JSW Infrastructure anchored for robust growth on strong balance sheet

JSW Infrastructure (JSWIL), the second-largest private port operator is on an expansion drive. It plans to add capacity from the existing 170mnt (million tonnes) to reach 400mnt. The implied compound annual growth rate (CAGR) is 16 per cent over FY24-30.  The port operator derives significant volume from group companies (JSW Steel contributed 60 per cent of traffic in H1FY24). It aims to improve third-party volumes to 48 per cent in H1FY25.  Acquisition of Navkar Corporation, which operates three CFS (Container Freight Stations) and one Inland Container Depot (ICD), and Sical’s CTO (Combined Transport Operator) licence, and a contract to build and operate GCTs (GatiShakti Cargo Terminal) show aggressive intent to create an integrated logistics value chain.   

  JSWIL has a strong balance sheet, 0.33x net debt to equity and 0.1x net debt to earnings before interest, taxes, depreciation, and amortisation (Ebitda) in FY24, good cash flows, and the possibility of dilution to meet Sebi requirements (promoter holding is currently 85.6 per cent). This leaves it well-placed to meet the targeted capex of Rs 30,000 crore over FY24-30. The capacity addition should enable a revenue CAGR of nearly 20 per cent and Ebitda CAGR of 18-19 per cent over FY24-27.  A majority of JSWIL’s ports are deep-draught ports with multi-modal evacuation infrastructure. The residual period of concession for the JSWIL portfolio is over 25 years, offering long-term visibility. The plan includes brownfield expansions in Jaigarh and Dharamtar ports and greenfield expansions in Jatadhar, Keni and Murbe. The company reported 22 per cent cargo volume CAGR over FY18-24, 13 per cent year-on-year (Y-o-Y) growth in H1FY25, far outpacing the industry growth rate of 4 per cent in the same period.  The growth in third party traffic is on the back of a customer acquisition strategy, and concession agreements received to operate terminals at major ports which mostly serve third-party traffic. The guidance is 50-50 per cent third-party traffic in the medium to long term. This will improve margins. There’s also a possibility of upward revision in tariffs at its major port terminal (new policy allows such revisions, subject to regulatory approvals).  In July 2024, JSWIL announced acquiring majority shareholding (70.37 per cent) in Navkar Corporation at an equity consideration of Rs 1,100 crore. Navkar operates 3 CFS, two GCTs, and one ICD and also has CTO licences. JSWIL also has a CTO licence obtained from Sical Logistics. In June 2024, it won an LOA for construction of a GST at Arokkonam, Chennai. The acquisitions offer pan-India multi-modal logistics capacity. All of JSW Infra’s ports and terminals are well connected to industrial areas of Maharashtra, Goa, Odisha, Tamil Nadu, Andhra Pradesh, and Karnataka.  JSWIL has also purchased an under-construction slurry pipeline for Rs 1,700 crore for the transportation of iron ore from JSW Steel. This is a 20-year, take-or-pay agreement. The project will contribute revenue from FY28.  Over FY19-24, JSWIL’s cash flow from operations has gone from Rs 330 crore to Rs 1,800 crore with working capital days down from 155 days in FY19 to 42 days in FY24. The IPO netted proceeds of Rs 1,700 crore. Net debt to equity is 0.1x (vs 1.3x in FY21) and net debt to Ebitda was 0.1 times (vs 4.5 times in FY21). There is scope to leverage within its guided range of 2.5 times net debt to Ebitda and dilution to meet public shareholding requirements.  Key risks would include downward price revisions for the group, slowdowns in global or domestic trade, and sharp depreciation of the rupee. Analysts see an upside, given the strong balance sheet, increasing capacity, and the creation of multi-modal logistics capability.