JSW Infrastructure, India’s second-largest commercial port operator, plans to raise Rs 2,800 crore through a fresh issue of shares. This is the first time in 13 years that JSW group is raising money through the IPO route. The IPO proceeds would be used to expand the Jaigarh port and Mangalore terminal, and for debt repayment.
The promoter holding will drop to 85.6% after the IPO from 96.4%. The company has reported one of the fastest cargo volume growth among port companies. It focusses on the terminal business that is less capital intensive and has a lower gestation period to generate cash flow. The company has revenue visibility since the JSW group is its anchor customer. The company has a long concession period (right given by the port authorities to operate
the port) of more than 25 years. Given these factors, long-term investors may consider the company’s IPO.
Business
Mumbai-headquartered JSW Infrastructure operates two non-major ports at Jaigarh and Dharamtar in Maharashtra and seven terminals on the western and eastern coasts. The ports are in proximity to JSW Steel and Energy plants. The JSW group accounted for two-third of the company’s revenue. The proportion of the third-party sales has been gradually increasing in the last three years. The capacity utilization increased to 56.8% in FY23 from
35.2% in FY21.
The company generated nearly 32% revenue for iron ore handling followed by 27% from thermal coal, 26% from coking coal and the balance from other cargo. The installed cargo handling capacity rose by 15% annually to 158 million tonnes per annum (MTPA) between FY21 and FY23 while cargo volume grew by 42% to 92.8 MTPA. In addition, it runs two port terminals under the operations and maintenance agreement in the UAE with a capacity of 41 MTPA. It is in process to develop a port at Jatadhar (Odisha) of 52 MTPA capacity to cater to JSW Steel’s new facility in Odisha.
Financials
Revenue grew by 41% annually to Rs 3,194 crore between FY21 and FY23 while operating profit before depreciation and amortization (EBITDA) rose by 42% to Rs 1,798 crore implying an EBITDA margin of 56%. Net profit rose annually by 62% to Rs 749 crore during the period. In the first quarter of FY24, the company had revenue of Rs 878 crore and profit of Rs 322 crore. The company had gross and net borrowings of Rs 4,228 crore
and Rs 1,873 crore respectively at the end of June 2023 that translated into a net debt to equity ratio of 0.5.
Risks
The cargo handling is highly dependent on bulk cargo, therefore any sharp variation in commodity prices may weigh on the cargo handling volume.
Any change in terms of concession and license agreement from the government could impact financial performance. The fees to regulatory authorities account for 17% of the total revenue of the company.
Valuation
The company demands a price-earnings (P/E) multiple of upto 19.4 based on annualized earnings of June 2023 quarter. This is at around 7% discount to Adani Ports’ forward P/E. The operating margin of JSW Infra is lower than Adani, however, the former company has a superior return on capital employed (RoCE).
