The brokerage expects the current valuation multiple to continue given JSWIL’s robust growth, new port developments and acquisitions in the medium term, and the possibility of an upward revision in rates at its main port terminal (a new policy allows for such revisions, subject to regulatory approvals).
JSW Infrastructure, part of the $23 billion JSW Group, is the fastest growing port-related infrastructure company, with 15% CAGR and 43% CAGR in installed cargo handling capacity and cargo volume handled, respectively, in FY21–23.
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The company is also the second largest commercial port operator in India (in terms of cargo handling capacity) in FY23, expanding from one port concession at Mormugao, Goa (acquired by JSW Group in 2002 and commenced operations in 2004) to nine port concessions. across India, thus making it a multifaceted seaport company.
Growing 3-party cargo mix
JM Financial underlines the commitment of JSW Infrastructure Limited (JSWIL) to broaden its client base and improve relationships with third party clients. The brokerage points out that JSWIL has successfully obtained concessions for two terminals in FY16 (iron ore) and FY17 (coal), respectively, by the Paradip Port Authority, and was awarded the New Mangalore Container Terminal in FY20 by the New Mangalore Port Authority. In particular, these terminals mainly serve third-party customers.
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JM Financial notes a hefty 66% CAGR growth in JSWIL’s third-party cargo from FY21 to FY23, with a notable 32% YoY increase in 1HFY24. This segment accounted for 33% of total cargo in FY23, boosted by strategic acquisitions (Ennore terminals) and increased utilization of Paradip terminals (coal and iron ore). The brokerage also showed a robust 34% CAGR increase in cargo handled for group clients during FY21–23, contributing 67% in FY23 and 64% in 1HFY24.
JSWIL can potentially be a big beneficiary of ongoing policy changes in major ports
The company currently operates seven major port terminals (two each at Paradip, Ennore, and one each at Goa, Mangalore, and New Mangalore ports) which are under the forward tariff regime policy, which limits the flexibility in setting tariffs.
However, the new policy offers a way for port trusts and terminal operators, including JSWIL, to move to a more flexible mechanism, providing greater autonomy in pricing.
The brokerage emphasizes that the company will continue to pay the royalty on a revenue-sharing basis, and therefore it will be assessed on a case-by-case basis, taking into account the economics of competition and the ability of customers.
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In addition, JM Financial anticipates that JSWIL will be a major beneficiary of the government’s proactive port privatization initiatives. These efforts include divesting existing terminals owned by port authorities/port trusts to private players and establishing new terminals under private ownership, transforming port authorities/port trusts into leasing ports.
JM Financial believes that JSWIL is extremely well placed to participate in this, and its recent indication of a bid for three terminals clearly establishes its intention to diversify the cargo and port mix as well as improve its third party mix.
Strong cash generation and balance sheet management
The company’s cash flow from operations was ₹39.6 billion in FY21–23, and the brokerage expects it to be ₹61.2 billion in FY23–26 on the back of strong profitability and excellent working capital management (net working capital days decreased from 175 days in FY21 to 23 days in FY23, largely led by a reduction in receivable days from 160 days to 45 days).
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In addition to that, the company also refinanced its local debt through USD-denominated bonds (raised $400 million in FY21) to reduce interest hike (4.95% coupon against 8-9% local interest rate then) and extend the repayment schedule. (bonds have a bullet repayment in 2029).
Given the medium-term ceiling of 2.5x net debt/EBITDA and expected balance sheet profile (taking into account the already announced capital and acquisitions), the brokerage estimates that JSWIL can borrow up to more. ₹80 billion, if necessary, to finance its growth plans.
A brighter future in finance
The brokerage estimates JSWIL to post 17%, 21% and 33% CAGR in revenue, EBITDA and PAT in FY23–26 on the back of strong volume growth (16% CAGR in FY23–26), improved operating margin on ramp. -up in capacity utilization, and lower interest output. It forecasts FY26 RoE / RoIC (after-tax) of 17.8% and 19.4%, respectively.
Disclaimer: The opinions and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Updated: 29 Nov 2023, 15:01 IST
(tagsTo Translate)JSW Infrastructure