Two mega projects ready for take-off

Infrastructure | 20 June 2012

JNPT CT-4 & DFCC Western Corridor: expect

project awards of USD5b-7b in FY13/14



INFRASTRUCTURE: Multiplier Effect



JNPT's CT-4 and DFCC Western



JNPT has selected the Port Authority of Singapore to

construct and operate its fourth container terminal (CT-

4), which will nearly double existing capacity.

JNPT's CT-4 expansion is contingent on DFCC for evacuation

and the viability of DFCC's Western Corridor is contingent

on JNPT expansion, as containers will account for 75-80%

of traffic.

We expect project awards of USD5b-7b in FY13/14 and

prefer L&T to play the theme.

corridor are high "multiplier effect"

projects, with interlinked viability



Both projects targeted to be

commissioned by FY16/17



Expect USD5-7b worth of

project awards in FY13/14



Successful implementation to lead

to a chain of benefits across sectors,

boosting the investment cycle

Ray of Hope

will highlight the bright spots in an otherwise

bleak scenario in the economy or any sector or company.

JNPT's expansion plans to nearly double capacity:

The

Jawaharlal Nehru Port Trust (JNPT) has selected (in

September 2011) the consortium led by Port Authority

of Singapore to construct and operate its fourth

container terminal (CT-4). JNPT currently has a capacity

of 4.1m TEUs and CT-4 will add a further 4.8m TEUs. The

concession agreement is expected to be signed shortly.

Phase-1 of CT-4 (2.4m TEUs) is likely to be completed by

2015/16 at an estimated cost of ~INR38b.

CT-4 / Western Corridor project viability interlinked:

JNPT's CT-4 operations are strongly interlinked with

Dedicated Freight Corridor Corporation's (DFCC)

Western Corridor project, given the constraints in terms

of railway capacity. The Railways account for ~27% of

the hinterland transport for JNPT and the existing

network is congested, with limited room for expansion.

Hence, the near doubling of container capacity post

commissioning of CT-4 is largely dependent on DFCC

for evacuation. The economic viability of DFCC's

Western Corridor project is also linked to JNPT

expansion, as containers will account for 75-80% of

traffic. Land acquisition in the JNPT-Vadodara section

has been significantly behind schedule (near nil land

acquired around Mumbai, Surat), while the Vadodara-

Rewari section has witnessed 83% land acquisition.

Expect project awards of USD5b-7b in FY13/14:

expect substantial parts of the project awards for both

CT-4 (INR38b, phase-1) and DFCC Western Corridor

(~USD8b) to be completed in FY13/14. This will entail

interesting opportunities for construction players. Both

the projects are expected to be commissioned by FY16/

17. We believe that DFCC could provide a 'multiplier

effect' for India in many ways, and successful

implementation will lead to several benefits.

How to play the theme - L&T is the best bet:

We believe

L&T (Buy) will be a clear beneficiary of the project

awards of USD5b-7b expected in FY13/14 for CT-4 and

the Western Corridor. L&T is also one of the two

consortiums pre-qualified to submit price bids in two

packages of the Western Corridor (size ~USD1b). Adani

Port (Not Rated) will also be a beneficiary of the shift

in the northern hinterland container cargo from

Maharashtra to Gujarat - JNPT's capacity is largely

saturated till CT-4 / western DFCC becomes operational

and the recent TAMP (Tariff Authority on Major Ports)

tariff reduction for private operators at JNPT will lead

them to lower volumes, as efficiency gets punished.

Adani Port already accounts for ~25% of the western

region container traffic and the transition is expected

to be rather quick over the next 3-4 years.

Satyam Agarwal

(AgarwalS@MotilalOswal.com); +91 22 39820 5410

Nalin Bhatt

(NalinBhatt@MotilalOswal.com) /

Pooja Kachhawa

(Pooja.Kachhawa@MotilalOswal.com)

Ray of Hope

| Infrastructure

JNPT, India's most profitable port, doubling capacity

Expect meaningful project awards in FY13

We met the management of

Jawaharlal Nehru Port Trust

(JNPT).

JNPT has a market share of

56% in India's container

cargo. JNPT has three

container terminals - two

run by private parties (DP

World and APM Terminal /

Concor) and one by the port

trust. This gives JNPT a strong

landloard-like character. Its

total handling capacity

stands at 4.1m TEUs per

annum, while throughput

was 4.32m TEUs in FY12.

Roads represent the largest

hinterland

transport at 73%, while

railways contribute ~27%.

JNPT is the most profitable

port trust in the country, with

FY11 PAT at INR5.4b and net

cash balance of INR17.3b.

This is largely due to its

landlord-like character,

which gives it steady royalty

income from BOT operators

(accounts for 55-60% of the

charges at the port) and also

vessel-related charges.



JNPT currently has three container terminals with a total capacity of 4.1m TEUs per annum.

It is adding a fourth terminal (CT-4), which will have a capacity of 4.8m TEUs per annum.

The total project cost is INR67b and we expect awards for phase-1 to commence in FY13.

JNPT, India's largest container handling port…

Commissioned on 26 May 1989, Jawaharlal Nehru Port Trust (JNPT) is India's largest

container handling port, with a market share of 56% in India's container cargo. It has

three container terminals - two run by private parties (DP World and APM Terminal /

Concor) and one by the port trust. This gives JNPT a strong landloard-like character. Its

total handling capacity stands at 4.1m TEUs per annum, while throughput was 4.32m

TEUs in FY12, translating into 100% capacity utilization. Roads represent the largest

share in hinterland transport at 73%, while railways contribute ~27%.

…and the most profitable port in the country…

JNPT is the most profitable port trust in the country, with FY11 PAT at INR5.4b and net

cash balance of INR17.3b. This is largely due to its landlord-like character, which gives

it steady royalty income from BOT operators (accounts for 55-60% of the charges at

the port) and also vessel-related charges.

…has mega expansion plans to double capacity

JNPT has selected (in September 2011) the consortium led by Port Authority of

Singapore to construct and operate its fourth container terminal (CT-4). JNPT currently

has a capacity of 4.1m TEUs and CT-4 will add a further 4.8m TEUs. Quoted revenue

share stands at 50.8%, which is the highest in any bid. The concession agreement is

expected to be signed shortly. Recently, ABG has walked out of the contract and PSA

International, Singapore will be the sole member of the consortium.

Expect meaningful project awards in FY13

CT-4 will be executed in two phases; phase-1 (2.4m TEUs) is likely to be completed by

2015/16 at an estimated cost of ~INR38b. Phase-2, estimated to cost INR28b, is expected

to be completed within eight years from the signing of the concession agreement.

The total project cost is INR67b and we expect project awards for phase-1 to commence

in FY13.

JNPT: CT-4 entails a revenue sharing of 50.8%

Phase I

*Phase II

Quay Length (Mtrs)

1000

Draft (Mtrs)

Capacity (In Million TEUs)

2.4

Developer/Operators

PSA (76%) & ABG (24%) #

Revenue sharing (%)

50.8

Concession period (yrs)

Project cost (INR b)

* Phase-2 shall be commenced when annual throughput of phase-1 reaches 1m TEUs or

within 6 years from the signing of concession agreement, whichever is earlier.

# Project was initially awarded to a consortium of PSA, Singapore and ABG; in April 2012, the

consortium members informed JNPT that PSA, Singapore alone will take the project.

The total project cost for

CT-4 is INR67b and we

expect awards for phase-

1 to commence in FY13

20 June 2012

Ray of Hope

| Infrastructure

JNPT has recently opened the price bids for the dredging contract (to deepen the

channel from 11.5 meters to 14 meters). Post completion, the port can accommodate

vessels upto 6,000 TEUs v/s 3,000/4,000 TEUs currently, which will be a big efficiency

booster for the trade, given lower transshipment requirements. Royal Boskalis

Westminster NV Dredging is the lowest bidder at INR12.2b and the contract is likely to

be awarded shortly. We further understand that while the IRR of the project is

estimated at 15-16%, the economic return including the savings to the trade is

estimated at ~40%. This dredging contract award is an important milestone for the CT-

4 expansion.

JNPT: Layout plan

The total handling capacity of the current three container terminals is 4.1m TEUs per annum.

CT-4 will add 4.8m TEUs, more than doubling the existing capacity.

JNPT: Existing container terminal facilities

JNPT has a strong

landlord-like character;

two of its three container

facilities are with private

operators.

JNPCT

NSICT

GTICT

Quay Length (Mtrs)

680

600

712

Draft (Mtrs)

12.5

Capacity (In Million TEUs)

1.1

1.2

1.8

Throughput (in Million TEUs) - FY12

1.0

1.4

1.9

Capacity Utilization %

117

106

Revenue sharing

Fixed Royalty

35.5%

JNPTC: Operated by JNPT

NSICT: Operated by DP World and is India's first privately managed container terminal

GTICT: Operated by APM Terminals (74%) and Concor (26%)

TOTAL

1,992

4.1

4.3

105

20 June 2012

Ray of Hope

| Infrastructure

JNPT: Robust financials, given landlord-like character

Revenue composition

Financial matrix (INR m)

Capital Employed

Total assets

Current assets

Current liabilities

Net Profit

ROCE (%)

FY10

18,250

44,477

15,120

7,823

5,413

34.4

FY11

18,710

52,057

17,372

9,892

5,435

33.8

JNPT is the most profitable port trust in the country, with FY11 PAT at INR5.4b and net cash balance of INR17.3b.

This is largely due to its landlord-like character, which gives it steady royalty income from BOT operators

(accounts for 55-60% of the charges at the port) and also vessel-related charges.

Source: JNPT, MOSL

JNPT: One of the largest ports in India

Capacity of major ports in India (m tons)

Capacity of minor ports in India (m tons)

Source: Industry, IPA

20 June 2012

Ray of Hope

| Infrastructure

CT-4 / DFCC Western Corridor project viability interlinked

Expect project awards of USD5b-7b in FY13/14; plus multiplier benefits



While JNPT's CT-4 will rely on DFCC's Western Corridor for cargo evacuation, viability of the

latter will depend on cargo traffic from the former.

We expect substantial parts of the project awards for both CT-4 (INR38b, phase-1) and

DFCC Western Corridor (~USD8b) to be completed in FY13/14.

Both the projects are expected to be commissioned by FY16/17 and will lead to multiplier

benefits for the trade.

Viability of JNPT's CT-4 and DFCC's Western Corridor interlinked

The Railways account for

~27% of the hinterland

transport for JNPT and

the existing network is

congested, with limited

room for expansion

JNPT's CT-4 operations are strongly interlinked with Dedicated Freight Corridor

Corporation's (DFCC) Western Corridor project, given the constraints in terms of railway

capacity. The Railways account for ~27% of the hinterland transport for JNPT and the

existing network is congested, with limited room for expansion. Hence, the near

doubling of container capacity post commissioning of CT-4 is largely dependent on

DFCC for evacuation. The economic viability of DFCC's Western Corridor project is also

linked to JNPT expansion, as containers will account for 75-80% of traffic.

Expect project awards of USD5b-7b in FY13/14

We expect substantial parts of the project awards for both CT-4 (INR38b, phase-1) and

DFCC Western Corridor (~USD8b) to be completed in FY13/14. This will entail interesting

opportunities for construction players. Both the projects are expected to be

commissioned by FY16/17. We believe that DFCC could provide a 'multiplier effect' for

India in many ways, and successful implementation will lead to several benefits.

There are challenges, too

There has

been no progress

in land acquisition near

the Mumbai/Thane belt,

given environmental

issues

DFCC's Western Corridor project is being contemplated in three phases: Vadodara to

Rewari (920km), JNPT to Vadodara (430km), and Rewari to Dadri (140km). While land

acquisition for the Vadodara-Rewari section has been completed to the extent of

83%, land acquisition for the JNPT-Vadadara section is lagging. There has been no

progress in land acquisition near the Mumbai/Thane belt, given environmental issues

like forest land in Thane, right of passage through Sanjay Gandhi National Park, etc.

Even in locations like Surat, just 1.3% of the land required has been acquired.

Delayed implementation of the Western Corridor (JNPT-Vadodara section) will be a

setback for JNPT's CT-4, while minor ports in Gujarat (Mundra / Hazira / Pipavav) will

be the key beneficiaries. The government of Maharashtra is trying to expedite the

land acquisition.

20 June 2012

Ray of Hope

| Infrastructure

Western Dedicated Freight Corridor: Route map

The Vadodra-Rewari

section is expected to be

completed by 2016/17;

however, the JNPT-

Vadodara could be

delayed due to land

acquisition issues

Western Dedicated Freight Corridor: Land acquisition status

Total Scope

kms Area (Ha)

274

1,064

359

958

196

907

558

122

930

3,608

202

460

118

239

108

612

141

942

569

2,252

1,499

5,860

20A

kms Area (Ha)

274

1,064

359

958

144

721

552

122

930

3,608

202

460

118

239

108

612

141

942

569

2252

1,499

5,860

kms

274

339

826

108

464

1,290

20E

Area (Ha)

1,064

924

459

412

3,205

148

446

307

1718

4,923

kms

274

339

776

108

143

919

20F

Area (Ha)

1,064

924

411

386

2,998

362

782

3,780

Progress Compensation (INR M)

(%)

Award

Disbursed

100.0

1,960

1,370

96.5

1,450

770

45.3

820

130

69.2

3,550

3,280

0.0

83.1

7,780

5,550

0.0

1.3

59.2

3,590

3,400

0.0

34.7

3,663

3,444

64.5

22,886

1,370

Jaipur

Ajmer

Ahmedabad

Vadodara

Dadri

Total Phase 1

Mumbai

Surat

Vadodara

Dadri

Total Phase 2

Grand Total

While land acquisition for the Vadodara-Rewari section has been completed to the extent of 83%,

land acquisition for the JNPT-Vadadara section is lagging significantly

20 June 2012

Ray of Hope

| Infrastructure

PPP in ports - a good beginning

Will the momentum sustain?



Given the poor finances of port trusts, expansion projects at major ports need to be carried

out through the public private partnership (PPP) route.

As at March 2012, PPP projects of INR94b (205m tons) at major ports have been completed,

while projects worth INR183b (185m tons) are under implementation. Projects under

bidding stand at INR158b (158m tons).

While the initial progress has been noteworthy, there has been a meaningful slowdown in

terms of PPP projects being awarded at major ports over the last 18 months.

Meaningful slowdown in PPP project awards at major ports

As at March 2012, PPP

projects of INR94b (205m

tons) at major ports have

been completed

As at March 2012, PPP projects of INR94b (205m tons) at major ports have been

completed, while projects worth INR183b (185m tons) are under implementation.

Projects under bidding stand at INR91b (158m tons). While the initial progress has

been noteworthy, there has been a meaningful slowdown in terms of PPP projects

being awarded at major ports over the last 18 months.

PPP projects at major ports

Completed

Under Implementation

Under Bidding

INR B

94.4

183.5

90.6

M tons

205

185

158

The key issues plaguing the sector are:

Delays in getting clearances:

In the recent past, projects awarded on PPP basis

have been delayed due to the time taken to obtain environmental and other

clearances. As in most other sectors, environmental clearances for port projects

are obtained post project award.



Strained finances, poor draft:

Several existing ports like Mumbai, Chennai, Kolkata,

etc were commissioned over 100 years ago, and the existing draft is a hindrance.

Corrective action entails massive dredging, which is capital intensive, and in several

instances, the port trusts do not have sufficient finances. Globally, part of the

dredging costs is shared by the government, but this is not the case in India.



Regulated tariff by Tariff Authority for Major Ports (TAMP):

The TAMP return

framework is not incentivizing efficiency (16% RoCE). Higher throughput than the

minimum committed capacity actually leads to lower RoCE in several instances.



Several existing ports like

Mumbai, Chennai,

Kolkata, etc were

commissioned over 100

years ago, and the

existing draft is a

hindrance

Case Study: TAMP asks NSICT/GTICT to cut tariffs, punishing efficiency

TAMP regime

punishes efficiency

In February 2012, TAMP ordered Nhava Sheva International Container Terminal (NSICT)

and Gateway Terminal (GTICT) to lower tariffs by 27.85% and 44.28%, respectively.

The tariff cut was largely because these ports were operating at 117%/135% capacity

utilization (based on the minimum guaranteed throughput). This tantamounts to

punishing efficiency, as the revenue share (paid to JNPT) is not allowed as cost while

fixing the tariff. So, while the tariffs are based on actual throughput, the port operator

faces lower returns, as it has to pay the revenue share out of the reduced RoCE year

on year. Hence, the operators will attempt to lower their throughput to just the

minimum guaranteed.

20 June 2012

Ray of Hope

| Infrastructure

Private operators at JNPT to lower volumes, as efficiency gets punished

Minimum Guaranteed

Throughput

1.2

1.4

Actual Throughput (FY12)

1.4

1.9

Capacity Utilization (%)

117

135

Source: Company, MOSL

NSICT

GTICT

Projects under implementation stage

Sr.

Project Name

Capacity Est. Cost Structure

(m tons)

INR b

2.0

1.9

10.2

6.0

6.7

1.1 BOT

0.6 BOT

4.4 BOT

3.2 BOT

3.1 BOT

Award

Visakhapatnam port

Development of Western quay(WQ-6) in the northern arm of

Inner harbour of VPT for handling Dry bulk cargo at Vizag

Development of EQ-10 berth in Inner Harbour for handling liquid cargo at Vizag

Mechanised Coal handling facilities at General cum Cargo Berth(GCB) in the

Outer Harbour at Vizag

Development of EQ-1 by replacement of Equity EQ-1 and Part of EQ-2 in

Inner Harbour to Handle Steam Coal

Developemnt of EQ-1A on South side of EQ-1 for Handling Thermal

Coal and Stem Coal

Kandla Port

Development of Dry Bulk Terminal off Tekra near Tuna

Development of 13th Berth other than liquid and container cargo berth)

Development of 15th multipurpose cargo berth

Development of 16th multipurpose cargo berth

Setting up of Captive Barge Jetty at Old Kandla (IFFCO)

Paradip Port

Construction of Deep Draft Iron Ore Berth

Construction of Deep Draft Coal Berth

Multi-purpose Berth at Paradip to Handle Clean Cargo including Containers

VOC Port, Tuticorin

Construction of Coal Berth at NBW for NLC – TNEB

Construction of North Cargo Berth-II

Ennore Port

Development of Container Terminal

Cochin port

LNG Re-gasification Terminal

Mumbai Port

Construction of Offshore Container Berths and Development of terminal on

BOT basis at Mumbai Harbour

New Mangalore Port

Setting up of Mechanised Iron OreHandling Facilities at Berth No- 14

Mormugao Port

Development of Coal Handling Teminal at Berth no- 7

JNPT

4th Container Terminal

Total

28-Dec-09

2-Mar-10

1-Mar-10

19-Mar-11

14.1

2.0

1.5

10.0

5.0

6.3

5.0

15.0

2.5

9.6

10.6

1.9

0.3

BOT

Captive

Feb-12

19-Sep-12

7-Dec-10

17-Feb-11

1-Jul-09

21-Aug-09

5-Jul-10

Jan-10

12-Aug-10

13-Aug-10

13-Mar-09

1-Apr-09

5.9 BOT

4.8 BOT

3.9 BOT

0.5 Captive

3.3 BOT

14.1 BOT

35.0 Captive

14.6 BOT

6.6

7.0

60.0

100.7

3.0 BOT

2.5 BOT

67.0 BOT

136.2

23-Sep-09

7-Aug-09

Aug-11

20 June 2012

Ray of Hope

| Infrastructure

Projects under Bidding stage

S.No Project Name

VOC Port, Tuticorin

Construction of Shallow draft berth for handling cement

Upgradation of mechanical handling equipments inberth no.1 to 6 and berth no.9

Constn. of shallow draught Berth(2 Nos) for handling construction materials

Conversion of berth no- 8 as Container Terminal

Development of NCB-III for handling thermal coal & rock phosphate V.O.C. Port Trust

Development of NCB-IV for handling thermal coal & Copper concentrate

Visakhapatnam Port

Installation of Mechanised handling facilities for fertilizers at EQ 7 in the Inner Harbour

Development of

WQ 7

for handling Import Dry bulk cargo at

Development of

WQ 8 for handling break bulk cargo and export bulk cargo

Installation of Mechanised Iron Ore handling facilities at

WQ-1)

in the northern arm of

Inner harbour of VPT for handling Dry bulk cargo

Chennai Port

Creation of Mega Container Terminal

Development of RO-RO cum multi-purpose berth & car parking at Bharthi Dock

Development of Barge jetty at Bharthi Dock

Kandla Port

Setting up of Single Point Mooring ( SPM ) and allied facilities off Veera in Gulf of Kutch

Upgradation of Barge Handling Facilities at Bunder Basin

Mechanisation of cargo berth No.7 & 8

Mormugao Port

Development of 4 MMTPA mechanised Coal Import Terminal at Berth No.11

Development of 7.2 MMTPA Iron ore export Bulk Handling Terminal west of breakwater

Kolkata Port

Construction of Outer Terminal 1 upstream of 3nd Oil Jetty with ancillary facilities on PPP basis

(linked with transloading facilities at Kanika/Sandheads)

Cochin Port

International Bunkering Terminal - Construction of Multi-purpose Liquid Terminal

JNPT

Development of standalone container handling facility with a quay length of 330m

North of NSICT Terminal

Total

Est. Cost

(INR B)

0.9

0.8

0.6

3.2

4.2

3.6

2.2

1.8

2.3

2.8

Capacity

(m tons)

36.9

1.0

0.3

6.2

0.9

0.8

4.3

7.2

2.9

2.1

6.0

158

20 June 2012

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