CORPORATE Adani Port
The Port
King
Gautam Adanis port empire has expanded
dramatically in the past decade. But it also faces
challenges. By NEVIN JOHN and ANAND ADHIKARI
only for the biggest vessels which are plying
the seas right now, but also for bigger ones still
on the drawing board, he says.
The reference is to the new port of
Vizhinjam the company is building in Kerala.
The `7,525-crore project, a collaborative effort with the Kerala government and set for
completion before 2020, will have a capacity
of 3.5 million TEU (twenty foot equivalent
units a standard measure of ship and port
UMESH GOSWAMI
aran Adani gives away very little in
his interactions. But the elder son of
Gautam Adani, a management
graduate from Purdue University in
the US , who was elevated from
Executive Director to CEO of Adani Ports and
SEZ Ltd (APSEZ) in January this year, is upfront
about his intention to make the company
already the countrys leading private port
operator even bigger. We are planning not
BIGGEST
B
IG
GG
GE
ES
ST O
OFF T
THEM
HEM
EM AL
A
ALL
LL
110
Mundra Port handled the largest volume of
cargo among Indian ports in 2014/15
92
71
The rising star: The volume of cargo handled
by Gautam Adani-owned ports and terminals
has increased to 144.25 MMT in 2014/15
from 13 MMT in 2005/06
63
61
58
52
36
Mundra
Kandla
Paradip
Nhava
Mumbai
Sheva (JNPT)
Visakhapatnam
Chennai
New
Mangalore
31
Haldia
30
Ennore
29
Tuticorin
21
Cochin
15
14
Kolkata
Mormugao
Source: Ministry of Shipping and Ports
74 BUSINESS TODAY April 24 2016
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CORPORATE Adani Port
sizes), expandable to 4.3 million TEU
and allows for a draft (the maximum a ship can sink into the water
on loading) of 18.5 metres. (In
comparison, Mundra port has a
capacity of 2.77 million TEU, while
the total Indian port capacity put
together is 11 million TEU.) Karan
Adani was deeply involved in the
negotiations with the Kerala government that finally led to the port
being awarded to his group. He
wants Vizhinjam to be a truly global
trans-shipment hub, rivaling the
biggest in the region, Colombo. The
Sri Lankan capitals port costs are
currently much lower than Indias,
but that does not bother him. We
are looking to compete with
Colombo both on operational efficiency and cost, he says. At
Vizhinjam, well have the flexibility
to charge rates that will be competitive with Colombo.
Another Karan Adani preoccupation is inland waterways and the
impact their improvement could
have on his business. At the earnings conference call of the companys top management with analysts
in February, the only time he spoke
was when waterways were mentioned. We see a potential of almost
30 MMT (million metric tonne) of
cargo, which can move through inland waterways, he said. Being the
only player in the sector with ports
all along the countrys coastline,
APSEZ is uniquely placed to utilise
waterways to its advantage, more so
if they are developed further under
the Sagarmala programme, aimed at
improving the infrastructure of ports
that was announced by the government in March last year.
Starting with the takeover of a
single jetty in Mundra, Gujarat, in
1994, APSEZ now operates 14 terminals across 10 ports (including
two partially built ones, Vizhinjam
and the container depot of Ennore
in Tamil Nadu) in six states. It is
76 BUSINESS TODAY April 24 2016
Adani [Link] 4-5
Collateral Management Services Ltd
(NCML). It also has two single-point
mooring (SPM) facilities in Mundra
to evacuate crude oil on the high
seas. In comparison, global major
Dubai Ports (DP) World has a presence in seven ports, while Essar,
though it has eight terminals, uses
them mostly for its captive cargo.
The companys name has
changed over the years as its activities and areas of operations increased, from Gujarat Adani Port
Ltd in 1998 to Mundra Port and
Special Economic Zone in 2006,
when it was merged with a group
company created earlier to run the
SEZ Adani set up in Mundra, to
APSEZ in 2012, as the company
expanded way beyond Mundra and,
indeed, Gujarat. It had revenues of
`6,838 crore and profit after tax of
`2,314 crore in 2014/15, a rise of
24 per cent and 33 per cent, respectively, over the previous year. Its
market valuation is a whopping
`49,300 crore, of which promoters
Adani hold 56.26 per cent.
While Dhamra port in Odisha
was bought from L&T Infrastructure
Development Projects Ltd and Tata
Steel for `5,500 crore in May 2014,
High Margin
Business
Port is fast emerging as a big prot
generator for the group
Ports
20,313
Power
Trading
Agro
Revenues
Operating
Prots
4,362
2,907
4,229
25,288
1,245
9,301
` In Crore;
EBITDA prots;
Source: Company
194
Adani Ports and SEZs
Debt on the Rise
17,596.4
11,617.2
17,731.3
12,934
4,405.8
3,592.5
2009/10
2014/15
Consolidated data; in ` crore
Source: Company
Global comparison (Container Cargo)
Ports
Number
of berths
Cargo handled (in
million TEUs)
Draft for handling
large vessels
(in metre)
Turnaround
time (days)*
Port of Shanghai
125
36.53
18
0.8
Port of Singapore
57
30.62
16
1.2
Port of Colombo
14
4.5
18
0.8
Adani Ports & SEZ
37
2.77
18.5
0.5
*Turnaround time varies with the size of the vessel.
Many global ports receive large vessels
Data for 2014/15;
Source: Company
building a new container terminal
in Mundra in partnership with
French shipping giant CMA
Terminals and another in
Tuticorin, in an alliance with agriinfrastructure major National
and Kattupalli in Tamil Nadu is still
owned by L&T with APSEZ as its operator, the remaining are all greenfield projects. Together, Adanis ports
handled 147 MMT, or around 15 per
cent of the total cargo that passed
through Indian ports in 2014/15,
with Mundra alone accounting for
111 MMT. Gautam Adanis ambition,
however, goes even higher he
wants 200 MMT per annum at
Mundra alone by 2020, while raising
capacity at all his ports taken together from 339.3 MMT per annum
at present to 579.3 MMT. He is also
considering buying a couple of ports
overseas. Growth in the ports business will support his other interests,
too especially exports and power,
given the countrys dependence on
imported coal. The ambition,
however, will be tested against some
hard realities.
Sea Changes Ahead
While Mundra remains the mainstay of the company, analysts expect Dhamra and Vizhinjam to be
We will
compete
with
Colombo on
operational
efficiency
and cost
Karan Adani, CEO,
Adani Ports and SEZ Ltd
the new growth engines. Given the
rich mineral resources of states like
Odisha and Jharkhand, and their
growing development needs,
Dhamra has ample scope for both
export of minerals and imports of
crude, chemicals and liquefied natural gas (LNG). Gautam Adani has
himself stated that he expects
Dhamra to replicate on the east
coast the success Mundra has said
on the west. APSEZ is currently increasing cargo handling capacity at
Dhamra four-fold from 25 MMT
per annum to 75 to 100 MMT in the
next five years.
Vizhinjam is equally promising.
If world class infrastructure is provided, it could become an important
trans-shipment hub for global traffic. We lose substantial revenue to
ports such as Singapore, Colombo
or Dubais Jebel Ali in trans-shipment, says Prahlad Tanwar,
Director (Transport and Logistics),
KPMG India. This could be corrected if we provide good facilities.
While reducing port charges to
April 24 2016 BUSINESS TODAY 77
04/01/2016 7:52:11 PM
CORPORATE Adani Port
Adanis Port Empire
Cargo-handling capacity at various ports
GUJARAT
Mundra: 210 MMT
Kandla (Tuna-Tekra): 20 MMT
Dahej (Dry bulk): 20 MMT
Hazira (Multi-purpose):
35 MMT
ODISHA
Dhamra:
20 MMT
GOA
Mormugao:
7 MMT
ANDHRA
PRADESH
Visakhapatnam:
6 MMT
TAMIL NADU
KERALA
Kattupalli (operations and
maintainence): 1.3 MMT
*Ennore: 20 MMT
*Vizhinjam:
*Underconstruction
Source: Adani Ports & SEZ presentation
Colombos levels remains a challenge, APSEZ has already taken a
step in that direction by getting the
government to waive cabotage
regulations. (Cabotage law currently prohibits foreign ships to operate along the Indian coastline to
aggregate cargo.)
The deep draft will also allow
the largest of ships up to 18,000
TEU to enter Vizhinjam port, as
well as reduce dredging costs. Only
Mundra and the Krishnapatnam
port in Andhra Pradesh owned by
the Hyderabad-based Navayuga
Group have drafts as deep. Most
Indian ports cannot accommodate
ships bigger than 10,000 TEU. Nor
will ships have to deviate much
from their route to use Vizhinjam as
it is located on the Malacca-Suez
Canal stretch.
Despite these advantages, however, a joint feasibility study of the
proposed port by EY and others,
Adanis Challenge
Three new big ports in Maharashtra,
West Bengal and Tamil Nadu
More trans-shipment hubs in
Indian ports
Government ports improving efciency levels
Governments Sagarmala project
to modernise Indian ports
Shorter port lease agreement of
20-30 years in India as against
50-70 years abroad
before it was awarded, came as a
dampener for prospective bidders,
as it predicted that breaking even
for any developer would take a long
time at least till 2026. However,
Adanis say it is incorrect. Luring
away global carriers from the ports
they are accustomed to will not be
easy, more so given the bureaucratic slowness of Indian ports and
the high charges. The turnaround
time for a large vessel at Indian
ports is going to be higher as
against one day at more efficient
ones, such as the Chinese ports.
Even if it succeeds, revenues will
not be enough unless Vizhinjam
becomes a focal point for cargo
reaching and leaving the country
as well. The transshipment business is not big enough, says Anil
Dalvi, CEO , Indian National
Shipowners Association (INSA).
Not far from Vizhinjam is
Vallarpadam (Cochin) port, run by
DP World since 2004, capable of
handling ships up to 17,000 TEU
and which was also expected to
function as an international transshipment terminal. It has so far belied its promise, attracting paltry
volumes. Colombo tariffs are so
low and the port has so much capacity that it is not easy to get business, said Sultan Ahmed Bin
Sulaye, Group Chairman and CEO,
DP World, during a visit to India in
January this year. Dalvi of INSA
agrees. In Colombo, transshipment
requires just one or two documents,
unlike in India, he says. Karan
Adani, however, remains unfazed.
Ports in India are divided into two
categories 13 leading ones are
called major ports and regulated
by the Centre, while around 200
others, called minor ports are
under the jurisdiction of states.
Major and minor do not necessarily
indicate size Adanis Mundra is a
minor port, though it handles the
largest traffic in the country, as are
Krishnapatnam and Gujarat
Pipavav. Vallarpadam, being a
major port, has its tariffs regulated
by the Centre, says Adani. At
Vizhinjam, we will have the flexibility to be as competitive as Colombo.
But the government also needs to
take a second look at the structure
of the taxes imposed on Indian shipping lines.
Yet another source of confidence could be the Adani Groups
political clout Gautam Adanis
longstanding friendship with Prime
Minister Narendra Modi is well
known. Vallarpadam port,
ort, for instance, had to wait several
eral years to
get cabotage charges waived. This
was finally achieved in
n 2012 and
only for a three-year period, with
local shipping liness protesting
loudly that the concession
ession would
affect their [Link]
.The limited
three-year relaxation
tion did not
help much because in the shipping
industry, international
tional players
work on long-term contracts, says
a global terminal operator, who
prefers not to be named.
amed. If the
time period is limited,
mited, ships
will not change their
routes. In contrast,
ast, APSEZ
has already managed
anaged a
cabotage waiver..
High Tide
What does thee future augur for the
rest of the port empire? There is
plenty of reason
ason
for optimism,
m, especially given
n the
emphasis APSEZ
SEZ has
put on improving
proving
technology and taking
farsighted
d decisions.
Our ports work efficiently
because of our focus on
technology, Amit
Uplenchwar,
war, CEO and President
( SEZ Operations)
rations) at APSEZ, told
Business Today when he attended
Make-in-India week in Mumbai. It
has enabled us to grow faster than
Private
players have
an edge
over the
government
C. Sasidhar,
CEO, Krishnapatnam Port
other ports in the country and will
continue. The tie-ups with global
shipping lines to build terminals
also assure sizeable international
traffic. CMA , for example, with
which APSEZ is building the new
container terminal at Mundra, is
the worlds third-largest shipping
line. The second-largest, the
Switzerland-based Mediterranean
Shipping Co (MSC), also opened a
terminal at Mundra from January
this year. (The largest is Maersk
Line,owned by the AP Moller
Maersk Group, which also runs
Pipavav port.)Yet another terminal
at Mundrais operated by DP World,
whichtook
it over when it acquired
whicht
P&Oin 2006.
Once the CMA join
joint venture is
complete, it will raise
ra
APSEZ s
Mundra capacity from three million
to around 6.5 million TEU. This will
enable it to handle (as envisioned at
Vizhinjam, too) vessels
of up to
ve
18,000 TEU. The new
ne terminal will
make Mundra the largest
container
la
port in India and h
help achieve our
vision of handling
handli 200 MMT of
cargo per annum
by 2020,
ann
Gautam Adani
Ada said in a statement. Will there be enough
available to justify
cargo ava
capacity? Ports across
such capa
the world have taken steps
ensure they have suffito ensur
export-oriented mancient ex
ufacturing facilities close
ufactur
Dubais Jebel Ali port,
by. Du
instance, is fed by a free
for ins
trade zone where global
heavyweights such as
heav
Sony, GM and IBM have
Son
set up manufacturing
units. APSEZ s Mundra
un
port,
po too, is fed by its own
SEZ, with around 40 per
SE
cent
of its cargo volume
c
guaranteed
by long-term
g
contracts or investments
made by its clients in the
SEZ. But once its capacity
78 BUSINESS TODAY April 24 2016
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CORPORATE Adani Port
increases, it will need more of the
same. We have started work on an
electronics manufacturing cluster
and a food park, B. Ravi, Chief
Financial Officer, APSEZ, told analysts at the earnings conference call.
We have to create an environment
in which investors and industry will
come and feed our ports.
No doubt, some traffic could be
snatched from the nearby port of
Nhava Sheva, run by the
Jawaharlal Nehru Port Trust (JNPT),
which faces major infrastructural
problems. Just as JNPT overtook
Bombay Port decades ago because
of the latters infrastructural bottlenecks, Mundra could now give
JNPT a hard time, says a port consultant who prefers not to be
named. Even so, idle capacity may
become an issue. Total container
cargo in India is only around 10
million TEU per annum, while
Chinas ports, in comparison, handle 185 million TEU.
Some government initiatives are
also likely to help. There is the possibility that cabotage may be done
away with completely, considerably
increasing the attractiveness of all
Indian ports for foreign vessels.
The step is under active consideration, says a government official on
condition of anonymity. And given
the usual hurdles that plague staterun enterprises, private ports like
the Adanis will be the bigger beneficiaries. Private players do have an
edge over government-run ports,
says C. Sasidhar, Managing
Director, Krishnapatnam Port Co
Ltd. The Sagarmala project, which
is formulating a national perspective plan for the entire
coastline, to support port-led development through appropriate interventions and improve port connectivity with the hinterland, will
also help APSEZ.
But Sagarmala has a downside
for Adani as well. Under it, the
Grabbing
Lions Share
Adani emerged as the biggest player
SHARE IN CARGO IN
2014/15
32%
15%
53%
3%
25%
72%
SHARE IN CARGO IN
2006/07
Govt ports
Adanis ports
Other private ports
Source: Adani Ports & SEZ presentation
Centre will be developing three big,
new, highly modern ports all of
them as transshipment hubs
which will compete directly with
APSEZ Wadhawan in Maharashtra, not far from Mundra; Sagar in
West Bengal, which could affect
Dhamra; and Colachel in Tamil
Nadu, threatening Vizhinjam. The
`7,000-crore Colachel port, for instance, will have a capacity of eight
million TEU, expandable to 10 mil-
lion, with a draft of 20 metres making it much bigger and deeper than
Vizhinjam. Similarly, investments of
around `10,000 crore are planned
for Wadhawan, which will also have
a draft of 20 metres, deeper than
Mundra. Union Minister for Road
Transport and Highways Nitin
Gadkari has also announced plans to
invest `4,000 crore in ramping up
JNPT and creating an SEZ within the
port area. The port recently berthed
a vessel of 13,900 TEU size which
it had never managed to do before.
There is an attempt to improve
productivity at the major Central
government-owned ports, says
Dalvi. Karan Adani can only hope
that, as with many government efforts, the gap between precept and
practice will remain.
Finally, even as APSEZ shows
healthy revenues and profits, its
debt had risen to `17,731 crore by
2014/15, while that of the entire
Adani Group was at a worrying
`71,979 crore in the same year.
APSEZs margins have also shrunk
lately with operating costs rising,
while shipping rates remained flat.
To meet the challenge, the company has been offering customers
logistics solutions beyond the usual
port services. We will have terminals at Dhamra port as well as at
mining sites, Karan Adani told
analysts at his February interaction, suggesting that this would
make transportation quicker.
Shortage of skilled personnel for
ports is yet another headache, to
counter which APSEZ now runs
its own training programme.
Still, whatever the odds, the likelihood of APSEZ not only retaining
but building on its numero uno
position in the ports sectors, looks
very much on. ~
Research inputs by Niti Kiran
@nevinjl, @anandadhikari
80 BUSINESS TODAY April 24 2016
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