Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the long-term bank facilities and tax-free bonds of Jawaharlal Nehru Port Authority (JNPA).

 

CRISIL Ratings has also withdrawn its rating on the proposed term loan of Rs 761.2 crore on request from the company. The withdrawal is line in with the CRISIL Ratings policy on withdrawal of ratings.

 

Revenue for the first-half of fiscal 2023 was up 17% given increase in container traffic by 10% compared with the corresponding period previous fiscal. Revenue for fiscal 2022 has also improved with rise in container traffic by 22% due to relaxation of pandemic-induced restrictions and resumption of normal trade.

 

Operating profitability, however, declined in fiscal 2022 to 41% given higher outflows towards maintenance dredging and substantial increase in employee-related expenses. Nevertheless, part of these outflows – towards retirement, gratuity and leave encashment – are one-time in nature; the trust rolled out a special voluntary retirement scheme in fiscal 2022 and 471 employees opted for the same. The operating margins have already witnessed improvement to 58% in H1 fiscal 2023 and is expected to increase further and stabilise at earlier levels. Furthermore, the authority has entered into an agreement with JM Baxi Ports & Logistics and CMA-CGM for operations and management of the Jawaharlal Nehru Port Container Terminal (JNPCT). Privatisation of the terminal is expected to further improve operating efficiency and support overall profitability over the medium term.

 

JNPA is expected to repay all its debt in fiscal 2024 in the absence of any major capital expenditure (capex) plans. Given its strong networth and low leverage, financial flexibility should remain comfortable even after planned capex. Any new major capex and its impact on financial flexibility will remain key rating sensitivity factors.

 

The rating continues to reflect the strong business risk profile of JNPA, backed by its market leadership in the container cargo segment, strong government linkages, and robust financial risk profile because of healthy gearing and large cash balances. These strengths are partially offset by exposure to intense competition from private ports, particularly those on the western coast.

Analytical Approach

CRISIL Ratings has moderately consolidated JNPA with its special-purpose vehicle (SPV), Mumbai JNPA Port Road Co Ltd (MJPRCL), to the extent of equity infusion.

 

The rating also factors in the expected support from the Government of India. Port infrastructure is vital to economic growth and JNPA accounts for half of the container traffic at major Indian ports. Government holds 100% stake in JNPA and the trust is under the direct administrative control of the Ministry of Ports, Shipping and Waterways (MoPSW). The board has members representing MoPSW, Department of Customs (DoC), and Directorate General of Shipping (DGS), which reflects strong government linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Strong business risk profile backed by market leadership in the container cargo segment

JNPA is the largest container cargo port operator in India (among the 12 major ports in the country) and accounts for ~50% of container traffic at major ports. Market leadership is backed by favourable port location and long-term build, operate, and transfer (BOT) contracts with private terminal operators. Total container cargo capacity as on date stands at 7.1 million twenty-foot equivalent unit (MTEU; including private terminals operating at the port), up from 5.3 MTEUs in fiscal 2017. 

 

Ability to maintain market share and profitability remains a rating sensitivity factor.

 

Well-phased infrastructure enhancement and capacity addition projects

JNPA is undertaking sizeable projects to improve infrastructure in and around the port, which will improve operating efficiency. The port has taken the initiative to improve road and rail connectivity to cater to increasing capacity. MJPRCL, formed by JNPA, the National Highways Authority of India (NHAI, ‘CRISIL AAA/Stable’), and the City and Industrial Development Corporation (CIDCO), carried out 6/8 laning of the highway connecting major cities around the port. JNPA is also involved in the development of a coastal berth, port-based multi-product special economic zones, railway networks, development of western dedicated freight corridor and dry ports in the hinterland, which should result in operational synergies over the next few years.

 

Private terminal operators are also adding capacity in the port in a phased manner. Second phase of Bharat Mumbai Container Terminal (BMCT) of capacity of 2.4 MTEUs is under construction and is expected to be commissioned by fiscal 2025. There is continuous upgradation in the development of tank farms that provide storage facilities for liquid cargo. Development of additional liquid cargo jetty with capacity of 4.5 million tonne per annum is also under construction. Building of infrastructure is expected to improve operational efficiency while capacity addition will help sustain market position.

 

Robust financial risk profile

Healthy revenue and strong profitability help generate strong cash accrual year-on-year and maintain superior networth. Networth stood at Rs 12,223 crore while debt remained moderate at Rs 2,008 crore, as on March 31, 2022, resulting in healthy gearing of 0.2 time.

 

JNPA contracted external commercial borrowings (ECBs) of around Rs 2,700 crore to fund execution of MJPRCL road project, which was fully drawn by fiscal 2019. This resulted in an increase in debt to Rs 2,720 crore as on March 31, 2020, from Rs 557 crore as on March 31, 2017. Though repayment is backed by repayments from MJPRCL through its surplus cash flows, further strong cash accrual of JNPA would help manage the repayments in the absence of surplus cash flow from MJPRCL. JNPA had met the debt instalment since September 2020 given low surplus cash flow at MJPRCL. Financial position is also backed by strong debt protection metrics: interest coverage and net cash accrual to total debt ratios were 26 times and 0.35 time, respectively, in fiscal 2022.

 

Working capital cycle improved slightly in fiscal 2022 with decrease in receivables, which, at more than 6 months, have remained same year-on-year due to disputed receivables from private players in the tank farm business; the matter is sub-judice. Nonetheless, if these receivables are adjusted against the networth, it will not have any material impact on the financials.

 

JNPA also derives flexibility through its large, unencumbered cash balances of ~Rs 3,500 crore as on September 30, 2022.

 

Strong government linkages

The government holds 100% stake in JNPA, which is under the direct administrative control of the MoPSW. The board of trustees has members representing MoPSW, DoC, DGS, and the managing director of CIDCO, which reflects strong government linkages. In the past, debt contracted was either directly from the government or on the strength of its ownership. Since ports are strategically important for economic growth and JNPA is one of the largest container-handling cargo ports, government support is likely to continue.

 

Weakness:

Competition from private ports, particularly from the ports on western coast

JNPA faces strong competition from nearby private ports and increasing container cargo capacities on the western coast, which have efficient operations, facilities for berthing larger vessels, and state-of-the-art infrastructure. Availability of the newly commissioned BMCT equipped with more updated technology, modern facilities, world-wide network of own terminals and expected ongoing capacity addition and improvement in infrastructure facilities should support JNPA maintain its market position and generate healthy traffic growth at the port. Privatisation of the terminal operated by JNPA should also add to operating efficiency. However, strong competition will continue to constrain any substantial growth in cargo volume handled, thereby impacting significant growth in revenue. 

Liquidity: Superior

Liquidity is supported by strong annual cash accrual and large liquid surplus. Expected annual cash accrual of more than Rs 1,000 crore should comfortably cover ECB obligation of ~Rs 450 crore in fiscal 2023. Furthermore, the authority has large, unencumbered cash balance of ~Rs 3,500 crore as on September 30, 2022, which should support bullet repayment of the ECB loan of ~Rs 1,550 crore in fiscal 2024 and fund large capex plans or meet any exigency. Additionally, JNPA will continue to benefit from its strong government linkages and any need-based support.

Outlook: Stable

JNPA will maintain its leadership in the container cargo segment over the medium term because of its established market position and well-phased infrastructure improvement and capacity addition plans. Financial risk profile is likely to remain robust, driven by strong cash accrual and surplus liquidity. 

Rating Sensitivity Factors

Downward factors

• Any change in policy leading to dilution in strategic importance or criticality to the government
• Sustained decline in revenue by over 10%
• Significant decline in profitability
• Large debt-funded capex leading to significant increase in gearing

About JNPA

Formed under the Major Port Trusts Act, 1963, JNPA commenced operations in 1989. It operates a dedicated container terminal and a dedicated multi-purpose container terminal for shallow draught vessels at Navi Mumbai, situated across the Mumbai port. JNPA functions on the landlord port model (port authority acts as landlord while cargo operations are handled by private operators) and provides the requisite infrastructure facilities to the terminal operators.

 

The port has entered into long-term BOT contracts with private container terminal operators, which stipulate revenue sharing and royalty based on cargo volumes handled. Two of the five terminals at JNPA are Nhava Sheva International Container Terminal (NSICT) and Nhava Sheva International Gateway Terminal (NSIGT), operated by DP World Ltd, with a capacity of 1.2 MTEU and 0.8 MTEU respectively. The third terminal is Gateway Terminals India Pvt. Ltd (GTIPL), which is run by a consortium comprising APM Terminals Management BV and state-owned Container Corporation of India Ltd, with capacity of 1.8 MTEU. The fourth terminal is Phase I of BMCT terminal run by PSA Singapore with a capacity of 2.4 MTEU. The construction of second phase of the 2.4 MTEU has not started and no guidelines for the same are available. The fifth terminal is Jawaharlal Nehru Port Container Terminal (JNPCT) with a capacity of 0.9 MTEU, which will be operated by a consortium of JM Baxi Ports and Logistics and CMA CGM from January 26, 2023. Liquid cargo of about 7.2 MTPA is handled at BPCL’s private terminal. Shallow water berth and coastal water berth with capacity 1.2 MTPA and 2.5 MTPA, respectively, will be operated by JM Baxi Ports and Logistics.

 

MJPRCL was formed for 6/8 laning of the highway connecting the port to major cities such as Mumbai, Pune, Navi Mumbai, Nashik, Ahmedabad and Goa. The SPV is held by JNPA (51% stake), NHAI (43%), and CIDCO (6%).

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Complexity level	Issue Size (Rs.Cr)	Rating Assigned with Outlook
NA	Proposed Term Loan	NA	NA	NA	NA	761.2	Withdrawn
INE281G07053	Tax-Free Bond*	26-Mar-2013	6.82%/ 7.32%	25-Mar-2023	Simple	2000	CRISIL AAA/Stable
NA	External commercial borrowing&	12-Aug-2016	NA	31-Mar-2024	NA	479.7	CRISIL AAA/Stable
NA	External commercial borrowing^	12-Aug-2016	NA	31-Mar-2024	NA	1439.1	CRISIL AAA/Stable

*Non-convertible tax-free bond

&equivalent to $58.5mn

^equivalent to $175.5mn; (1USD ' Rs 82)