Essar Ports witnessed a five-fold increase in profits, up to Rs 331 crore. Having outperformed itself by posting 54.5 mt of handled cargo, Rajiv Agarwal, Managing Director, is aiming to triple it in the next few years. In an interview with Shashidhar Nanjundaiah.
Congratulations on a high-growth period. What were the factors contributing to this surge in profits and revenues?
Primarily, it is the cargo growth that has resulted in the increased revenue which results in increase in profit¡ability and of course there is some increasing rates which has happened because of which eventually the overall impact is about 48 per cent. The revenue has gone up by 23 per cent and debt also has gone up by similar percentage. The bottom line the increase is about 48 per cent.
Has the economic slowdown had any impact at all on your business not withstanding your long-term contracts?
We have long-term contacts. These are long term rates which have an annual escalation of about 2.5 to three per cent. The impact will be more on the cargo side. In the long term contracts, the rates are pretty much finalised in advance. These are customers who appreciate the dedicated facilities, locational advantage and the infrastructure which has been created. So they will not move very easily [despite an increase in rates of use]. In any case, the rates of use are in alignment with the market. If anything, our rates have to be a little better than the market for our long term customers.
We have witnessed that there are commodities that have seen an increase [in movement] and some that have seen a decline. For example, there is increase in hand¡ling the import of coal for a new power plant because of the slow growth in the mining sector. Similarly, the ban on iron ore extraction has impacted that commodity. Oil and gas has been on a steady increase be¡cause of the increase in consumption. Container numbers are on the weak side.
What percentage of your revenues actually comes from your own group business?
Very large almost 98 per cent of our business is from the group, but over the next 2-3 years we expect it to come down to about 70 per cent to 75 per cent.
Meaning you have aggressive marketing plans?
Well, we will soon have terminals that will exclusively handle third-party business Paradip, Visakhapat¡nam and Salaya.
Are you looking at augmenting capacity, or moving your business from one of your other ports to Salaya?
Pending a forest approval because of a sensitive zone, Salaya should be operational by December 2014. Salaya will cater to coal and general bulk commodities. There are no deep-draft ports in the Saurashtra part of Gujarat, and Salaya will be only port of its depth in the entire region. We are building 20 million tonne (mt) facility apart of which about 10 mt will be used by the group and balance is available for us to sell to outside customers.
Do you see Tariff Authority for Major Ports (TAMP) deregulation in the near future? It has been going on for two to three years, but we are not sure whether it will happen.
You sound skeptical. Well, it has taken a long time. How will TAMP deregulation impact your [and other non-major ports'] business?
It is a step in the right direction, because there are ports or terminals that we are setting up where TAMP will be applicable. So it will impact us.
The deregulation will make the customers go back to the major ports, theoretically speaking, because of competitiveness on the basis of tariffs. Is that not a good assumption to make while planning?
In today's environment, I do not agree because the non-major ports do not have any regulation and cargo volumes are growing. TAMP deregulation is not the only reason why people would quote. Reasons like the kind of facility in a port, the draft [quality], mechanisation, administration, efficiencies, and so forth are important factors.
How is your assessment of your own port's efficiency?
I think if you look at our ports in the region that we operate we are probably most efficient. So whether it is a liquid terminal at Vadinar or it is terminal at Hazira which handles iron ore, coal, etc, or at Paradip where we are handling iron ore, our rates are the best.
What about dwell and turnaround times?
At Vadinar port, it takes about 40 hours. At Hazira we can handle iron ore at about 75,000 to 80,000 tonne a day. At Paradip we could handle about 50,000 tonne because of the restriction of the size of the ship. If the ship sizes go up then we take it 70,000-80,000 tonne.
Are you happy with evacuation infrastructure you have at your ports?
We are quite happy with our infrastructure for the kind of cargo we handle. In Hazira we do not have rail connectivity for a portion we're working on it now.
What is your mandate at Visakhapatnam?
Visakhapatnam there is an outer harbour, which is a deep draft. At present it has a capacity of about 16 mt. There is also an inner harbour which is shallower, with a capacity about 6 million, so the mandate is that these terminals will be taken over by us and we will modernise that over a period of time, but the operation has to continue during this time seamlessly.
How will you achieve that higher percentage of external clientele?
Our Visakhapatnam port is currently handling about 12-13 mt and it is expected to handle 14 mt. About 6 million is Essar's group business, while 8 million is from outside. Paradip's coal terminal will handle 13-14 mt this year. At Paradip's general purpose cargo terminal, 4-5 mt can be handled. So, I would say that we could end up doing about 18-19 mt in Paradip and about 12 mt in Vizag. Salaya and Hazira will handle another 5 to 7 mt. So, the growth is visible.
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