Dredging Corporation of India (DCI), state-owned enterprise engaged in providing dredging services to major Indian ports, is advantageously positioned to benefit from a range of initiatives launched by the government. The market opportunity for the company is worth Rs. 20,000 crore, according to an analyst at brokerage ICICI Securities Ltd.
India has embarked on a programme to utilise its vast 7,500 km coastline for commercial purposes called "Sagarmala." The project was unveiled by Prime Minister Narendra Modi at the Maritime India Summit in Mumbai last week. It is expected to create 40 lakh direct employment and boost merchandise exports.
"With the need to supplement the choked road and rail network, Sagar Mala has envisaged 150 projects for port augmentation, entailing an investment of Rs. 1,00,000 crore. Approximately 20 percent of port development costs relate to dredging activity resulting in a market opportunity of Rs. 20,000 crore," wrote analyst Pankaj Pandey in an April 20 note.
"Given the technicalities of dredging, an experience of over two decades on the Indian coast positions DCI as the biggest beneficiary," he added.
Besides "Sagarmala," DCI is also expected to benefit from other projects such as Jal Marg Vikas (inland waterways development) and "Clean Ganga."
The company has a fleet of 20 equipment, including 12 trailer suction hopper dredgers. DCI intends to add two more to its fleet to capitalise on the vast opportunities likely to unfold in the coming years, according to ICICI Securities.
The company is also expected to get payment for work executed on the Sethusamudram project. "With issues around Sethusamudram project expected to be resolved in the near term, DCI would be able to unlock investments of Rs. 300 crore," said the ICICI Securities note.
The Indian shipping ministry's mandate to increase the port draft to at least 18 metre would be followed by a global average of 23 metre, thereby creating higher demand for maintenance dredging, directly benefit DCI.
"Moreover, being a market leader, DCI could be appointed a nodal agency for projects like Clean Ganga for which the Budget FY17 has allocated Rs. 2,250 crore," the research firm's note said.
DCI posted net profit and revenues of Rs. 7.97 crore and Rs. 163.96 crore for the third quarter ended December 2015.
The company is estimated to post revenues of Rs. 672.40 crore in 2015-16 and Rs. 780.30 crore in the current fiscal. Its FY2018 estimated earnings have been pegged at Rs. 925.80 crore by ICICI Securities.
The Dredging Corporation of India stock closed at Rs. 409.20 on Thursday on the BSE, with the 52-week high and low of the company being Rs. 484 and Rs. 290, respectively.
ICICI Securities on dredging
Dredging is the activity of excavating or removing silt, sand and other layers from the water bed. This sand/silt is deployed back in the sea or sometimes used elsewhere for coastal protection or land reclamation. Dredging involves two main activities.
Firstly, it involves removal of soil/rock from the bed of sea by disturbing and loosening the same. Simultaneously, the disturbed sand is lifted to the water surface with the help of vacuum generated through dredgers.
Secondly, the dredged material that was lifted has to be relocated or disposed away from the actual site. This requires identifying a suitable disposal site, which abides by environmental and regulation aspects.
The prime objective of dredging is to either maintain or create the required/additional channels for wider/deeper waterways to help ports improve navigation and berthing of ships.
It is also carried out for other purposes, including laying pipelines on the seabed, nourishing or replenishing beaches, producing materials for construction and to clean the material below water.