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Volume growth trajectory to continue

* We released our Initiating Coverage (IC) report on JSW Infrastructure (JSWINFRA) in Feb’24 (NOTE LINK). In this report, we highlighted that JSWINFRA has been India’s fastest-growing port-related infrastructure company in terms of installed cargo handling capacity over FY21-23.

* JSWINFRA was set up in 2004 to cater to the logistics and supply chain for JSW Steel and other group companies. In FY19, it made investments to be able to serve third-party customers too. In FY24, the third-party business increased to 40% of cargo handled (50% in 1QFY25) from 33% in FY23.

* Currently, its 10 port/terminal concessions are well connected to the industrial hinterlands of Maharashtra, Goa, Odisha, Tamil Nadu, Andhra Pradesh, and Karnataka.

* JSWINFRA has a robust pipeline for constructing new ports and terminals, with a focus on delivering comprehensive logistics services. The acquisition of Navkar Corporation marks the initial step towards offering pan-India logistics services, including last-mile solutions. It has also approved acquiring a slurry pipeline project from JSW Utkal Steel for INR17b, enhancing connectivity for the Jatadhar Port in Odisha. The project is under development and is likely to materially contribute to revenue from FY28.

* JSWINFRA is pursuing both organic and inorganic growth opportunities, thereby bolstering its market footprint. We estimate a volume/revenue/ EBITDA/APAT CAGR of 15%/22%/26%/28% over FY24-26. Reiterate BUY with a TP of INR390 (based on 25x FY26E EV/EBITDA).

Expansion via organic/inorganic routes, in line with GoI’s privatization program

* Private players handle ~50% of cargo at major ports, with plans to increase this to 85% in the coming decades. Under the privatization of the ports program of the Government of India (GoI), the Ministry of Ports aims to award 81 PPP projects worth over INR424m by FY25, involving assets at nine major ports.

* JSWINFRA has embarked on a massive capex plan of INR300b towards notably expanding the total cargo handling capacity from 170 MTPA currently to 400 MTPA by FY30, banking on the rise of India’s cargo movement.

* In FY24, JSWINFRA signed a concession agreement with the Karnataka Maritime Board to develop a 30 MTPA greenfield port in Keni, Karnataka. Additionally, JSWINFRA acquired a majority stake in PNP Port, having a capacity of 5MTPA, with plans to expand the capacity to 19MTPA.

* Further, JSWINFRA signed a concession agreement with the Jawaharlal Nehru Port Authority (JNPA) for two liquid berths with a capacity of 4.5MTPA

Building a pan-India logistics network with a focus on last-mile connectivity

* JSWINFRA, through its wholly owned subsidiary, JSW Port Logistics, acquired a 70.37% stake in Navkar Corporation Ltd. The objective of the acquisition was to provide diverse logistic solutions for last-mile connectivity along with access to large land resources.

* JSWINFRA also received an LoA from Southern Railways, Chennai Division, for the construction and operation of Gati-Shakti Multi-Modal Cargo Terminal (GCT) at Arakkonam, Chennai. This would help establish a pan-India logistics network, enhancing last-mile connectivity.

* The Board of JSWINFRA has recently approved the acquisition of an underdevelopment slurry pipeline project (port connectivity) from JSW Utkal Steel for INR17b. This is a 20-year long-term take-or-pay agreement for using the pipeline to transport iron ore. The project will start contributing materially to revenue from FY28.

Diversified customer and cargo base

* JSWINFRA 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.

* The company’s effort to expand its customer base has led to an increase in cargo handled for third-party customers in India, which posted a CAGR of 55% to reach 43MMT in FY24 from 11MMT in FY21. The third-party cargo mix (by volume) increased from ~25% in FY21 to 40% in FY24 (50% in 1QFY25).

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

Valuation and view

* Leveraging its strong balance sheet, JSWINFRA aims to pursue organic and inorganic growth opportunities, strengthen its market presence, and expand its capacity to 400MMT by 2030, up from the current capacity of 170MMT

* As utilization and volumes continue to ramp up, we expect strong growth to continue. We estimate a volume/revenue/EBITDA/APAT CAGR of 15%/22%/26%/28% over FY24-26. Reiterate BUY with a TP of INR390 (premised on 25x FY26E EV/EBITDA).

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