Rating Rationale

Strengths
* Strong financial risk profile
KSP's financial risk profile is marked by comfortable capital structure and healthy debt protection metrics. Networth and gearing improved from Rs 826 crore and 0.4 time, respectively, as on March 31, 2017, to Rs 942 crore and 0.3 time, respectively, as on January 31 2018. Net cash accrual to adjusted debt ratio remains healthy at 58% for fiscal 2018. Expected cash accrual of Rs 210 crore in fiscal 2019 will comfortably cover moderate debt obligations of Rs 12.4 crore. Financial risk profile is further supported by minimal debt raising plans for additional capital expenditure (capex) over the next few years.

KSP is planning to invest around Rs 60 crore over the next three fiscals in a joint venture with two other partners (Bothra Shipping Services Pvt Ltd [rated CRISIL A/Stable/CRISIL A1] and Ripley & Company Stevedoring & Handling Pvt Ltd) for a coal handling terminal at Paradip Port. Accrual of Rs 200 crore and cash and cash equivalents of Rs 100 crore will support investment plans.

* Established regional presence as a deep-water port on India's eastern coast
KSP benefits from its established regional presence as a deep-water port on India's eastern coast, aided by its strategic location off the Krishna-Godavari basin and good connectivity with the hinterland, which provides an assured cargo throughput. The port's competitive positioning is supported by its established connectivity by road, rail and pipelines (for liquid cargo) for cargo evacuation. KSP also benefits from the well-developed primary industrial hinterland, thus providing assured cargo volumes, namely, fertiliser raw materials (FRM) and crude edible oil.

* Diversified revenue profile and healthy operating profitability
KSP has a diversified revenue profile due to close proximity to fertiliser companies, edible oil companies and granite rich areas of Andhra Pradesh. KSP earns about a fifth of its total revenue from offshore supply vessel (OSV) activities. The port's proximity to the oil/gas blocks and favourable weather conditions have helped sustain the company's OSV revenues. The diversified revenue profile has helped partly offset the pressure from the steady decline in coal related volumes over the past few years. KSP is expected to benefit from the recently signed new contracts for transportation of additional 3 MT of coal and the OSV facilities from fiscal 2019 onwards.

The diversified revenue profile, steady upward tariff revisions, and stable revenue from the OSV segment has helped operating profitability to remain healthy at around 75% during the first 10 months ended January 31, 2017. The port's low turnaround time has further supported its operating performance.

Weakness
* Moderate scale of operations
Business risk profile is marked by moderate scale of operations, reflected in the cargo handling capacity of about 22 mtpa, which is significantly lower than those of key competitors in the region.

Furthermore, the decline in coal volumes over the past 3 fiscals has impacted overall volumes. However, the company benefits from rising volumes of other cargo, which has resulted in average capacity utilisation of 60% over the past few years. While overall volumes are expected to improve gradually, KSP's scale will remain constrained over the medium term.

* Susceptibility to intense competition from the neighboring ports
Competition from the neighbouring ports on the eastern coast of India continues to be intense, particularly in the case of bulk cargo such as coal, due to the presence of a number of major ports such as Vishakhapatnam, Ennore, and Chennai. Also, KSP faces significant competition from non-major ports such as Krishnapatnam (70 mtpa) and Gangavaram (62 mtpa) on the eastern coast primarily due to a higher draft of the channel and relatively larger throughput installed capacities.