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Volume growth to remain robust

* Cargo volumes handled by JSW Infrastructure (JSWINFRA) exhibited YoY growth of 15% in FY24 to 106.5MMT from 93MMT in FY23 (three-year CAGR of 33% over FY21-24). Considering capacity ramp-up at existing ports along with higher share of volumes from third-party customers, we expect the growth momentum to continue.

* Volume growth in FY24 was led by higher capacity utilization at the Iron Ore and Coal Terminals in Paradip and an increase in the proportion of third-party cargo in the overall customer mix, with third-party cargo volume reaching 40% in FY24, from 33% in the previous year.

*  Based on the present cargo mix, two factors could act as catalysts for JSWINFRA's growth: (a) The increasing demand for steel in India, necessitating a steady supply of raw materials, and (b) The transportation of iron ore exports and thermal coal for coastal power plants. Also, JSW Steel is in the process of expanding its steelmaking capacity to 37 MTPA by FY25 and eventually to 50 MTPA by FY31, up from ~28 MTPA in Dec’23, which would support cargo growth for JSW Infra.

* With focus on expanding capacity, increasing third-party mix in overall cargo and improved utilization levels at existing ports and terminals, we expect volume growth to continue. We expect JSWINFRA to continue to gain market share and grow faster than the market over the next few years. Capacity addition plans would allow it to capitalize on the opportunity in the ports logistics space. We expect a CAGR of 15%/23%/27%/30% in volume/revenue/EBITDA/PAT over FY24-26. We reiterate our BUY rating with a TP of INR300 (based on 18x FY26E EV/EBITDA).

Scouting for organic/inorganic growth opportunities, capex plan announced for enhancing capacity

* JSWINFRA has been actively scouting for growth opportunities (organic/inorganic) as management aims to maintain volume CAGR of ~15% over the long term.

* In FY24, JSWINFRA signed a concession agreement with the Karnataka Maritime Board to develop a 30 MTPA greenfield port in Keni, Karnataka. Additionally, it emerged as the winning bidder for a 7MTPA dry bulk terminal in Tuticorin through a PPP model. Furthermore, JSWINFRA signed a concession agreement with the Jawaharlal Nehru Port Authority (JNPA) for two liquid berths with a capacity of 4.5MTPA.

* In line with long-term growth outlook, management has guided for a capex of INR300b over FY24-30E, which will increase overall capacity by 85MMT in the next three years, and to 400MMT by 2030 (current capacity is 170MMT).

Diversified customer and cargo base

* JSWIL has a diversified customer base that includes third-party customers across geographies, and it has expanded its cargo mix by leveraging its locational advantage and maximizing asset utilization.

* FY24 (33% in FY23) from ~25% in FY21.

* Sticky cargo, i.e., volume of cargo handled for JSW Group customers and longterm third-party customers registered a CAGR of 34% from 35 MMT in FY21 to 63 MMT in FY23.

Valuation and view

* Considering stable growth levers at its existing ports and terminals, a higher share of third-party customers, sticky cargo volume from JSW Group companies and an expanding portfolio, we expect JSWINFRA to strengthen its market dominance, leading to a 15% volume CAGR over FY24-26. This should drive a 23% CAGR in revenue and a 27% CAGR in EBITDA.

* We reiterate our BUY rating with a TP of 300 (premised on 18x FY26E EV/EBITDA).

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