JSW INFRASTRUCTURE IPO IS OPEN FOR SUBSCRIPTION: ALL YOU NEED TO KNOW

Like the previous two weeks in September, this week, we have three IPOs lined up for investors to evaluate and decide which ones to apply for. The first IPO that opens for subscription this week is JSW Infrastructure. 

In today's article, we will discuss the JSW Infrastructure IPO in detail, which opens for subscription on 25th September and closes on 27th September. We will cover various aspects related to the company, which will help you decide whether to subscribe or invest in the IPO for the long term.

JSW Infrastructure IPO: Key Details

Below are the key details related to the JSW Infrastructure IPO:

• Issue Size: Rs 2,800 crore
• Price Band: Rs 113 - Rs 119
• Issue Details: Rs 2,800 crore Fresh Issue, no Offer For Sale
• Market Cap: At the upper price band, Rs 24,490 crore
• Minimum Investment: Rs 14,994

JSW Infrastructure IPO: About the business

JSW Infrastructure is the fastest-growing port-related infrastructure company in terms of growth in installed cargo handling capacity and cargo volumes handled from FY21 to FY23. They are also the second largest commercial port operator in India in terms of cargo handling capacity in FY23. 

The company's operations have expanded from one Port Concession at Mormugao, Goa which was acquired by the JSW Group in 2002 and commenced operations in 2004, to nine Port Concessions as of June 30, 2023, across India, making them a diversified maritime ports company. Their installed cargo handling capacity grew at a CAGR of 15.27% from 119.23 MTPA as of March 31, 2021, to 158.43 MTPA as of March 31, 2023.

The company provides maritime-related services, including cargo handling, storage solutions, logistics services, and other value-added services to its customers. They are evolving into an end-to-end logistics solutions provider. They develop and operate ports and port terminals under Port Concessions.

They 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. 

International credit ratings services such as Moody’s and Fitch Ratings have assigned a “Ba2 / Positive” Corporate Family Rating and “BB+/ Stable”, respectively.

JSW Infrastructure IPO: Industry Overview

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 the implementation of GST, investments towards road infrastructure, development of inland waterways and coastal shipping, and thrust towards dedicated freight corridors among others.

In logistics, the market size of key segments - road transport, rail transport, warehousing, cold chain, logistics, and rail freight terminals is estimated to be approximately Rs 13.0 trillion in FY22.

The Indian economy occupies a commercially enviable location on the global map, straddling the Bay of Bengal, the Indian Ocean, and the Arabian Sea with a coastline of approximately 7,517 km. Ports in India handle 90% of the volume and 70% of the 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 port sector is divided into two segments: major ports and non-major ports. As of December 2022, the Indian coastline is dotted with 12 major and nearly 217 non-major ports. Major ports are administered directly.

JSW Infrastructure IPO: Listed Peers

JSW Infrastructure has only one listed peer - Adani Ports and SEZ Limited. Let us compare the two companies to find how they stand on financial parameters for FY23. Below is the comparison based on crucial financial parameters:

• In terms of revenue, Adani Ports is a much larger player with a revenue of Rs 20,851.91 crore. JSW Infra has revenue of Rs 3,194.74.
• The basic Earning Per Share (EPS) of Adani Ports is 24.58, while that of JSW Infra is 4.12, well below Adani Ports'.
• The net worth of Adani Ports and SEZ was Rs 45,583.58 crore, while JSW Infra's net worth is nearly one-tenth.
• Return on Net Worth (RoNW) is higher for JSW Infra at 18.80%, compared to 11.65% for Adani Ports and SEZ.

JSW Infrastructure IPO: Financials

Let us now look at the most crucial part investors need to consider while evaluating a new company - the company's financials. Below are the financial numbers of JSW Infrastructure over the last three financial years:

• The company has reported a revenue of Rs 1,603.57 crore, Rs 2,273.06 crore, and Rs 3,194.74 2 crore for FY21, FY22, and FY23, respectively. Revenue has grown at an exceptional 40.74% CAGR in this period.
• JSW Infrastructure has reported an EBITDA of Rs 891.13 crore, Rs 1,215.11 crore, and Rs 1,798.30 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were 53.10%, 51.08%, and 53.32%, respectively. The margins have remained flat in this period.
• JSW Infra has reported a profit of Rs 392.62 crore, Rs 425.98 crore, and Rs 810.99 crore for FY21, FY22, and FY23, respectively. The profits have more than doubled in this period.
• The company's customer base has increased in cargo handled for third-party customers in India. It grew at a CAGR of 65.58% from 11.30 MMT in FY21 to 30.98 MMT in FY23.
• For the last three fiscals, JSW Infra has reported an average EPS of Rs 2.88 and an average RoNW of 14.52%.
• The debt to equity ratio reported by the company for FY21, FY22, and FY23 is 1.17, 0.96, and 0.54, respectively. The ratio has come down significantly in the last three financial years.
• If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.38.
• Return of Capital Employed (ROCE) has increased from 8.15% to 19.49%. On the other hand, ROE has doubled from 9.22% in FY21 to 18.33% in FY23.

What are the competitive strengths of JSW Infrastructure Limited?

As per the company, their competitive strength is as below:

• They are the growing port-related infrastructure company and the second-largest commercial port operator in India.
• The company has strategically located assets near JSW Group Customers and industrial clusters supported by a multi-modal evacuation infrastructure.
• JSW Infra has predictable revenues driven by long-term concessions, committed long-term cargo, and stable tariffs. For example, Port Concessions are long-life assets with concession periods typically ranging between 30 to 50 years.
• They have diversified operations in terms of cargo profile, geography, and assets.

Risks associated with the JSW Infrastructure Limited

Below are the risks associated with JSW Infrastructure Limited:

• The company relies on concession and license agreements from government and quasi-governmental organizations to operate and grow its business. They have several obligations under these agreements, and a breach of the terms could lead to termination and affect their business.
• A substantial portion of the volume of cargo handled by them is dependent on a few types of cargo, and a significant reduction in, or the elimination of such cargo could affect their profitability.
• An adverse change in credit ratings assigned to them may affect their ability to raise funds for future capital requirements.
• The company has entered and may continue to enter into a substantial amount of related party transactions with entities in the JSW Group.