Gujarat Pipavav Port saw a robust Q3CY14 on higher-than-expected bulk volumes and higher realizations. Discussing the outlook, MD Prakash Tulsiani said the business is growing at an average of 8-9 percent, in terms of container business.
“The company has planned expansion in the container business. We will go from 8,50,000 TEUs to 1.35 million TEUs by the first quarter of 2016. For this we have gone for a loan (debt) by the way of external commercial borrowings and IFC has agreed to give us USD 60 million for the purpose,” he said.
Tulsiani said the capacity increase is in line with the company’s earlier guidance and they will utilise internal accruals before drawing out IFC’s loan.
Below is the transcript of Prakash Tulsiani’s interview to CNBC-TV18’s Ekta Batra and Anuj Singhal.Anuj: Q3 was quite good for you because of higher than expected bulk volumes and good realisations. But how is Q4 panning out so far?A: See generally in the market today the business is growing at an average rate of around 8-9 percent and that is in terms of container business. What we have seen is of course in the last few months that is starting the last quarter coal volumes have increased because of the power plant demand and also fertiliser because this is a season for that. So that is how the industry is panning out. Ekta: Your Company we do understand is almost debt free and over the quarters your interest cost has also reduced quite significantly. Can we then expect the company to possibly finance part of your capex via debt now?A: The Company has planned for an expansion in container business. We will go from 850000 TEUs to 1.35 million TEUs and this will be achieved by first quarter of 2016. For this we have gone for a loan that is a debt by way of ECB and IFC has agreed to give us a USD 60 million loan. So definitely going forward we will need the debt funding to go in for the project and to ensure that expansion is done in a timely manner and within cost. But before we draw down on our loan, yes we do have our internal accruals. First we will utilise that and then we will draw down the loan.
Anuj: Your Company’s operating expenses surged 17 percent last quarter. So in terms of cost reduction what is the plan going forward?A: You are right there were two factors. Factor number one was that there was a surge in volumes going into the North West of India which goes by the rail product we have which is very unique and it is one of the best working on the west coast in India. Because of this surge the ICDs were having extra volumes coming in over their capacity. The volumes were staying at the port to get connected on to the train and absolutely correct that we had to incur extra expenses for equipment, for making yard to keep all this containers which were long standing for us. So that was one cost which went up. The second part is that we have contracts with our service providers, equipment providers for sometimes two-three years. Now in this current quarter, the last quarter which we are referring to, we have a contract which was due for renewal and that contract when it was renewed obviously came in with an increased number because of the correction to the inflation that we have seen. So inflation adjustment was made and that is why you see the price going up. So going forward this new contract will remain as we go into the coming quarters and while it will depend on the second part which is the ICD volumes, the volumes which go in the north west of India, how the ICDs perform.
Ekta: The Company has lowered your capex requirement by a scale down of container capacity however the company’s competitors we do understand are adding significant capacity over the next four-five years. Can you give us a sense, the company may lose incremental market share on the west coast in the long term. Your sense on the matter?A: First let me assure you we will accept all the boxes, all the ship calls that will happen for Pipavav so we are not going to refuse any business, so we are not going to lose market share.Second, we talked about the capacity increase. The capacity increase which is happening is in line with what we had discussed few years ago and we are not reducing anywhere. So in the range of 1.35 million is what we had planned and we are still doing that. Now what is important is not to create capacity ahead of time. It should be in the right time so that the asset utilisation remains high. So we will continue to create capacity as and when it is required by our clients. The clients give us notice, the clients tell us in advance what is needed and whenever we get to know demand supply situation and what are the needs of the client, then accordingly we are going to go and create capacity. So we are in a state of readiness. If in case we need to create more capacity let us say within two years from now, we will certainly embark on it. So we are not going to keep that on hold. What we are going to do is assess the market and accordingly plan what is needed to be done. So we are going to create capacity as and when needed.
Anuj: What about the rail and inland container depot (ICD) volumes, what kind of improvement are you seeing on that front?A: As you see what happened with India, the ICD volumes which we just discussed, ICDs which are in North West of India, they are linked assets which bring in the containers from overseas which is imports and even export containers come from there. So these are the extensions of the port typically run by private operators or even the government operators. Now in this particular case what we have seen is that starting June post elections when we saw that the dollar was stable versus Indian currency, we saw a surge in imports. Of course because of the festival season also there is always a surge in volumes just before the festive season. Now all this came together and there was a big surge in volumes. What we see is that we have come back to almost normal activity and the volumes are in the same range as we had seen in the past. Ekta: What in your sense is the impact of the import ban on basmati rice from Iran and reducing exports of cotton to China? Is that impacting your business in anyway? A: As regards cotton you are absolutely right which is from the hinterland of Pipavav. Yes we have seen that the cotton exports are soft. This is because China already has some stock from the previous years and the exports are not as high as we had seen in the last year so the numbers are low in terms of cotton exports. As regards the rice, yes we have seen some countries which import rice specifically in the middle east had certain imposition of tariffs probably at their end and that is why rice exports also are not to the same tune as we had seen in the previous quarters.
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