IPO Analysis: JSW Infrastructure Ltd

IPO Rating: Apply for the long-term

About the Issue: 

JSW Infrastructure, a pivotal component of the JSW Group, provides a wide range of maritime-related services, including cargo handling, storage solutions, and comprehensive logistics services. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 2. The IPO price range is set between Rs 113 and Rs 119 per equity share, resulting in a total issue size of Rs 2,800 crore at the upper price band. 

The IPO is scheduled to commence on September 25, 2023, and will conclude on September 27, 2023. The anticipated listing on the exchange is set for October 06, 2023. The market lot size for the IPO is 126 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,638 shares or a total investment of Rs 1,94,922 assuming the upper price band.  

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. Investment in the company’s wholly-owned subsidiaries, JSW Dharamtar Port Private Limited and JSW Jaigarh Port Limited, for prepayment or repayment, in full or part, of all or a portion of certain of their outstanding borrowings 
2. Investment in company’s wholly owned subsidiary, JSW Jaigarh Port Limited, for financing its capital expenditure requirements for proposed expansion/upgradation works at Jaigarh Port  
3. Investment in the company’s wholly-owned subsidiary, JSW Mangalore Container Terminal Private Limited, for financing its capital expenditure requirements in relation to the proposed expansion at Mangalore Container Terminal   
4. General corporate purposes 

Promoter holding 

Sajjan Jindal and Sajjan Jindal Family Trust are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 96.42 per cent in the company. 

About the company 

JSW Infrastructure operates as an integral component of the JSW Group, a global conglomerate with a diversified portfolio spanning multiple industries, including steel, energy, infrastructure, cement, paints, venture capital, and sports. JSW Infrastructure offers a range of maritime-related services, encompassing cargo handling, storage solutions, and comprehensive logistics services. 

It has secured its position as the second-largest commercial port operator in the country, as determined by its cargo handling capacity. The company currently manages nine port concessions across India, boasting a combined installed cargo handling capacity of 158.43 MTPA as of June 30, 2023. Additionally, its global footprint encompasses two terminals located in Fujairah and Dibba, United Arab Emirates. 

The company maintains a diverse geographical footprint throughout India, encompassing non-major ports situated in Maharashtra, as well as port terminals located at major ports in key industrial regions. These strategic port concessions are positioned in proximity to the company’s anchor customers and are effectively linked to both cargo origination and consumption points. 

At present, it manages diverse types of cargo, such as dry bulk, break bulk, liquid bulk, gases, and containers. The range of cargo it currently oversees comprises thermal coal, non-thermal coal, iron ore, sugar, steel products, rock phosphate, molasses, gypsum, edible oil, LNG, LPG, and various containers. 

Financials 

Outlook and Valuation  

India's port traffic is forecasted to experience a robust growth of 8-9 per cent in the financial year 2023, marking a significant improvement from the 4.9 per cent growth observed in FY22. Looking ahead, for the period spanning fiscal 2024 to 2028, growth in Indian ports is anticipated to range from 3-6 per cent. The Sagarmala program, with the goal of augmenting India's port capacity to exceed 3,300 MTPA by 2025, is a key initiative. The Ministry of Shipping envisions this capacity to comprise 2,219 MTPA at major ports and 1,132 MTPA at non-major ports by 2024-2025. Additionally, there is a positive outlook for the core industries of the company’s customers, particularly those in the steel, power, and cement sectors. 

Analysing the financials, the company has delivered robust revenue and net profit growth over the past few years. The issue is priced with a P/BV ratio of 5.04 times, calculated using its Net Asset Value (NAV) of Rs 23.62 as of June 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 3.43, considering its post-IPO NAV of Rs 34.66 per share.  

When we compute the PE ratio for the company by considering annualized Q1FY24 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 19.38. In its official documents, the company has cited Adani Ports and SEZ Limited as a listed peer, currently trading with a PE ratio of 28. Hence, it appears that the issue is reasonably valued.  

Given the robust backing of the JSW Group and the promising outlook for the industry in the foreseeable future, the company possesses substantial growth potential. Therefore, we recommend that investors consider subscribing to the issue with a long-term perspective.