JSW Infra IPO review (Apply)

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Review By Dilip Davda on September 20, 2023

•    JIL is in the business of port-related infrastructure and other services.
•    It has marked steady growth in its working for the reported years. 
•    Based on FY24 annualized earnings, the issue appears reasonably priced. 
•    Considering the parentage and the bright prospects ahead, this is a not to miss opportunity.
•    Investors can park funds for short to long-term rewards. 

PREFACE:
JSW group is coming with an IPO of the infrastructure arm. This IPO is after a gap of over 13 years from the group and JIL is the second largest player in the segment with steady growth. This IPO has been the talk of the town and attracted interest from investors across the board. Based on its financial performance so far, the IPO appears reasonably priced and is a not to miss opportunity.

ABOUT COMPANY:
JSW Infrastructure Ltd. (JIL) 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. Being a member of JSW Group, it received initial cargo from our JSW Group Customers (Related Parties), which facilitated a swift ramp-up of its assets and improved utilization of capacities. The company expects to continue to benefit from the growth of various businesses within the JSW Group.

JIL is the fastest-growing port-related infrastructure company in terms of growth in installed cargo handling capacity and cargo volumes handled during Fiscal 2021 to Fiscal 2023, and the second largest commercial port operator in India in terms of cargo handling capacity in Fiscal 2023 (Source: CRISIL Report). Its 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 it a diversified maritime ports company. JIL's installed cargo handling capacity in India 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. During the same period, its cargo volumes handled in India grew at a CAGR of 42.76% from 45.55 MMT to 92.83 MMT. 

Further, JIL's installed cargo handling capacity in India grew from 153.43 MTPA as of June 30, 2022, to 158.43 MTPA as of June 30, 2023, and the volume of cargo handled by it in India grew from 23.33 MMT for the three-month period ended June 30, 2022, to 25.42 MMT for the three-month period ended June 30, 2023. In addition to its operations in India, the company operates two port terminals under O&M agreements for a cargo handling capability of 41 MTPA in the UAE as of June 30, 2023. 

The company provides maritime-related services including, cargo handling, storage solutions, logistics services, and other value-added services to customers, and is evolving into an end-to-end logistics solutions provider. It develops and operates ports and port terminals pursuant to Port Concessions. JIL's ports and port terminals typically have long concession periods ranging between 30 to 50 years, providing it with long-term visibility of revenue streams. As of June 30, 2023, the capacity-weighted average balance concession period of operational ports and terminals is approximately 25 years with Jaigarh Port, one of its largest assets, having a balance concession period of 35 years. 

It has 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. Its Port Concessions are strategically located in close proximity to JSW Group Customers (Related Parties) and are well connected to cargo origination and consumption points. This enables JIL to serve the industrial hinterlands of Maharashtra, Goa, Karnataka, Tamil Nadu, Andhra Pradesh, and Telangana, and mineral-rich belts of Chhattisgarh, Jharkhand, and Odisha (Source: CRISIL Report), making its ports a preferred option for customers. In addition, it benefits from strong evacuation infrastructure at ports and port terminals that comprise multi-modal evacuation techniques, such as coastal movement through a dedicated fleet of mini-bulk carriers, rail, road network, and conveyor systems. 

India is positioned to be one of the fastest-growing major economies in terms of GDP between Fiscal 2024 and 2026 (Source: CRISIL Report). The company intends to capitalize on this strong growth momentum by broadening its cargo profile, expanding its geographical presence, and diversifying revenue streams. 

It has developed two greenfield Non-Major Ports, four port terminals at Major Ports including a container terminal project in New Mangalore (Karnataka), and has acquired three port terminals in India. The company is in the process of undertaking similar greenfield projects and is exploring selective inorganic growth opportunities to further expand capacities, customers, service offerings, and geographical footprint. As of June 30, 2023, it had 673 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of fresh equity shares issue worth Rs. 2800 cr. (approx. 235294164 shares at the upper cap). The company has announced a price band of Rs. 113 - Rs. 119 per share of Rs. 2 each. The issue opens for subscription on September 25, 2023, and will close on September 27, 2023. The minimum application to be made is for 126 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 11.20% of the post-IPO paid-up capital of the company. 

From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 880.00 cr. for repayment/prepayment of certain borrowings, Rs. 1029.04 cr. for capex on JSW Jaigarh Port - a subsidiary, Rs. 151.05 cr. for capex on JSW Mangalore Container Terminal - a subsidiary, and the rest for general corporate purposes. 

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs, and not more than 10% for Retail investors. 

JM Financial Ltd., Axis Capital Ltd., Credit Suisse Securities (India) Pvt. Ltd., DAM Capital Advisors Ltd.  HSBC Securities and Capital Markets (India) Pvt. Ltd., ICICI Securities Ltd., Kotak Mahindra Capital Co. Ltd., and SBI Capital Markets Ltd. Are the joint Book Running Lead Managers and KFin Technologies Ltd., Is the registrar of the issue. 

Having issued/converted initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 14.60 -  Rs. 255 per share (based on Rs. 2 FV) between December 2010 and February 2023. It has also issued bonus shares in the ratio of 5 for 1 in February 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.30 per share. 

Post-IPO, JIL's current paid-up equity capital of Rs. 1864.71 cr. (1864707450 shares) will stand enhanced to Rs. 2100 cr. (2100001614 shares). Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 24990.02 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, JIL has (on a consolidated basis) posted a total income/net profit of Rs. 1678.26 cr. / Rs. 284.62 cr. (FY21), Rs. 2378.74 cr. / Rs. 330.44 cr. (FY22), and Rs. 3372.85 cr. / Rs. 749.54 cr. (FY23). For Q1 of FY24, it earned a net profit of Rs. 322.20 cr. on a total income of Rs. 918.24 cr. Thus the company has marked steady growth in its top and bottom lines. 

For the last three fiscals, JIL has reported an average EPS of Rs. 2.88 and an average RoNW of 14.52%. The issue is priced at a P/BV of 5.04 based on its NAV of Rs. 23.62 as of June 30, 2023, and at a P/BV of 3.43 based on its post-IPO NAV of Rs. 34.66 per share (at the upper cap). 

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. Thus the issue appears reasonably priced by the JSW group company. 

DIVIDEND POLICY:
The company has not declared any dividends for the financial years reported in the offer document. It adopted a prudent dividend policy in February 2023 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, JIL has shown Adani Ports as its listed peer. It is trading at a P/E of 28.58 (as of September 20, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The eight BRLMs associated with the offer have handled 81 public issues in the past three years, out of which 26 issues closed below the offer price on the listing date.

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