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).

 

Operating income grew 10.3% for the first 9 months of fiscal 2024 (9m 2024), primarily driven by increase in container traffic by 13.8% compared with the corresponding period previous fiscal. For fiscal 2023 as well, operating income had grown 16.4% year-on-year supported by rise in container traffic post relaxation of pandemic-induced restrictions and resumption of normal trade. Operating margin also improved for 9m 2024 to 66.7% against 61.9% for the corresponding period last fiscal and 57.0% in fiscal 2023 supported by higher efficiencies in operations with recent privatisation of Jawaharlal Nehru Port Container Terminal (JNPCT, from January 26, 2023 onwards) and better realisation in port and dock charges.

 

JNPA is expected to repay all its existing debt in fiscal 2024 in the absence of any major capital expenditure (capex) plans. Further, the authority had unencumbered cash and cash equivalents of ~Rs 4,000 crore as on December 31, 2023. Given strong net worth, low leverage and healthy liquidity, 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 container cargo segment: JNPA is the largest container cargo port operator in India (among the 12 major ports in the country) and it accounts for ~50% of container traffic at major Indian 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 7.7 million twenty-foot equivalent unit (MTEU; including private terminals operating at the port), up from 5.3 MTEUs as of fiscal 2017. 

 

Ability of JNPA to maintain its market share and profitability remains 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 its operating efficiency. The port has taken up initiative to improve road and rail connectivity to cater to increasing capacity. MJPRCL formed by JNPA, the National Highway 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. Additionally, 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 BMCT terminal 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. Further, development of additional liquid cargo jetty with a capacity of 4.5 million metric tonne per annum (MMTPA) is also under construction. Building of infrastructure is expected to improve the operational efficiency while capacity addition will help sustain market position.

 

JNPA along with Maharashtra Maritime Board and private participation is expected to undertake development of a mega port project at Vadhavan valued at ~Rs 75,000 crore. While most approvals for the development are in place, the pending approvals are expected to be received in the current quarter.  The project is expected to start by the end of Q1 2025. Given the nascency of the project, the overall investments (including JNPA’s share) as well as execution timeline are yet to be finalised. The authority has entered into memorandum of understanding with private players like DP World and APM Terminals for operations of part of the developed capacity, but details of the deals are yet to be finalised as well. Given the strong net worth, low leverage and healthy liquidity, financial flexibility should remain comfortable even after planned capex. However, higher-than-expected outflows towards the project leading to deterioration of the port’s financial flexibility will remain key rating sensitivity factors.

 

• Robust financial risk profile: Healthy revenue and strong profitability help generate strong cash accrual year-on-year and maintain superior net worth. Net worth stood at Rs 13,323 crore while debt remained moderate at Rs 1,703 crore as on March 31, 2023, resulting in low gearing of 0.13 time.

 

JNPA contracted external commercial borrowings (ECBs) of around Rs 2,800 crore to fund execution of MJPRCL road project, which was fully drawn by fiscal 2019. Strong cash accrual has supported repayments in the absence of surplus cash flow from MJPRCL. JNPA had met the debt instalment since September 2020 given lack of surplus cash flow at MJPRCL due to delay in completion of the project. Nevertheless, MJPRCL is in the process of tying up long-term debt and the proceeds from the same are expected to be up streamed to JNPA. The remaining ECBs on JNPA’s books are expected to be paid through these funds. The authority is expected to become debt-free post repayment of ECBs in March 2024.

 

Working capital cycle also improved slightly in fiscal 2023 with decrease in debtor days. The debtors of more than 6 months have remained at similar levels on year-on-year and mainly pertain to disputed debtors from private players from tank farm business and the matter is sub-judice. Nonetheless, if these debtors are adjusted against the net worth, it will not have material impact on the financials of the company. The port had incurred capital dredging expenditure of Rs 1703 crore till March 31, 2023 which is also disputed and is currently under arbitration. While the management does not expect this to have any adverse impact on the port’s financials, the outcome of the arbitration will remain a key monitorable.

 

JNPA’s financial flexibility also derives comfort through its large, unencumbered cash and cash equivalents of ~Rs 4,000 crore as on December 31, 2023.

 

• 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 over Rs 1,500 crore coupled with large, unencumbered cash and cash equivalents of ~Rs 4,000 crore as on March 31, 2023 should comfortably cover the ECB repayment obligation of Rs 1,703 crore in fiscal 2024 and fund large capex plans or meet any exigency. Additionally, it will continue to benefit from its strong government linkages and any need-based support from GoI.

Outlook: Stable

JNPA will maintain its market 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. Furthermore, the financial risk profile of the trust is expected 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 weakening of the financial risk profile

About the Company

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 based on landlord port model (port authority acts as landlord while cargo operations are handled by private operators) and its operations include providing 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 seven 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 is in progress. The fifth terminal is Nhava Sheva Freeport Terminal (NSFT) (erstwhile JNPCT) being run by consortium of JM Baxi Ports and Logistics and CMA CGM with a capacity of 1.8 MTEU. Liquid cargo is handled at BPCL’s (sixth terminal) private terminal wherein about 7.2 MTPA of liquid cargo is handled. The seventh terminal is Nhava Sheva Distribution Terminal (NSDTPL) being run by JM Baxi Ports and Logistics with shallow water berth and coastal water berth capacity of 4 MTPA and 2.8 MTPA respectively. Liquid cargo is handled at BPCL’s private terminal wherein about 7.2 MTPA of liquid cargo is handled.

 

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 the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
INE281G07053	Tax-Free Bond*	26-Mar-2013	6.82% / 7.32%	25-Mar-2023^	2000	Simple	CRISIL AAA/Stable
NA	External commercial borrowing&	12-Aug-2016	NA	31-Mar-2024	479.7	NA	CRISIL AAA/Stable
NA	External commercial borrowing^	12-Aug-2016	NA	31-Mar-2024	1439.1	NA	CRISIL AAA/Stable

*Non-convertible tax-free bond

^While the bonds have been redeemed, documentation regarding third party confirmation of the same is pending

&equivalent to $58.5 mn

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