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    The Baseline

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    The Baseline
    25 Aug 2023
    Five Interesting Stocks Today

    Five Interesting Stocks Today

    1.Linde India

    This industrial gases producer touched an all-time high of Rs 6,165 on Wednesday after receiving a Letter of Acceptance (LoA) from Indian Oil Corporation (IOCL), for an  order for the installation, operation, and maintenance of an air separation unit at IOCL’s Refinery in Panipat for 20 years. 

    Linde India has risen by 27.4% over the past month and made it to a screener of companies with strong momentum. The company, during its annual general meeting, stated that the industrial gases market is poised for robust growth of around 9% in the near term. It anticipates an increase in demand for gas and improved opportunities from the steel sector, driven by consolidation, and productivity increases. The company’s positive outlook is also supported by the healthcare sector’s growth prospects. Linde India foresees robust growth in SPC (special purpose chemicals) products, while also expecting an uptick in nitrogen opportunities.

    The company released its Q1FY24 results earlier this month. Its net profit has dropped by 41.9% to Rs 99.9 crore due to increasing costs of raw materials, power and fuel, and other expenses. However, its revenue improved by 23% to Rs 721.1 crore, led by strong performance in the gases, related products, and project engineering segments. 

    Linde India ranks high on Trendlyne’s checklist with a score of 69.9%. It is currently trading in the ‘Strong Sell’ zone, based on the time spent below its current PE, suggesting expensive valuations.

    2.  GMR Airports Infrastructure:

    This airport development company rose by over 9.4% on Thursday. The stock touched a 52 week high of Rs 66.8 in intraday trade today. It has also surged by 15.9% over the past week till Friday. The firm shows up in a screener for stocks trading above their short, medium and long-term moving averages. This upswing in share price comes on the back of increased passenger traffic in its airports. In Q1FY24, the company’s revenue jumped by 40.2% YoY to Rs 2,017.6 crore, beating Trendlyne Forecaster’s revenue estimates by 1.1%. Additionally, its net loss narrowed to Rs 29.8 crore from Q1FY23’s Rs 137 crore, aided by a one-time gain of Rs 76.1 crore from asset sales.

    GMR Airports Infra has benefitted from the rise in air travel demand in India, as it currently operates international airports in Delhi, Hyderabad, and Goa. In Q1FY24, the passenger traffic at Delhi and Hyderabad international airports grew by 18% and 24% YoY respectively. The management expects the positive momentum in traffic to continue, fueling growth. The addition of new routes and increased airline capacity are expected to boost air traffic.

    To meet the growing demand, the company has been expanding its terminals in Delhi and Hyderabad with a capex of Rs 17,000 crore. This will increase the terminal capacity in Delhi by 51.5% to 100 million passengers (pax) and in Hyderabad by 183.3% to 34 million pax by the end of FY24.  

    ICICI Securities believes that the merger of GMR Airports with GMR Airports Infrastructure will simplify the firm’s corporate structure and lead to substantial value creation for its shareholders. The company received approval for the merger from the Competition Commission of India in Q3FY23.

    3. Lemon Tree Hotels: 

    This hotel company has risen by 10.9% over the past week to its all-time high of Rs 111.2 per share. This boost follows the announcement of the company signing license agreements for two properties in Bhubaneswar and Kasauli. This rise helps it to appear in a screener of stocks with prices above short, medium and long-term moving averages. The properties are expected to be operational by FY25 and FY26, respectively. 

    Lemon Tree Hotels posted its Q1FY24 results on August 11, with a 69.4% YoY increase in net profit to Rs 23.5 crore. Its revenue has also improved by 15.7% YoY to Rs 222.2 crore, aided by growth in gross average room rate (ARR), revenue per available room (RevPAR), and occupancy. However, its revenue and net profit missed Trendlyne’s forecaster estimates by 3.1% and 12.6%, respectively. 

    Its margins contracted by 834 bps QoQ on account of higher advertising expenses and employee costs due to new hotel openings. Lemon Tree has planned a capex of Rs 40 crore for FY24 to revamp its budget hotels, which is expected to impact EBITDA margins by 200-250 bps. 

    Speaking about the results, the company’s Chairman and Managing Director said, “Growth in the coming quarters will be from two new hotels opening in October 2023. Also, our asset-light model will help accelerate growth in our managed and franchised portfolio.”

    IDBI Capital maintains its ‘Buy’ call on Lemon Tree Hotels, with a target price of Rs 110 per share. The brokerage believes that the company will benefit from increased demand in leisure travel, corporate travel, and meetings, conferences and exhibitions (MICE). The demand-supply mismatch in the near-term also seems favourable for overall earnings growth of the industry. It expects the company’s revenue to grow at a CAGR of 33.2% over FY22-25.

    4. Bharat Forge: 

    This industrial products manufacturer has risen by 6.8% in the past week and hit an all-time high of Rs 1,052.1 on Thursday. The price rise comes as the company’s defence arm, Kalyani Strategic Systems, won an export order worth 93.9 million euros (approx Rs 850 crore) to supply components and armoured vehicle chassis.

    In Q1FY24, Bharat Forge’s net profit grew by 25.9% YoY to Rs 223.4 crore, beating Trendlyne Forecaster’s estimate by 7.9%. It’s revenue also increased by 36.7% YoY, beating the estimate by 20.1%. The revenue growth was led by defence and passenger vehicle component exports. The company’s foreign subsidiaries have particularly excelled in revenue growth, driven by the aerospace segment. Orders from the US for class 8 trucks are also seeing good traction. Its EBITDA margin has fallen marginally by 20 bps YoY due to an increase in raw material expenses. The company also appears in a screener for stocks with increasing revenue for the past four quarters.

    Bharat Forge's current order pipeline stands at Rs 2,200-2,300 crore, scheduled to be executed over the next 18 months. Defence and aerospace orders worth around Rs 1,700 crore and Rs 500 crore, respectively, are expected by the end of FY25.

    Motilal Oswal reiterates its ‘Buy’ call on Bharat Forge and estimates a revenue and profit CAGR of 13% and 85% respectively over FY24-25 The expected surge in the order book and an upswing in exports are projected to drive revenue growth. The brokerage maintains its stance on the back of executions of the orders in the coming quarters.

    5. KEI Industries: 

    Thiselectrical equipment stock has risen by 8.6% in the past week, according toTrendlyne Technicals. KEI Industries is among India’s top three wire and cable manufacturers, with a product portfolio ranging from housing wires to Extra High Voltage (EHV) cables. KEI derives 63% of its revenue from cables, 6% from EPC, and 31% from wires. 

    The stock has declined by 6.5% after announcing its Q1FY24 results. KEI Industries reported a revenue growth of 13.9% and a profit growth of 17% YoY. The jump in revenue was led by a 22% increase in cable business volume. KEI reported an EBITDA margin expansion of 5 bps YoY – the muted margin growth was on account of higher expenditure on IPL advertisements, and capacity constraints. The firm's strategy to diversify itself into the retail business has resulted in the retail segment contributing 44% of the revenue, with the housing wires segment driving retail sales. KEI’s current order book stands at Rs 3,567 crore. It shows up in ascreener for companies that are efficiently managing assets to generate profits.

    KEI saw a capacity crunch in Q1FY24, impacting cable manufacturing volumes. This has resulted in KEI running at full capacity and achieving only 22% volume growth in cables, as compared to its peers,Polycab India (42%) andHavells India (24%). However, the brownfield expansion of cable manufacturing is set to be completed in Q2FY24, which should address the capacity issues. 

    Anil Gupta, the Managing Director of KEI Industries, has provided a guidance of 17% revenue growth for FY24, with EBITDA margins maintained at current levels of 11%. KEI has also planned a capex outlay of Rs 1,000 crore over the next three years for its capacity expansion. The stock is in the ‘Sell’ zone, according to the time spent below its current PE.

    BOB Capital sees growth traction in its export orders and cable business. The improvement in working capital is margin accretive. Due to the recent stock price appreciation and its capacity constraints, the stock has been downgraded from ‘Buy’ to ‘Hold’.

    Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.

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    The Baseline
    25 Aug 2023
    Climate change comes for Indian industries | Screener: companies outperforming in climate-hit sectors

    Climate change comes for Indian industries | Screener: companies outperforming in climate-hit sectors

    By Deeksha Janiani

    Imagine being trapped in a car for three days without food or water as a fire rages in your city. This harrowing experience happened to thousands of families caught in the recent wildfiresin the Hawaiian island of Maui. The lucky ones reached safety with singed hair and faces blackened by soot. By the time the fire receded, over a 100 people were dead and around 850 are still missing. 

    Just a month ago, Rhode Island in Greece saw its biggest-ever fire evacuation, relocating nearly 30,000 people to safety. And last week, people were being evacuated from wildfires across British Columbia in Canada.

    The mercury is rising like never before - Southern Europe saw unusual summer heat, US states have suffered historic droughts. At an Iran airport, the heat index reportedly hit 66 degrees celsius. In the critical trade route that is the Panama Canal, which moves half a billion tons of cargo every year, low water levels are forcing ships to load only partially, and wait for four days or more (and 20 days in some cases) to cross the waterway. In India, we endured our hottest February ever, followed by unseasonal rains. 

    Such extreme climate events are threatening human lives and affecting world economies. UN Secretary General António Guterres described these changes as a ‘crisis multiplier’, and its effects are becoming increasingly undeniable. Indian CEOs say that it is beginning to impact businesses and balance sheets.  

    In this week’s Analyticks:

    • Nature’s fury hits certain pockets of the economy and industry in India
    • Screener: Growth outperformers in sectors affected by climate change in India

    Let’s get into it.


    Climate change unnerves Indian farmers, consumers and companies in 2023

    Among this year’s bestsellers is Jeff Goodell’s The Heat Will Kill You First, which looks at our rapidly heating planet. He provides some sobering numbers: land animals are moving upwards one mile every year to cooler regions. 489,000 people are dying every year from extreme heat - nearly double the number killed by firearms annually. And global agricultural production has fallen by 21% in the last two decades due to rising heat and drought. 

    The average global temperature change consistently exceeded one degree Celsius every year from 2015-2020. Humans are now seeing temperatures never experienced before in our history.

    The increase in mean temperatures is resulting in heatwaves, erratic rainfall patterns, and water shortages everywhere.

    Global heat escalates throughout the 21st century

    India is not spared from these impacts. It experienced extreme weather events for 84 out of the 120 days in the first four months of 2023, according toITC’s chairman Sanjiv Puri. El Nino has adversely impacted the monsoon season as well. As Indian companies grapple with this severe weather, the effects are turning up in their financials.

    India's rainfall is uneven and deficient so far, threatening agri yields 

    Ritesh Tiwari, CFO at Hindustan Unilever, pointed out an interesting fact in the recent earnings call: “Quantity, timing and placement of the rain - all three have to work to ensure that the monsoon supports agricultural growth and rural growth.” And all three factors have been disrupted this season. 

    The monsoons began late in 2023 and have been below average in August. Karnataka faced a challenging situation in June, as  water levels in the Krishna and Kaveri river basins were significantly low, impacting coarse cereal production. The state is still running in a rainfall deficiency. 

    Below-average rainfall persists, and state-wise distribution remains uneven

    Uttar Pradesh, India’s largest food grains producer, is also experiencing a rainfall deficit. This is likely to impact the yields of kharif crops like paddy, maize and millets. Unexpected flooding in states like Punjab and Haryana, major rice producers, is raising concerns about this season's rice output as well. 

    To control rising prices, the Indian government banned white rice exports in July. Since India is the world’s largest rice exporter, this has raised food insecurity risks for importing countries. 

    India dominates global rice exports with over one-third market share

    The sugar output for the current marketing season ending September 30 is also expected to decline, due to poor rainfall in cane-producing states like Maharashtra and Uttar Pradesh. 

    Sugar production and exports set to fall

    Retail inflation in India spikes as food prices climb

    The RBI’s efforts to tame retail inflation through a series of interest rate hikes, and the decline in global commodity prices had paid off for a while. However, the erratic weather events of 2023 have again put pressure on the Central Bank. 

    India’s retail inflation spikes again

    Consumer price inflation has crossed the 7% mark for the first time since September 2022. This is owing to the rise in prices of key vegetables, cereals and pulses.

    Tomatoes, a staple in Indian cooking, reached Rs 250/kg in some regions, prompting some tomato sellers to hire security guards, and quick-service restaurants like Burger King and McDonalds to omit it from their burgers. 

    Vegetables contribute the most towards July CPI food inflation

    With uneven monsoons threatening the yield of kharif crops as well, this inflation spike does not look like an isolated event. The increase in prices could also dampen rural demand, which had just started to recover for FMCG players. 

    Unpredictable weather hits FMCG, white goods and agrochemical makers

    This summer season has had unexpected twists. Product categories and segments that flourished in previous summers due to heatwaves found themselves in a downturn this year, thanks to unseasonal rains. Demand for fruit beverages, carbonated drinks, ice creams, cooling hair oils, ACs, fans and coolers declined YoY between April and June. 

    Commenting on this, Mohit Malhotra, CEO at Dabur, said, “When it rains, people tend to stay indoors, impacting the sales of eating and drinking outlets. This affects our beverage portfolio.” Notably, the company gets 30% of its beverage demand from out-of-home consumption. 

    FMCG players are seeing underperformance in the food and beverages business

    Brands like Glucon-D, Real Fruit Juice and Tropicana saw lower sales growth in Q1. These are manufactured by Zydus Wellness, Dabur and Varun Beverages respectively. Among consumer durable makers, Blue Star’s AC segment faced sluggish revenue growth. Voltas and Havells did better due to market share gains.

    Havells and Voltas see healthy growth in the AC business

    Domestic agrochemical players were already going through a rough patch. Unseasonal rainfall resulting in a delayed kharif season has only amplified their woes.

    India needs to step up as climate change intensifies

    According to the World Meteorological Organization, there is a high chance of temperature rise exceeding 1.5 degrees in the next five years. And with this, the climate goals in the Paris Agreement may become very difficult to achieve. 

    India’s faraway target of achieving net zero emissions by 2070 might come with a heavy cost to its GDP by 2050. The agricultural sector will also face consequences. According to India’s agriculture ministry, climate change may reduce wheat and rice yields by over 19% by 2050. Poor farm incomes will hurt livelihoods, and hit FMCG and auto sectors. 

    India’s 2070 goal is not sufficient to counter climate change

    Scientists’ repeated warnings about the dire effects of climate change are now becoming a reality. Humans are notoriously bad at paying attention to warnings for events that might happen far in the future - but as climate change accelerates, the world as we know it is immediately at risk. Governments need to move quickly with incentives and investments, to change the course that we are on. 


    Screener: Stocks outperforming their sectors’ revenue and net profit growth - Climate change special

    Bikaji Foods leads in net profit growth outperformance 


    In this edition, we take a look at outperformers in sectors where revenue and net profit growth were affected by extreme climate change in Q1FY24. This screener shows companies that have outperformed their climate-impacted sectors in terms of net profit growth and revenue growth.

    The sectors include FMCG, food & beverages, consumer durables and chemicals & petrochemicals (agrochemicals industry mainly). 

    Major stocks that appear in the screener are Bikaji Foods International, Kaynes Technology India, Jyothi Labs, Emami, Polycab India and United Spirits.

    Bikaji Foods’ revenue and net profit outperformed the FMCG sector by close to 13 and 146 percentage points respectively in Q1FY24. Revenue growth was aided by increased sales volumes in ethnic snacks, packaged sweets and western snacks. Net profit growth was helped by the reduction in input and finance costs.

    Kaynes Technology saw its revenue and net profit outperform the consumer durables sector by 37 and 119 percentage points respectively in Q1FY24. Its revenue rose due to higher demand from the industrial, railways, automotive, aerospace and IT segments. The company is a contract manufacturer for electronics and is not exposed to the B2C segment. 

    United Spirits beat the food & beverages sector in terms of revenue and net profit growth by nearly 133 and 68 percentage points, respectively, during the quarter. The spirits maker’s revenue increased on the back of healthy volume growth and the initiation of IPL’s five-year media rights. 

    You can find some popular screenershere.

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    The Baseline
    22 Aug 2023
    Five analyst picks with high upsides

    Five analyst picks with high upsides

    By Satyam Kumar

    This week we take a look at stocks with high upside from analysts post Q1 results. 

    1. Godrej Industries: 

    ICICI Securities maintains a 'Buy' rating on this holding company of the Godrej Group, with a target price of Rs 764, indicating an upside of 53.6%. In Q1FY24, the company's revenue increased by 12% YoY to Rs 4,505.7 crore, while net profit decreased by 30.9% YoY. This profit decrease was attributed to revenue declines in the chemical business due to strong headwinds in the industry. 

    Despite the fall in profit, analysts Aniruddha Joshi and Nilesh Patil remain optimisticas the company continues to generate considerable value from its listed subsidiaries, namely Godrej Properties and Godrej Agrovet (profit rose 174.3% YoY and 27.3% YoY, respectively). 

    The analysts estimate the company's value to be trading at a discount of 66% by considering the target prices for its subsidiaries along with a 50% holding discount. The company also operates Godrej International and has initiated its housing finance business under Godrej Capital. They believe that the listed subsidiaries will gain from the economic revival and the ongoing migration of value from unorganised to organised sectors.

    2. Crompton Greaves Consumer Electricals: 

    HDFC Securities maintains its ‘Buy’ rating on this household appliances manufacturer with a target price of Rs 400, implying an upside of 34.2%. In Q1FY24, the company’s net profit fell by 2.2% YoY to Rs 118.3 crore and revenue grew by 0.8% YoY. 

    Analysts Naveen Trivedi, Paarth Gala and Riddhi Shah see the firm’s Q1FY24 performance as a mixed bag. While its revenue growth beat their expectations by 4.4%, margins fell short. They attribute the margin decline to increased advertising expenses, delayed price hikes, and higher research & development expenses. They add, “These costs are upfront in nature, thereby impacting operating margin.”

    Although the analysts expect margin pressure to persist in the near term, they foresee gradual revenue growth. They project the company’s revenue to grow at a CAGR of 12.4% over FY23-26. 

    3. Dilip Buildcon: 

    Geojit BNP Paribas maintains its ‘Buy’ call on this construction company with a target price of Rs 367, indicating an upside of 19.5%. In Q1FY24, the company reported an EBITDA margin expansion of 500 bps YoY to 12.8%, despite a marginal rise of 1.3% in revenue. Analyst Antu Eapen Thomas says that the margin expansion was led by a fall in input costs and better absorption of overheads. The company’s management expects execution to pick up pace and guides a revenue growth of 8-10% with an EBITDA margin of 13% in FY24. 

    Thomas believes that Dilip Buildcon has strong growth visibility for the next two years, with its order book in Q1 reaching Rs 24,051 crore, which is 2.4x the trailing twelve-month revenue. He expects a recovery in execution starting from H2FY23 on account of improvements in inflows and the completion of legacy projects. He concludes, “We maintain our stance due to expected improvements in execution and margins.”

    4. KNR Constructions: 

    Axis Direct keeps its ‘Buy’ rating on this construction company but lowers the target price to Rs 305 from Rs 325. This implies an upside of 12.8%. In Q1FY24, the firm’s net profit surged by 53% YoY to Rs 137.1 crore and revenue grew by 0.1% YoY. 

    Analysts Uttam K Srimal and Shikha Doshi believe that the company is well-placed to capitalise on the Centre’s increased infrastructure spending, given its presence in diverse segments like roads, railways, metro and urban infrastructure. They add, “With newer opportunities emerging in various infra-related sectors, the diversification strategy augurs well for the company.”

    The analysts believe the firm’s order book stands strong despite a slowdown in order inflows. They expect the order inflow to pick up in the coming quarters, led by road projects. Srimal and Doshi estimate the firm’s revenue to grow at a 12% CAGR over FY23-25. 

    5. Vinati Organics:

    Motilal Oswal reiterates its ‘Buy’ call on this specialty chemicals company but reduces the target price to Rs 2150. This indicates an upside of 18.7%. In Q1FY24, the company’s revenue stood at Rs 446.4 crore (down 15% YoY), which is 9% below the brokerage’s estimate. Analysts Aman Chowdhary and Rohit Thorat say, “About 90% of the revenue decline was due to reduced volumes.” However, they expect demand to recover in H2FY24. 

    The analysts are cautious on the back of lower offtakes and underperformance of ATBS (40% of total revenue) in Q1. The delay in the plan to expand ATBS capacity by 50% until the end of FY24 also contributes to their expectation. The management sees a muted performance in FY24. 

    The analysts maintain optimism as Vinati Organics’ arm Veeral Organics is set to commence production of guaiacol, anisole and iso-amylene by the end of FY24, which they believe will drive the company into the next leg of growth. They forecast a revenue CAGR of 17% over FY24-25, translating into an EBITDA CAGR of 19%.

    Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

    (You can find all analyst picks here)

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    The Baseline created a screener Relative Underperformance versus Sector …
    21 Aug 2023

    Relative Underperformance versus Sector over 1 Month

    This screener shows stocks with their Month Change % trading below their Sector Month Change %
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    The Baseline created a screener Relative Underperformance versus Industry …
    21 Aug 2023

    Relative Underperformance versus Industry over 1 Month

    This screener shows stocks with their Month Change % trading below their Industry Month Change %
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    The Baseline created a screener Relative Underperformance versus Sensex …
    21 Aug 2023

    Relative Underperformance versus Sensex over 1 Month

    Stocks which underperformed the Sensex index over 1 month
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    The Baseline created a screener Relative Underperformance versus Sensex …
    21 Aug 2023

    Relative Underperformance versus Sensex over 1 Week

    Stocks which underperformed the Sensex index over 1 week
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    The Baseline created a screener Relative Outperformance versus Sector …
    21 Aug 2023

    Relative Outperformance versus Sector over 1 Month

    This screener shows stocks with their Month Change % trading above their Sector Month Change %
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    The Baseline
    21 Aug 2023

    Chart of the week: China is on a port-building spree near Indian shores

    By Akshat Singh

    China has been a naval power longer than some countries have existed - the Song Dynasty, dating back to the 12th century, had a permanent standing navy, with squadrons and fighting vessels. For China, aggression via sea is an old tactic, and its growing maritime presence around India in recent years has raised eyebrows.

    China's naval strategy around India involves an expanding network of ports across the Indian Ocean, essentially encircling India and forming what experts have called the "String of Pearls". 

    This not only positions China as a key regional player in the Indian Ocean but has also made any potential response from India more complicated.

    The strategic significance of these Chinese or China-funded ports cannot be overstated, as they serve as crucial hubs for international trade, connectivity, and regional influence. It's important to note that the civilian ports China has invested in, must provide logistical support to the Chinese navy if required. The Chinese investments thus come with military commitments to China. 

    This edition of Chart of the Week explores the key Chinese-operated ports in the Indian Ocean region, examining their growth, investments, and the broader implications for India and its neighbours. 

    China encircles India, by investing in eight ports in the Indian Ocean

    India’s neighbours are, Pakistan, Sri Lanka and Bangladesh. All three countries have received port investments from China. 

    Under the China-Pakistan Economic Corridor (CPEC), China has invested in two Pakistani ports: the Gwadar port ($248 million investment) and the Karachi deep-water terminal ($550 million investment). 

    China's engagement with the Gwadar Port has unfolded in two phases. The first phase took place from 2002 to 2006, involving a financial infusion of $248 million through foreign aid grants from the Chinese government and loans from the Export-Import (Exim) Bank of China. The second phase, initiated in 2013, remains undisclosed in terms of the invested amount. Under this agreement, China will be providing financial investment in exchange for a concession agreement to conduct operations at the port. 

    The second port, the Karachi Deep Water Container Terminal, commenced its operations at Karachi Port in December 2016. The port was established through a public-private collaboration between Karachi Port Trust (KPT) and Hong Kong's Hutchison Ports. Its significance lies in providing optimal access to ships entering Karachi, which is strategically positioned in the CPEC under China's Belt and Road Initiative (BRI).

    In addition, there is a direct investment pledge of $3.5 billion from the Chinese government in the Karachi Coastal Comprehensive Development Zone (KCCDZ) from 2021, according to reports. Unlike a conventional loan, this investment aims to transform the underutilised land of the Karachi Port Trust into a multi-purpose residential, commercial, and seaport infrastructure. 

    Debt-ridden Sri Lanka has, thanks to its highly strategic location, two ports under Chinese influence: Hambantota Port and CICT Terminal Colombo. China has invested around $1.3 billion in the former and $500 million in the latter. State-owned China Merchants Port Holding (CMPH) is the contractor for both these ports. Hambantota Port received funding from China’s Exim Bank in two phases: an initial $508 million from 2007 to 2014, and a subsequent $808 million from 2014 onwards. Under the agreement, CMPH will get a 99-year concession agreement of $1.12 billion and 85% ownership of the port.  

    Bangladesh also has two ports with major Chinese investments. The Chittagong Port and the Payra Port have investments of $400 million and $600 million respectively. Mongla Port is contracted out to China National Complete Engineering, another state-owned entity. It is one of the main seaports of Bangladesh, handling about 80% of the nation's export-import trade. 

    As for the Payra Port, the construction and development of its core infrastructure started in 2016. The project was executed by two Chinese companies, China Harbour Engineering Company (CHEC) and China State Construction Engineering Corporation (CSCEC). CHEC was responsible for building the core infrastructure, which amounted to $150 million, while CSCEC undertook tasks such as fortifying riparian areas, reducing flood risks, and establishing housing, education, and health facilities, involving an investment of $60 million. 

    Much like Pakistan, Myanmar is also involved in China's BRI through the China-Myanmar Economic Corridor (CMEC). China earmarked an investment  of $1.3 billion for the Kyaukphyu Port, starting from 2020. The total project cost was $7 billion. However, Myanmar’s National League of Democracy (NLD) regime reduced the project's scope in 2020,  due to fears of falling into a debt trap. The China International Trust and Investment Corporation Group (CITIC) leads the project, which also involves creating an industrial zone. Situated on the western coast of Rakhine state, , the Kyaukphyu Port occupies a strategic location on the Bay of Bengal. This geographical positioning follows the trajectory of the 21st-century Maritime Silk Road, a modern-day maritime route that interlinks Asia, Europe, and Africa.

    China looks to expand far east with ports in Cambodia and Malacca

    China has increased its presence in Cambodia through a $1.5 billion investment in the Ream Naval base. This initiative, led by state-owned Shanghai Construction Company and China Bridge and Road Company, is set to be operational by 2025. The initial project phase has a $200 million investment to establish container operation zones, commencing with a yearly capacity of 300,000 TEU (twenty-foot equivalent unit). Plans include highway connections, including one to the nearby capital, Phnom Penh. Recent reports indicate swift progress, with the pier development underway in the first half of 2023.

    Adjacent to the Cambodian naval base is Malaysia's Malacca Port, a crucial link between the Indian Ocean and the South China Sea. The project was awarded in 2016 to Malaysian developer KAJ Development. Collaborating with Chinese companies like PowerChina International Group, a subsidiary of China's State Power Investment, along with Shenzhen Yantian Port Group and Rizhao Port Group, KAJ envisioned a 246-hectare project featuring economic zones, upscale housing, hotels, and diverse tourist attractions. However, the project was left incomplete after the Malacca government cancelled the agreement with KAJ Development owing to three years of inactivity in November 2020.In December 2022,  the countries made new plans for the redevelopment of the port into a new deep sea port with an investment of $7.2 billion from China. The redevelopment deal also includes a commitment of imports of $2 trillion from Malaysia over the next five years.

    China continues to make new investments in African nations

    We now shift our focus to the African continent, where China stands as one of the top four investors with investments reaching $3.4 billion in 2022 and another $1.3 billion by April 2023. 

    Among African countries, Sudan represents one of China's earliest engagements with the continent. Sudan’s Haidob port received a Chinese investment of $141 million, and was inaugurated in December 2020. This facility is dedicated to the transportation of livestock such as cattle, camels and sheep to Asian markets. In the vicinity,  Eritrea and Djibouti have two ports with major Chinese investment - the Massawa Port and the Doraleh Multipurpose Port, respectively. Massawa Port’s project was contracted to state-owned China Harbor Engineering Company for $400 million. Doraleh, on the other hand, was financed for $405 million by China’s Exim Bank and was contracted to state-owned China Civil Engineering Construction Corp and Channel Engineering Bureau Group.

    Coming to the Southern part of Africa, we  encounter Tanzania, home to the Dar Es Salaam and Bagamoyo ports. For the Dar es Salaam Port, a $154 million contract was awarded to China Harbour Engineering Company in 2017. The project involves the expansion of the primary port in the commercial hub, the construction of a roll-on, roll-off terminal, and the enhancement of the depth and resilience of seven berths within the port. On a different note, the Bagamoyo Port is a stalled $10 billion project, which is being renegotiated between the Tanzanian Government and China Merchant Port.

    Mirroring Tanzania, Kenya also hosts two ports with Chinese funding - Lamu and Mombasa. The Lamu Port plays a crucial role in the expansive transportation corridor linking Lamu, South Sudan, and Ethiopia. This corridor, known as the Lamu Port South Sudan-Ethiopia Transport (LAPSSET) corridor, is valued at $23 billion. The initial phase of this project, which involves constructing 32 berths, was undertaken by the state-run China Communications Construction Company at $367 million in 2021, focusing on the first three berths. The Mombasa-Nairobi standard gauge railway received a $3.2 billion loan from China’s Exim bank. The initial auditor’s report suggested that the Mombasa port served as collateral, and any default on yearly payment of $705 million could result in a Chinese takeover, akin to the events in Sri Lanka. 

    China eyes global trade with two ports in the Suez Canal

    From eastern and southern Africa, we move to the ports along the Suez Canal, which is a vital route for India’s trade  with Europe. Among these, Port Said is situated in the northern part of the canal and Ain Sokhna Port occupies the southern part. China’s COSCO Shipping Ports (CSPL) has purchased a 25% stake in a new container terminal at the Ain Sokhna Port for $375 million. The company already had a 20% stake in the non-controlling container terminal at Port Said. 

    In Australia, the Darwin Port was leased to China’s Landbridge group for $390 million for a period of 99 years. As Australia’s relations with China deteriorated in recent years, the Australian government decided to build a new port in Darwin for $1.5 billion. 

    In conclusion, China's "String of Pearls" strategy involves strategic investments in maritime ports along the Indian Ocean, thereby reshaping regional geopolitics. Ports like Gwadar, Hambantota, and Chittagong enhance China's influence through initiatives like BRI and CPEC. The situation in Hambantota, Sri Lanka, is a warning about the risks of falling into debt traps. The impact extends to trade routes like the Suez Canal, reflecting China's global maritime ambitions. These nations are striving to strike a balance between reaping economic benefits and addressing security concerns, thereby reshaping policies in response to China's ever-expanding maritime network.

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    The Baseline
    21 Aug 2023
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