By Deeksha Janiani
The new issues space has been buzzing with activity over the past few months, as listings try to ride strong stock market momentum. This week, two new IPOs are set to go live, which are of JSW Infrastructure and Updater Services.
JSW Infrastructure is the third company from the JSW Group to go public,coming out with the highest fresh issue size in 2023 so far.
JSW Infrastructure, incorporated in 2006, is India’s second largest ports operator after Adani Ports. The company has nine port concessions (a license to provide port services) in India with a cargo handling capacity of 158.4 million tonnes. In comparison, Adani Ports has a capacity of 602 MTPA spread across 14 ports, including a large port at Mundra and six mid-sized ports.
JSW Infra’s major ports include Jaigarh port and Dharamtar port which lie along the west coast. These are mid-sized and their installed capacity is 55 and 34 MTPA, respectively. Another key port of JSW Infra is Paradip coal terminal which lies on the east coast of India. The average balance concession period for its port assets was close to 25 years in June.
JSW Infra also operates two port terminals having a cargo handling capability of 41 MTPA in the UAE. The company obtains the majority of its domestic business from group companies like JSW Steel and JSW Energy. JSW Infra has successfully grown the share of its third-party business in the past two years.
Share of third party business for JSW Infra has risen in past two years
Promoters looking to dilute over 10% stake in the company
JSW Infra seeks to raise Rs 2,800 crore via fresh issue of shares. The promoter group led by the Sajjan Jindal family trust holds over 95% stake in the company. Post this IPO, their holdings will reduce to around 86%. The minimum public shareholding required under SEBI rules is 25%. The company will get three years to meet this requirement. Hence, we can expect some stake sale deals in this duration.
Promoters to dilute approximately 11% stake in JSW Infra
JSW Infra plans to use the offer proceeds to repay borrowings, and fund its capex plans. Within the amount earmarked for capex, a major portion will be spent in developing a new terminal to handle LPG, propane and butane etc. at the Jaigarh port.
JSW Infra to spend over 40% of IPO proceeds on its capex plans
The company had a total debt of around Rs 4,228 crore on its books as of June end. This level has increased since FY21. Its total debt to equity ratio is close to 1X. JSW Infra’s net debt to equity ratio has consistently improved since FY21 on better cash generation. Prepayment of debt via the issue proceeds will add to balance sheet strength.
JSW Infra grew the fastest among peers on higher coal volumes
JSW Infrastructure handles all kinds of bulk goods like dry, liquid, gasses and containers. However, coal and iron ore (dry cargo) have the lion’s share in its cargo volumes. Thermal coal volumes jumped over 5X in FY23, backed by a sharp rise in domestic power demand. Iron ore and container volumes (part of the ‘other’ category) also saw robust growth.
JSW Infra is heavily dependent on coal and iron ore cargoes
The company’s revenue and EBITDA rose over 40% in FY23, driven by a 50% growth in volumes. In contrast, the operating growth trajectory in Q1FY24 was sluggish. However, JSW Infra’s net profits grew by over 60% YoY owing to some foreign exchange adjustments.
JSW Infra’s EBITDA rose by over 45% on robust revenue growth
JSW Infra has just two listed peers - Adani Ports and Gujarat Pipavav Port. Gujarat Pipavav operates one port in the Saurashtra region and mainly carries containerized cargo. Compared to these two players, JSW Infra has grown the fastest between FY20-FY23.
JSW Infra grew the fastest among listed peers over the past three years
Although JSW Infra had lower net margins among its peers, it enjoyed best-in-class capital returns in FY23. This is thanks to better asset utilization. The company’s equity return was in the 9-10% range over the past two years, but the profit jump in FY23 made all the difference.
JSW Infra generated highest capital returns in FY23
Dependence on coal imports a risk factor
Credit rating agency CRISIL expects the cargo traffic at Indian ports to rise at a CAGR of just 4-5% in the next five years. Iron ore and container volumes will grow at a faster clip, but coal volumes are likely to stay flat. Thermal coal imports in particular may slow down with the steady increase in production by Coal India and rising preference for renewable energy sources.
JSW’s Mormugao port in Goa is in fact, under litigation for the pollution caused by coal handling. Now, the dependence on coal is a risk factor for JSW Infra’s future growth. Flat growth trends in coal cargoes may affect Adani Ports as well. But the company still has a diversified cargo base with much higher container traffic compared to JSW Infra.
JSW Infra looks to ramp up capacity in the long-term
While growth in overall cargo traffic may stay modest, expansions underway at the group companies bode well for JSW Infra. Now, JSW Steel aims to raise its capacity by over 30% in next two years while JSW Energy seeks to almost double its generation capability.
Commenting on this, Arun Maheshwari, CEO at JSW Infra said,“We are fortunate that we are a part of the JSW group. Being totally separate companies, we aren’t guaranteeing each other the cargo or services. But as a group company, we definitely get a first look at the cargo (meaning priority access)”.
The company aims to develop a port facility in Odisha to cater to JSW Steel’s upcoming steel plant. This port will have a cargo handling capacity of 52 MTPA. JSW Infrastructure’s goal is to achieve operational capacities of upto 300 MTPA by 2030.
JSW Infra may continue to invest in building capacity
JSW Infra is also open to acquisitions to achieve this long-term goal. Back in FY21, the company had bought two port terminals in Ennore and one in Mangalore from the Chettinad Group. Taking the inorganic growth route will also enable this JSW group company to widen its third-party customer base and diversify its cargo mix.
Valuations are comfortable, but will its stellar growth sustain?
The price band for JSW Infra’s fresh issue is fixed at Rs 113 - Rs 119. At the upper price band, the company is valued at 29X of its FY23 EPS and at nearly 25X based on trailing 12-month EPS. It is available at a discount of roughly 14% to Adani Ports’s current PE. In EV/EBITDA terms, the discount is around 11%.
JSW Infra is available at a discount of ~14% to Adani Ports’ valuation
Adani Ports is bigger in size and has also grown at a strong pace. JSW infra has definitely grown faster, but sustaining the same will be tough given the likely moderation in coal traffic.
JSW Infrastructure is a part of a credible business group and has delivered market leading results in the past. Going forward, group level expansions and its own investments in capacity will be key to driving future earnings growth.
This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.