JSW Infrastructure Limited provides maritime-related services including, cargo handling, storage solutions, logistics services and other value-added services to its customers, and is evolving into an end-to-end logistics solutions provider. It develops and operates ports and port terminals pursuant to Port Concessions. The ports and port terminals of JSW Infra typically have long concession periods ranging between 30 to 50 years, providing long-term visibility of revenue streams. It 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. It is the second largest commercial port operator in India in terms of cargo handling capacity as of Fiscal 2023. In addition to its operations in India, the company operates two port terminals under O&M agreements for a cargo handling capability of 41 MTPA in the UAE as of June 30, 2023.
The company intends to utilize the net proceeds from the fresh issue towards the following objects:
- Prepayment or repayment, in full or part, of all or a portion of certain outstanding borrowings through investment in the wholly owned Subsidiaries, JSW Dharamtar Port Private Limited and JSW Jaigarh Port Limited.
- Financing capital expenditure requirements through investment in the wholly owned subsidiary, JSW Jaigarh Port Limited, for proposed expansion/upgradation works at Jaigarh Port i.e., i) expansion of LPG terminal ("LPG Terminal Project"); ii) setting up an electric sub-station; and iii) purchase and installation of dredger.
- Financing capital expenditure requirements through investment in the wholly owned subsidiary, JSW Mangalore Container Terminal Private Limited, for the proposed expansion at Mangalore Container Terminal ("Mangalore Container Project").
1. Fastest growing port-related infrastructure company and second largest commercial port operator in India: JSW Infrastructure is the fastest growing port-related infrastructure company in terms of growth in installed cargo handling capacity and cargo volumes handled from Fiscal 2021 to Fiscal 2023. Its installed cargo handling capacity in India grew at a CAGR of 15.27% between March 31, 2021 and March 31, 2023, and the volume of cargo handled in India also grew at a CAGR of 42.76% from Fiscal 2021 to Fiscal 2023. The company is also the second largest commercial port operator in India (in terms of cargo handling capacity in Fiscal 2023) in an industry that has several entry barriers.
2. Strategically located assets at close proximity to JSW Group Customers (Related Parties) and industrial clusters supported by a multi-modal evacuation infrastructure: Location is a major differentiator in the ports industry. Ports that are closer to major shipping routes enjoy a competitive advantage as shipping from those ports translates into cost savings for importers and exporters. JSW’s port concessions are strategically located on the west and east coasts of India and are well connected to its customers including JSW Group Customers (Related Parties) located in the industrial hinterlands of Maharashtra, Goa, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana, and mineral-rich belts of Chhattisgarh, Jharkhand and Odisha. These states manage large volumes of cargo from coastal areas and the broader hinterland.
3. Predictable revenues driven by long-term concessions, committed long-term cargo and stable tariffs: Port Concessions are long-life assets with concession periods typically ranging between 30 to 50 years. The Jaigarh Port (Maharashtra) was awarded a concession for a period of 50 years in 2008, while Dharamtar Port (Maharashtra) and its other port terminals located at Major Ports, were awarded concession/ license periods of 30 years. As of June 30, 2023, the capacity-weighted average balance concession period of its ports and port terminals is approximately 25 years, providing long-term visibility of revenue streams.
4. Diversified operations in terms of cargo profile, geography and assets: JSW Infra has evolved into a large maritime infrastructure company and has developed and operated multi-cargo ports and port terminals that are equipped to handle various categories of cargo, including dry bulk, break bulk, liquid bulk, LPG, LNG and containers. It currently handles various types of cargo including coal, fluxes and iron ore, sugar, urea, steel products, rock phosphate, molasses, gypsum, barites, laterites, and edible oil. Coal comprises of (i) thermal coal; and (ii) other than thermal coal (which includes coking coal, steam coal and others).
Risks:
1. JSW Infrastructure relies on concession and license agreements from government and quasi-governmental organizations to operate and grow its business. It has several obligations under these agreements and a breach of the terms could lead to termination, which could materially adversely affect the business, results of operations, financial condition and cash flows.
2. A substantial portion of the volume of cargo handled by JSW Infrastructure is dependent on a few types of cargo, i.e., coal and iron ore and a significant reduction in, or the elimination of such cargo could adversely affect its profitability.
3. The company has entered into and may continue to enter into a substantial amount of related party transactions with entities in the JSW Group. More than 50% of the company’s total revenue from operations comes from JSW Group Customers. The company will continue to enter into related party transactions in the future. Some of these transactions may require significant capital outlay and there can be no assurance that it will be able to make a return on these investments.
4. The company operates in a capital-intensive industry and its current and future expansion plans may require significant capital that it may be unable to raise. Furthermore, the investments in developing additional services and facilities for its port business may not be successful.
Financial Snapshot:
Particulars (? in crores) | FY23 | FY22 | FY21 |
Revenue from Operations | 3,194.74 | 2,273.05 | 1,603.57 |
YoY Growth (%) | 40.55% | 41.75% | - |
EBITDA | 1,798.30 | 1,215.11 | 891.13 |
YoY Growth (%) | 48.00% | 36.36% | - |
PAT | 749.51 | 330.44 | 284.62 |
YoY Growth (%) | 126.82% | 16.10% | - |
EBITDA Margin (%) | 53.32% | 51.08% | 53.10% |
PAT Margin (%) | 22.22% | 13.89% | 16.96% |
ROE (%) | 18.33% | 9.52% | 9.22% |
ROCE (%) | 19.49% | 10.88% | 8.15% |
Conclusion:
JSW Infrastructure remains in a highly capital-intensive and long gestation period business and thus, the entry barriers remain high. It is the second largest commercial port operator in India (in terms of cargo handling capacity in Fiscal 2023) in an industry that has several entry barriers. Despite the capital intensity of its operations, JSW Infrastructure has adeptly managed its financial leverage, maintaining a net debt-to-equity ratio consistently below 1. Additionally, the company boasts a healthy interest coverage ratio of 2.9 times.
When comparing JSW Infrastructure to the sole listed peer Adani Ports and SEZ, it’s evident that JSW Infra maintains competitive PAT margins. Furthermore, it boasts superior return rations with higher ROE and ROCE than Adani Ports. Additionally, it is better leveraged than its competitor. In terms of valuation, Adani Ports currently trades at a valuation of Price to Earnings (P/E) ratio of 35.95 while JSW Infrastructure is coming out at a valuation of nearly 29x at the upper end of the price band.
Considering these factors and the future prospects along with long-term revenue visibility of the company, we advise a subscribe rating to the company.
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