JSW Infra is in good stead on rising third party mix, capex
Summary
- The company is investing ₹30,000 crore to expand its cargo handling capacity to 400 million tonnes per annum (mtpa) by FY30.
In recent years, JSW Infrastructure Ltd has demonstrated significant success in raising the share of third-party cargo to 48% in H1FY24 from 25% in FY21. This helped improve capacity utilization to 63% in H1FY25 from 35% in FY21. The management has indicated that reaching a threshold of 60% utilization helps achieve its target return on capital employed (RoCE) of 18%.
The company is investing ₹30,000 crore to expand its cargo handling capacity to 400 million tonnes per annum (mtpa) by FY30 from 170 mtpa. The net cash positive status at September-end, improving cashflow and potential equity dilution should help JSW Infra meet funding needs.
Promoter holding needs to be brought down to 75% over the next two years from 85.6% as of September. The company had earlier indicated an issue of fresh shares for this, which would help generate cash to fund its capex.
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Still, it may need to tread cautiously, as the construction of ports close to each other may delay reaching the optimal utilisation level for newer projects and affect cash flow.
Expansion drive
Among the ongoing projects is the expansion of existing ports—Dharamtar and Jaigarh—on the Western coast. This is aligned with expansion projects at JSW Steel Ltd’s Dolvi plant, as existing ports derive 85-90% of their business from the steel plant. It is also developing two greenfield ports of 60 mtpa total capacity for over ₹7,000 crore and has recently won the bid for a third port.
The company is making efforts to become an end-to-end logistics player and expand customer reach. In October, it completed the acquisition of Navkar Corporation Ltd, a logistics provider with a focus on Western India. It also has a contract to build and operate a Gati-Shakti cargo terminal.
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JM Financial Institutional Securities estimates JSW Infra will generate revenue and Ebitda CAGR of 20% and 18% over FY24-27E on the back of capacity addition (brownfield expansion) and growing customer base. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
Meanwhile, JSW Infra’s H1FY25 revenue growth was faster than volume growth, implying higher realization from third-party customers. It has guided for 10% volume growth for FY25, implying about 8% growth in H2FY25 to meet the target, which seems achievable. The possible lifting of the ban on sugar exports, imposed last year, can further lift volumes in H2 due to the proximity of its ports to sugar-producing regions.
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Since listing in October 2023, the stock is up about 160% from its issue price of ₹119. It trades at an enterprise value of 24x its FY26 Ebitda estimates, as per Bloomberg. Valuations are pricey. Further gains would hinge upon the timely commissioning of ongoing projects.
