Mercantile Ports Badly Hit By Covid Problems In India – How Badly?

Mercantile Ports and Logistics Ltd (LON: MPL) is developing the Navi Mumbai harbour complex in Maharashtra, India. Given the covid disruptions in India it’s not a great surprise that Mercantile’s project has been hit by delays. The question is though, is this something critical to the project? Or is this merely a delay that the company can and will work through?

We can see that market opinion on Mercantile Ports is divided over this issue. For the share price is bouncing around on the back of that announcement. The Mercantile share price was rolling along at 25.65 pence for several days then, on this announcement of delays, dropped to 19.75. Within half an hour it was back to 25.00 and has, in the past 30 minutes, faded back to 23.00 or so. This is a sign of genuine uncertainty among market participants.

We do need to note that Mercantile Ports is a small stock, the market cap is around the £20 million level (no point in trying to be more accurate than that with a bouncing share price) and that there’s quite a spread on it, 2 pence. But these price movements are easily crossing that spread.

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The uncertainty is, well, is this just delay? We can all confidently predict that the Indian economy is going to keep powering ahead. This requires more infrastructure, as India connects back into the global trading system more and better ports will be needed. Mercantile Ports has the basics of the strategy correct at least. So, it’s entirely possible to think that this is just a blip, the project will come right.

It’s even possible to think that the general decline in the Mercantile Ports share price (it’s twice peaked into the 70p to 80 p range in the past year) already includes the likely effects of covid. It’s not exactly been hidden that India has suffered from the pandemic and that there have been significant economic interruptions.

A bull case is definitely there. Decent strategy, it’ll all take considerable time, covid’s just a blip or timing change, one we largely knew about anyway.

On the other hand, there’s a bear case there as well. Which is to agree with much of the above but to change the emphasis and also add one more factor. The emphasis difference being perhaps those covid delays weren’t already built into the share price at Mercantile Ports? So, this is new information which permanently downgrades prospects for the company. The extra factor is to add in the possibly nuclear option. At some point delay will mean that the project cannot be completed within the current capital budgeting. This might mean Mercantile Ports having to come back to the market for more capital to complete.

It’s likely that the Mercantile Ports share price will continue to bounce around in the near future as the different views jostle to become the generally accepted one across the market.