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IPO Analysis: JSW Infrastructure Limited
JSW Infrastructure limited is the fastest growing port related infra company, which looks strong for further growth.
JSW Infrastructure Limited is the fastest growing port-related infrastructure company in terms of growth in installed cargo handling capacity and cargo volumes handled during Fiscal 2020 to Fiscal 2022, and the second largest commercial port operator in India in terms of cargo handling capacity in Fiscal 2022. Their operations have expanded from one Port Concession at Mormugao, Goa that was acquired by the JSW Group in 2002 and commenced operations in 2004, to nine Port Concessions as of December 31, 2022 across India, making us a diversified maritime ports company. The installed cargo handling capacity in India grew at a CAGR of 22.35% from 102.50 MTPA as of March 31, 2020 to 153.43 MTPA as of March 31, 2022. During the same period, their cargo volumes handled in India grew at a CAGR of 34.97% from 34.01 MMT to 61.96 MMT. In addition to their operations in India, they operate two port terminals under O&M agreements for a cargo handling capability of 41 MTPA in the UAE as of December 31, 2022. Company provide maritime related services including, cargo handling, storage solutions, logistics services and other value-added services to our customers, and are evolving into an end-to-end logistics solutions provider. They develop and operate ports and port terminals pursuant to Port Concessions. Their ports and port terminals typically have long concession periods ranging between 30 to 50 years, providing them with long-term visibility of revenue streams. As of December 31, 2022, the capacity weighted average balance concession period of their operational ports and terminals is approximately 25 years with Jaigarh Port, one of their largest assets, having a balance concession period of 35 years. Company have 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. Their Port Concessions are strategically located in close proximity to Anchor Customers and are well connected to cargo origination and consumption points. This enables them to serve the industrial hinterlands of Maharashtra, Goa, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana, and mineral rich belts of Chhattisgarh, Jharkhand and Odisha, making their ports a preferred option for customers. In addition, Company benefits from strong evacuation infrastructure at ports and port terminals that comprises of multi-modal evacuation techniques, such as coastal movement through a dedicated fleet of mini- bulk carriers, rail, road network and conveyor systems.
Companies Anchor Customers benefit from relatively low cost of delivery for their cargo due to proximity of the Port Concessions to their facilities and customized services provided by the company. They have long-term contracts with their Anchor Customers, some of which have take-or-pay provisions. As of March 31, 2022, the minimum annual volume of cargo committed under such contracted take-or-pay provisions aggregated to 25.40 MMT, which represented 40.99% of the total volume of cargo handled in India in Fiscal 2022. Company have been able to consistently increase the cargo handled for Anchor Customers at a CAGR of 22.50% from 30.77 MMT in Fiscal 2020 to 46.17 MMT in Fiscal 2022, and handled 45.06 MMT in the nine months ended December 31, 2022, reflecting a high degree of stickiness.
JSW Group, a multinational conglomerate with an international portfolio of diversified assets across various sectors, including steel, energy, infrastructure, cement, paints, venture capital and sports. Being a member of JSW Group, Company received initial cargo from their Anchor Customers, which facilitated swift ramp-up of assets and improved utilization of capacities. Company expect to continue to benefit from the growth of various businesses within the JSW Group.
Industry Research:
Despite the markdown in near-term growth, India is positioned to be one of the fastest growing major economies in terms of Gross Domestic Product (“GDP”) between Fiscals 2024 and 2026. CRISIL expects India’s GDP growth to average 6.6% between Fiscal 2024 and Fiscal 2026, compared with 2.9% globally, as estimated by the International Monetary Fund (“IMF”). India would also outgrow emerging market peers such as China (4.6%), Indonesia (5.3%), Turkey (3.0%) and Brazil (2.0%).
Drivers for Indian economic growth:
Stronger domestic demand is expected to drive India’s growth premium over peers in the medium run.
Investment prospects are optimistic given the government’s capital expenditure push, progress of Production-linked Incentive (“PLI”) scheme, healthier corporate balance sheets, and a well-capitalized banking sector with low non-performing assets (“NPAs”).
India is also likely to benefit from China-plus-one policy as global supply chains get reconfigured with shifting focus from efficiency towards resilience and friend shoring.
Private consumption (approximately 57% of GDP) will play a supportive role in increasing GDP growth over the medium term with further headroom for improvement.
The share of India in global export of goods and services has increased from 2.1% in the year 2016 to 2.4% in 2021. Historically, India has performed well in exporting IT services. Export of goods has also picked up in last few years. The government aims at making India an export hub. In that attempt, the government has been active in creating a regulatory environment to facilitate business competitiveness globally. Several reforms have been introduced which are key to boosting the export potential of the Indian economy, including the introduction of the PLI scheme, lower corporate tax rates, simplification of labor legislation and a greater focus on human capital.
USA, UAE, China, Bangladesh, and Netherlands are the key export destinations accounting to around 1/3rd of total exports by India in value terms in Fiscal 2022. For imports, China, UAE, USA, Saudi Arabia and Iraq are the key countries India has been importing from. Top five countries form roughly 40% of total import in value terms in Fiscal 2022. Advanced economies account for approximately 45% of India’s merchandise exports. The United States of America and the European Union, which comprise 72% of advanced economies’ GDP, are the two largest export destinations, with 18.0% and 15.4% share in total exports in Fiscal 2022, respectively. Both economies are projected to slow down sharply in 2023 due to the ripple effect of geopolitical tension and the pandemic.
As per a report by Niti Aayog in 2021, India’s logistics cost as a % of GDP stood at around 14% compared to 10- 11% for BRICS countries and 8-9% for developed countries. Going forward, the logistics cost as a % of GDP for India is expected to decline driven by initiatives such as implementation of GST, investments towards road infrastructure, development of inland waterways and coastal shipping, thrust towards dedicated freight corridors among others. The “Sagarmala” (port-led prosperity) initiative was rolled out in April 2016 by the GoI to reduce logistics costs for both domestic and export-import cargo with optimised infrastructure investment. The Sagarmala programme aims at enhancing India’s port capacity to over 3,300 MTPA by 2025. According to the Ministry of Shipping, this would include 2,219 MTPA of capacity at Major Ports and 1,132 MTPA at Non-Major Ports by 2024 - 2025. While the Government has announced and implemented several initiatives such as Gati Shakti Scheme, National Logistics Policy and Bharatmala Pariyojana to improve the transportation infrastructure in the country, improvement in such infrastructure will involve major capital expenditure and policy and administrative focus.
Indian economic output is majorly driven by the high productivity services sector which contributes 54% of the economic output. The share of industry sector is a distant second at 31% of which manufacturing sector accounts for nearly 60%. Manufacturing sector growth can not only increase jobs in the sector but also reduce forex outgo on imported goods. Hence the government has introduced several incentives in the past decade to boost the manufacturing sector in India. The Make in India initiative was launched in September 2014, to give a push to manufacturing in India and encourage FDI in manufacturing and services. The objective of the initiative was to increase manufacturing share in GDP to 25% by 2020 by boosting investment, foster innovation, and intellectual property, and build best-in- class infrastructure for manufacturing across sectors including but not limited to automobile, auto components, aviation, biotechnology, chemicals, construction, defence manufacturing, electrical machinery, electronic systems, food processing, mining, oil and gas, pharmaceuticals, renewable energy, thermal power, hospitality and wellness.
To achieve this objective, a dedicated Investor Facilitation Cell was setup to assist investors in seeking regulatory approvals, hand-holding services through the pre-investment phase, execution, and after-care support. Key facts and figures, policies and initiatives and relevant contact details were made available through print and online media. The Indian embassies and consulates proactively disseminate information on the potential for investment in the identified sectors in foreign countries while domestically, regulations and policies are modified to make it easier to invest in India. FDI inflows have seen a sharp rise, as India jumped to the 8th position in the list of world’s largest FDI recipients in 2020 compared to the 12th position in 2018, according to the World Investment Report 2022. FDI to India almost doubled to $83.6 billion in Fiscal 2022 from $45.15 billion in Fiscal 2015. India is on track to attract $100 billion FDI during Fiscal 2023 according to Ministry of Commerce and Industry.
The Indian economy occupies a commercially enviable location on the global map, straddling Bay of Bengal, Indian Ocean, and Arabian Sea with a coastline of approximately 7,517 km. 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. India also has an extensive network of inland waterways in the form of rivers, canals, backwaters, and creeks. The total length of national waterways is 20,275 km spread across 24 States in the country. The Indian government plays a key support role in the development of the port industry. It has opened up the automated route to 100% FDI for port and harbour building and maintenance projects. It has also made it easier for businesses that create, maintain, and operate ports, inland waterways, and inland ports to take advantage of a 10 year tax break. The Indian port sector is divided into two segments: major ports and non-major ports. As on March 2021, the Indian coastline is dotted with 12 major and nearly 212 non-major ports. Major ports are administered directly by central government, whereas non-major ports fall under the jurisdiction of state governments. Major ports are run by respective port authorities on a landlord model. Typically, port terminals are bid out to port operators through a public private partnership (“PPP”) model. On the other hand, for non-major ports, ports are awarded to port operators/PPP partners. Non-major ports typically have lesser congestion levels vis-à-vis major ports, as for major ports the access channel is shared by multiple berths. The cargo ramp-up possibility at non-major ports is also higher as infrastructure can be created as per business planning and strategic partnerships. However, development of greenfield non-major ports is fraught with risks due to long gestation period for marine side and connectivity infrastructure, while major port, through landlord model provide a fully operational port with supporting infrastructure available.
Investment Rationale:
1. Fastest growing port-related infrastructure company and second largest commercial port operator in India:
They are the fastest growing port-related infrastructure company in terms of growth in installed cargo handling capacity and cargo volumes handled from Fiscal 2020 to Fiscal 2022. Our installed cargo handling capacity in India grew at a CAGR of 22.35% between March 31, 2020 and March 31, 2022, and the volume of cargo handled in India also grew at a CAGR of 34.97% from Fiscal 2020 to Fiscal 2022. Company have grown by catering to the growing demand for services that they have been able to meet efficiently through assets located in close proximity to industrial and mineral rich hinterlands. JSW Infrastructure is also the second largest commercial port operator in India (in terms of cargo handling capacity in Fiscal 2022) in an industry that has several entry barriers. The maritime infrastructure industry is capital intensive with long gestation periods and significant regulatory requirements. Ports in India also require substantial investments in evacuation infrastructure and skilled resources, resulting in a small number of new industry entrants in recent years. Company operate nine Port Concessions in India with an installed cargo handling capacity of 153.43 MTPA as of December 31, 2022, and their position in the Indian maritime infrastructure industry enables them to leverage economies of scale in project development capabilities and resource optimization. Based on the expertise they have developed over the years, they are able to provide a wide range of maritime services and cater to customers diverse cargo needs across key locations, which we believe is difficult to replicate, and creates significant barriers for new entrants.
2. Strategically located assets at close proximity to Anchor Customers and industrial clusters supported by a multi- modal evacuation infrastructure:
Location is a major differentiator in the ports industry. Ports which are closer to major shipping routes enjoy competitive advantage as shipping from those ports translates into cost savings for importers and exporters. Their Port Concessions are strategically located on the west and east coasts of India and are well connected to customers including Anchor Customers 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 their assets helps them provide end-to-end logistics services as they are connected to cargo origination as well as cargo consumption points. Majority of assets have the natural advantage of a deep draft enabling direct berthing of larger vessels like cape size and post panamax vessels. Jaigarh Port on the west coast has a draft of 17.5 meters, which is one of the deepest draft ports in India. The strategic location of the Jaigarh Port allows them to operate a hub-and-spoke model of cargo handling with its ability to handle cape size vessels with DWT of 192,498 tonnes and its ability to trans-ship cargo to Dharamtar Port, which is a riverine/ lower draft port located at a distance of 18 nautical miles from Mumbai. The Paradip Coal Exports Terminal has opened up avenues for coastal shipping by handymax to cape size vessels through achieving economies of scale for larger parcel sizes such as minicape size vessels of 110,000 DWT as compared to handling the cargo in smaller vessels.
In addition to their locational advantages, their assets benefit from a multi-modal evacuation infrastructure comprising a network of roadways, railways, mini-bulk carriers and conveyor systems, which enables them to provide customized supply chain solutions to our customers. For example, their evacuation infrastructure includes:
Coastal movement through a dedicated fleet of mini-bulk carriers, conveyor system, and road network at our Jaigarh Port. The connectivity between our Jaigarh and Dharamtar Ports by mini-bulk carriers allows us to provide seamless cargo handling services to JSW Steel at its facility at Dolvi (Maharashtra).
A conveyor system at Dharamtar Port (Maharashtra) that is directly connected to JSW Steel’s Dolvi facility through which almost all of the port’s cargo is evacuated.
Road and railway links at all terminals, connecting terminals to national road and rail networks.
Customers benefit from lower transportation costs owing to location advantage and connectivity through evacuation infrastructure, which increases their dependence on assets and facilitates the growth of companies business.
3. Predictable revenues driven by long-term concessions, committed long-term cargo and stable tariffs:
Port Concessions are long life assets with concession periods typically ranging between 30 to 50 years. Jaigarh Port (Maharashtra) was awarded a concession for a period of 50 years in 2008, while Dharamtar Port (Maharashtra) and each of other port terminals located at Major Ports, were awarded concession/ license periods of 30 years. As of December 31, 2022 the capacity weighted average balance concession period of ports and port terminals is approximately 25 years, providing us long-term visibility of revenue streams.
Company have long-term contracts with their Anchor Customers for cargo handling services at Port Concessions, some of which have take-or-pay provisions which provides long-term visibility of cargo and revenue at ports. The majority of take-or-pay contracts are extendable on an arm’s length basis as may be mutually agreed. The tariff they are able to charge customers is typically governed by the concession agreement for the relevant port or port terminal. Under some of concessions, tariff is escalated annually and is linked to the WPI. For other concessions, the tariff may be determined by us based on prevailing market conditions. long-term take- or-pay contracts (with Anchor Customers and Long-Term Third-Party Customers) are similarly subject to WPI- linked escalations. As a result, the tariff they charge customers across all Port Concessions is escalated annually in line with the WPI thereby providing strong visibility of revenue streams.
Going forward, there is a positive outlook for the underlying industries of customers engaged in the business of steel, power and cement, giving them strong cargo visibility and increasing proportion of “sticky cargo” due to repeat customer orders. The structure of revenue model, through tariff stability and volume security, helps achieve long-term predictable revenue streams and provides operational resilience.
4. Diversified operations in terms of cargo profile, geography and assets:
Company have evolved into a large maritime infrastructure company and have developed and operate multi-cargo ports and port terminals that are equipped to handle various categories of cargo, including dry bulk, break bulk, liquid bulk, LPG, LNG and containers. They currently handle various types of cargo including thermal coal, coking coal, fluxes and iron ore, sugar, urea, steel products, rock phosphate, molasses, gypsum, barites, laterites, and edible oil.
5. Demonstrated project development, execution and operational capabilities:
Company have a demonstrated track record of developing, acquiring and operating nine Port Concessions. Their installed cargo handling capacity in India has grown at a CAGR of 22.35% from March 31, 2020 to March 31, 2022, and the volume of cargo handled by us in India has grown at a CAGR of 34.97% between Fiscal 2020 and Fiscal 2022. The application of operational expertise in running large ports and port terminals has contributed significantly towards this growth.
Company have won numerous bids for developing and operating terminals at Major Ports, such as Paradip Coal Exports Terminal, Paradip Iron Ore Terminal and New Mangalore Container Terminal; developed greenfield ports such as Jaigarh Port and Dharamtar Port; and successfully acquired three terminals in 2020, i.e., Ennore Bulk Terminal, Ennore Coal Terminal and New Mangalore Coal Terminal. They have accumulated deep domain knowledge of trade flows, particularly for bulk cargos, giving them a competitive advantage as they plan their next phase of growth. Furthermore, company have also been successful in establishing strong relationships with vendors for development/ construction of assets and supply of cargo handling equipment. Company also strive to execute infrastructure projects on schedule and within cost and establish achievable objectives in current and future development plans. Furthermore, cargo handling systems are largely mechanized, which has enabled quick turnaround times and efficient use of resources. For example, they have modern ship-loaders/ unloaders and are well equipped to load/ unload cargo efficiently including feeding mechanized conveyor systems. Similarly, stacker-reclaimer, in- motion wagon loading system, track hopper, tipplers and other equipment have increased the efficiency at Port Concessions.
7. Benefit from strong corporate lineage of the JSW Group and a qualified and experienced management team:
Company is a part of the JSW Group, a multinational conglomerate with an international portfolio of diversified assets across various sectors, including steel, energy, infrastructure, cement, paints, venture capital, and sports. As part of the JSW Group, they achieve significant synergies, including multiple revenue channels, access to talent, securing financing on competitive terms, administrative services, and sourcing critical equipment and supplies.
Company benefits from the strong support provided by the group to business and grow alongside other growing JSW Group businesses. As a member of JSW Group, company received initial cargo from their Anchor Customers, which facilitated ramp-up of assets and improved utilization of our capacities.
Key Management Personnel:
Sajjan Jindal, aged 63 years, is the Chairman and Non-Executive Director and the Individual Promoter of our Company. He holds a bachelor’s degree in mechanical engineering from Bangalore University. He has been associated with JSW Steel Limited as its managing director since 1997 and is currently the chairperson and managing director of JSW Steel Limited. He is the vice chairman of the World Steel Association and is also on the board of directors of JSW Holdings Limited and JSW Energy Limited. He was previously associated as a director with JSW Bengal Steel Limited, National Skill Development Corporation and The Associated Chambers of Commerce and Industry of India. He is a recipient of the EY Entrepreneur of the Year 2022 award, Business Standard CEO of the Year award in 2018 and the IIM JRD Tata award for Excellence in Corporate leadership in Metallurgical Industries, 2017.
Nirmal Kumar Jain, aged 77 years, is the Vice Chairman and Independent Director of our Company. He holds a bachelors’ degree in commerce from Jiwaji University, Gwalior. He has passed the final examination held by the Institute of Chartered Accountants of India and has passed the final examination held by the Institute of Company Secretaries in India. He joined Jindal Iron & Steel Company Limited in 1992 as general manager –finance. He has significant years of experience in the area of finance.
Arun Sitaram Maheshwari, aged 53 years, is the Joint Managing Director and Chief Executive Officer of our Company. He holds a bachelors’ degree in commerce from Ajmer University. He has passed the final examination of master of business administration held by Mohanlal Sukhadia University, Udaipur. He has previously been associated with Jindal Strips Limited, Jindal Iron & Steel Company Limited and Jindal Vijaynagar Steel Limited. He has over 30 years of experience in the areas of marketing, import (raw materials), corporate strategy and infrastructure. He has been associated with our Company since April 18, 2019.
Lalit Chandanmal Singhvi, aged 59 years, is the Whole Time Director and Chief Financial Officer of our Company. He holds a bachelor’s degree in commerce (honours) from University of Jodhpur and is a fellow member of the Institute of Chartered Accounts of India. He has been associated with our Company since January 15, 2015 as senior vice president – finance and commercial. He has previously been associated with Shree Shubham Logistics as a president -commercial, Sterlite Industries (India) Limited as a chief executive officer for Fujairah Gold FZE, Suhail Bahwan Group (Holding) LLC as a general manager (finance). He has significant years of experience in the areas of management and finance.
Kantilal Narandas Patel, aged 71 years, is the Non-Executive Director of our Company. He holds a bachelor’s degree in commerce from University of Bombay and participated in the management development programme on general management (strategic issues) from the Indian Institute of Management, Calcutta. He has passed the final examination held by the Institute of Chartered Accountants of India. He joined the Jindal Iron & Steel Company Limited in 1995 as vice president – finance. He was previously associated with JSW Holdings Limited as joint managing director and chief executive officer and is currently associated with JSW Holdings Limited as a non- executive director.
Ameeta Chatterjee, aged 50 years, is the Independent Director of our Company. She holds a bachelor’s degree in commerce (honours course) from University of Delhi, where she was awarded the M. C. Shukla Prize in 1993 for securing the highest marks in aggregate in the business law and company law. She also holds a post graduate diploma in management from the Indian Institute of Management, Bangalore. She was previously associated with Leighton Contractors (India) Private Limited, a division of Leighton International Limited as a general manager, investments and acquisitions.
Gerard Earnest Paul Da Cunha, aged 68 years, is the Independent Director of our Company. He holds a bachelor’s degree in architecture from University of Delhi. He is the founder of the architecture firm, Architecture Autonomous. He has won the first prize for the “Prime Minister’s National Award for Excellence in Urban Planning and Design, 1998-99” for the project Jindal Vijaynagar Steel Limited Township, Bellary by the Ministry of Urban Development, Government of India. He is also credited with winning the “Commendation Award, 1990” for rural architecture for his project “Nrityagram” at Bengaluru, Karnataka. He has won the “Man of the Year” award, 2003 by Goa Today.
Amitabh Kumar Sharma, aged 51 years, is the Independent Director of our Company. He has passed the examination for the bachelor’s degree in law. He has been enrolled as an advocate with the Bar Council of Delhi since August 31, 1995. He was previously associated with HSA Advocates as a managing partner and as a partner with Khaitan & Co and J. Sagar & Associates. He is currently associated with NorthExcel Associates, Advocates & Legal Consultants as a partner. He has significant years of experience in general corporate, mergers and acquisitions, private equity, projects and financing matters.
Financials:
Balancesheet:
Profit & Loss:
Cash Flow:
Key Risks:
1. Credit Risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. Company is exposed to credit risk from their operating activities.
2. Liquidity Risk
Liquidity risk is the risk that company might encounter difficulty in raising funds to meet commitments associated with financial instruments that are settled by delivering cash or another financial asset. Company manages liquidity risk by maintaining adequate reserves, banking credit facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Long-term borrowings generally mature between one and 15 years.
3. Exchange Rate Risk
The Indian Rupee is our functional and reporting currency. As a consequence, results are presented in Indian Rupee and exposures are managed against Indian Rupee accordingly.
4. Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market prices.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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