JSW Infrastructure Ltd., a part of JSW Group, is the fastest-growing port-related infrastructure company that provides maritime-related services including cargo handling storage solutions, logistics services, and other value-added services to its customers which is also evolving into an end-to-end logistics solutions provider. The company develops and operates ports and port terminals pursuant to port concessions which typically have long concession periods ranging between 30 to 50 years. 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. In addition to partnering with its JSW Group customers (Related Parties), the company has a customer base that includes third-party customers across geographies. With India being positioned to be one of the fastest-growing major economies in terms of GDP between Fiscal 2024 and 2026, the company intends to capitalize on this strong growth momentum by broadening its cargo profile, expanding its geographical presence, and diversifying its revenue streams. The company proposes to achieve this by leveraging its experience in developing and acquiring assets across geographies and catering to diverse cargo types.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Prepayment or repayment, in full or part, of all or a portion of certain outstanding borrowings through investment in its wholly owned subsidiaries, JSW Dharamtar Port Private Limited and JSW Jaigarh Port Limited;
- Financing capital expenditure requirements through investment in its 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 its wholly owned subsidiary, JSW Mangalore Container Terminal Private Limited, for proposed expansion at Mangalore Container Terminal (“Mangalore Container Project”); and
- General corporate purposes.
Investment Rationale:
Fastest-growing port-related infrastructure company and second-largest commercial port operator in India
JSW Infrastructure Ltd. is the second largest commercial port operator in India and operates in an industry that has several entry barriers. The company is also 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. The company’s installed cargo handling capacity in India grew at a CAGR of 15.3% between March 31, 2021, and March 31, 2023, and the volume of cargo handled in India also grew at a CAGR of 42.8% from Fiscal 2021 to Fiscal 2023. The company operates nine port concessions in India with an installed cargo handling capacity of 158.43 MTPA as of June 30, 2023, and its position in the Indian maritime infrastructure industry enables it to leverage economies of scale in project development capabilities and resource optimization. Based on the expertise the company has developed over the years, the company is able to provide a wide range of maritime services and cater to its customers’ diverse cargo needs across key locations, which is difficult to replicate and creates significant barriers for new entrants.
Strategically located assets in close proximity to JSW Group customers and industrial cluster.
Location plays a major differentiator in the ports industry. Ports that are closer to major shipping routes enjoy a competitive advantage as shipping from those ports translate into cost savings for importers and exporters. The company’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. The location of the company’s assets helps them to provide end-to-end logistics services as they are connected to cargo origination as well as cargo consumption points.
Valuation and Outlook:
India is positioned to be one of the fastest growing major economies and is expected to log an annual average economic growth of 6.6% between Fiscal 2024 and Fiscal 2026. A stronger domestic demand is expected to drive India’s growth premium over peers in the medium term. The investment prospects in India are bright, given the government’s capital expenditure push, the rapid progress of the Production linked Incentive (“PLI”) scheme, healthier corporate balance sheets, and a well-capitalized banking sector with low non-performing assets. India is poised to become a USD 5 trillion economy and ports would play a significant role in the growth story. Straddling the Bay of Bengal, the Indian Ocean, and the Arabian Sea with a coastline of approximately 7,517 km, the Indian economy occupies a commercially enviable location on the global map. Ports in India handle 90% by volume and 70% by value of India’s external trade. The maritime route is used to import crude petroleum, iron ore, coal, and other critical goods. The company is involved in the business of developing and managing ports, and provides maritime-related services including cargo handling storage solutions, logistics services, and other value-added services to its customers. Being in a capital-intensive business requiring huge capital as well as years of experience, JSW Infrastructure Ltd. looks well-positioned to maintain its dominant position in the ports industry in India in terms of cargo handling capacity and cargo volumes handled. The company also enjoys a strong parentage of JSW Group which has presence in various sectors in India and offers customer stickiness in the long term. The company also has plans to undertake various greenfield and brownfield expansions in the coming years which would prove beneficial for the business performance going forward. The company has a track record of sustained Revenue/EBITDA/PAT performance which grew at a CAGR of 41.2%/42.1%/62.3% during FY2021-23 period. On the upper price band, the issue is valued at a P/E of 29.7x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.
