JSW Infrastructure IPO (Subscribe)

Highlights

JSW group arm JSW Infrastructure incorporated in 2006, is the fastest expanding port-related infrastructure company in terms of installed cargo handling capacity and cargo volumes handled from FY21 to FY23, and India’s second largest commercial port operator in terms of cargo handling capacity in FY23.

As of June 30, 2023, the company operate 9 Port Concessions in India, with a total installed cargo handling capacity of 158.43 MTPA. It also manages two port terminals in the UAE under O&M agreements with a cargo handling capacity of 41 MTPA as of June 30, 2023.

The Company operations have expanded from one Port Concession at Mormugao, Goa which was acquired by the JSW Group in 2002 and commenced operations in 2004, to nine Port Concessions as of June 30, 2023, across India, making them a diversified maritime ports company.

JSW Infra provides maritime-related services to their customers such as (i) cargo handling (ii) storage solutions (iii) logistics services and (iv) other value-added services, and the company also expands into an end-to-end logistics solutions provider. The Company has a diversified presence across India with Non-Major Ports located in Maharashtra and port terminals located at Major Ports across the industrial regions of Goa and Karnataka on the west coast, and Odisha and Tamil Nadu on the east coast.

The Company would utilize Rs. 8,800 mn of the net proceeds of the new equity issuance for Prepayment or repayment, in full or part, of all or a portion of certain outstanding borrowings through investment in their wholly-owned Subsidiaries, JSW Dharamtar Port Private Limited and JSW Jaigarh Port Limited, Rs. 10,290 would be used for financing capital expenditure requirements through investment in their wholly-owned Subsidiary, JSW Jaigarh Port Limited, for expansion/upgradation work at Jaigarh Port, and Rs. 1,510 mn would be used for financing capital expenditure requirements through investment in their wholly-owned Subsidiary, JSW Mangalore Container Terminal Private Limited, for expansion at Mangalore Container Terminal.

Key Highlights

• Port traffic in India is estimated to grow by 3 pct to 6 pct in FY24, after growing by 8.2 pct in FY23. Over FY24 to FY28, growth at Indian ports is assumed to be between 3 pct and 6 pct. The Sagarmala programme aims at enhancing India’s port capacity to over 3,300 MTPA by 2025. According to the Ministry of Shipping, this would include 2,219 MTPA of capacity at Major Ports and 1,132 MTPA at Non-Major Ports by 2024 – 2025. Further, there is a positive outlook for the underlying industries of the company’s customers engaged in the business of steel, power and cement and company also.
• The company’s installed cargo handling capacity in India increased at a 15.27 pct CAGR from 119.23 MTPA on March 31, 2021, to 158.43 MTPA on March 31, 2023. During the same time period, their cargo volumes handled in India increased by 42.76 pct, rising from 45.55 MMT to 92.83 MMT.
• Port Concessions allow the company to develop and operate ports and port terminals. Their ports and port terminals often have extended concession periods ranging from 30 to 50 years, giving them long-term revenue visibility.
• They acquired 3 port terminals in India as well as built 2 greenfield non-major ports, and 4 port terminals at major ports, including a container terminal project in New Mangalore (Karnataka). They are now working on comparable greenfield initiatives and are looking into specific inorganic growth options to increase their client base, customer base, service offerings, and geographic reach.
• The Company follows four pillars of growth strategy to grow its business and these four pillars are (i) Pursue Brownfield expansion (ii) Increase third-party customer base (iii) Pursue acquisition opportunities (iv) Pursue Greenfield opportunities with a focus on Non-Major Ports.
• Due to the close proximity of their port concessions to their facilities and the specialized services they offer, the company’s JSW Group Customers (Related Parties) enjoy comparatively reduced delivery costs for their cargo. The JSW Group Customers (Related Parties), have long-term contracts, some of which have take-or-pay clauses. The minimum annual volume of cargo committed under such contractual take-or-pay provisions as of March 31, 2023, totalled 25.40 MMT, which was equivalent to 27.36 pct of the total volume of cargo handled in India in Fiscal 2023.
• The Sales of the company have grown by 41.15 pct CAGR during the period FY21-23 while EBITDA and PAT have grown by 34.84 pct CAGR and 62.28 pct CAGR respectively over the same period. During FY23, the company reported revenues of Rs. 31,947 mn which increased by 40.55 pct YoY while EBITDA grew by 48 pct YoY to Rs. 17,983 mn as EBITDA margin improved significantly from 51.08 pct in FY22 to 53.32 pct in FY23. Profit after tax in FY23 stood at Rs. 7,495 mn, which increased by 26 pct YoY.

Key Risk

• The Company relies on concession and license agreements from government and quasi-governmental organizations to operate and grow its business. The company has several obligations under these agreements and a breach of the terms could lead to termination, which could materially adversely affect their business, results of operations, financial condition and cash flows.
• The Company is dependent on Port Concessions along the west coast of India and any adverse events affecting these Port Concessions or the west coast may adversely affect their overall profitability.

Valuation

JSW infrastructure is India’s second largest port operator in terms of cargo handling capacity as of FY23. JSW infra could benefit from the government’s focus on port development, limited competition, and strong parentage. At the upper end of the price band, the issue quotes at a PE of 19.4 for its annualized FY24 earnings. The issue appears to be reasonably priced. One can Subscribe from a longer-term perspective.

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