varying impact on different cargo categories, K. Ravichandran, executive vice president, and deputy chief rating officer, ICRA Ratings, mentioned, “We had earlier anticipated the recovery in essential products like POL and thermal coal to be relatively faster than containers. Containers are also facing a challenge in terms of shortage of containers on intra-Asian and certain other trade routes due to supply chain and trade imbalance issues. However, container cargo at Indian ports has seen a better than anticipated trade volume growth, and hence compared to the earlier expectation of a 12-15% decline, FY2021 is now likely to see a 10-12% decline. This is largely driven by the quicker than earlier expected pickup in industrial output and consequently higher exim volumes.”
ICRA believes that port sector companies’ credit profile would continue to remain under pressure on account of the lower than anticipated cargo volumes during FY2021, especially those that have just commenced operations or concluded debt-funded capacity expansions or have a concentrated cargo profile. 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.