Buy JSW Infrastructure Ltd For Target Rs. 395 By JM Financial Services
2QFY26 in line; remains our top pick in ports
JSWINFRA’s 2QFY26 EBITDA, at INR6.1bn (+17% y-y), was in line with our estimates. With 1HFY26 EBITDA at INR 12bn and 2H being seasonally stronger, we see no significant downside risks to our FY26 EBITDA estimate of INR 26bn. Thus, our EBITDA estimates for FY26/27 are unchanged. We view JSWINFRA as a proxy on Indian steel demand growth along with increase in coastal coal movement. We think a near-term multiplebased approach does not factor in a near 4-5x rise in EBITDA from FY25 to FY30 and thus derive a DCF-based TP of INR 395. Our TP implies 17.6x FY28 EV/EBITDA. JSWINFRA is our top pick in the ports space.
* Volume growth muted but profitability improved y-y: Cargo volumes came in at 28.9mnt (+3% y-y). Revival in group cargo volumes at Jaigarh, Dharamtar and South West Goa ports was offset by weak iron ore volumes at Paradip iron ore terminal. However, for ports realisation/tn rose 7% y-y and EBITDA/tn rose 12% y-y. The management attributed this increase to price hike undertaken at Ennore coal terminal and South West Port Goa (to be sustained in 2HFY26), coupled with higher volume share from Jaigarh, Dharamtar and South West port Goa (lower royalty at these ports). Thus, EBITDA margin for ports rose to 53% in 2QFY26 (vs. 52% y-y).
* Retain our EBITDA estimates for FY26/27: The management has marginally reduced volume growth guidance for FY26 to 8-10% (vs. 10% earlier) led by headwinds to iron ore volumes. However, with 1HFY26 EBITDA at INR12bn and 2H being seasonally stronger, we see no significant downside risks to our FY26 EBITDA estimate of INR 26bn. The management expects EBITDA margin of 45-50% on a consolidated basis (blended margins are lower vs. that for ports due to lower logistics margin of 15-16%).
* Logistics EBITDA on track to achieve FY26 guidance, long-term growth plan intact: The management has maintained the guidance of INR 7bn-8bn in revenue and INR 1bn in EBITDA from the logistics segment for FY26. With 1HFY26 EBITDA already at INR 0.45bn, we view the guidance as achievable. By FY30, the management expects a revenue of INR 80bn from logistics with 25% EBITDA margin. It expects domestic/EXIM cargo to contribute 60%/40% of the revenue. Logistics volumes will be anchored by group volumes on which third party volumes are to be acquired, thereby reducing empty running costs. The management expects share of group volumes at 35-40% in the logistics segment.
* Strong balance sheet highlights significant growth potential beyond the INR 390bn capex pipeline: JSWI’s net debt to EBITDA stands at 0.75x at 1HFY26 vs. target of 2.5x Net debt to EBITDA. While the management has put forth a capex plan of INR 300bn for ports (FY25-30) and INR 90bn for logistics, we calculate there is further bandwidth for INR 40bn/year of additional growth capex from FY28E. We estimate EBITDA can rise from INR 21bn in FY25 to INR 80bn-90bn by FY30 at target RoCE level of 16%.
* DCF-based TP of INR 395, implying exit EV/EBITDA (FY30) at 13.5x: JSWI is optically expensive at 20+ FY27 EV/EBITDA as this does not factor in the step-up in EBITDA from FY28E to FY30E. Our TP implies an exit EV/EBITDA of 13.5x at FY30E discounted back to 1HFY27. We believe that in the event of a QIP to reduce promoter stake an additional INR 250bn of capex can be supported, which can potentially add another INR 75/sh to our TP at RoCE of investments of 16-18%. Please see our note: Cargo to cash: Unlocking value in ports logistics for more details.
Result Highlights:
* Cargo volumes muted due to lower iron ore volumes: Cargo volumes came in at 28.9mnt (+3% y-y) in line with our estimate of 28.7mnt . Revival in group cargo volumes at Jaigarh, Dharamtar and South West Goa ports was offset by weak iron ore volumes at Paradip iron ore terminal. 1HFY26 volumes came in at 58.2mn (+4% y-y). Excluding the decline in iron ore volumes, 1HFY26 volume growth would have been 10% y-y.
* Profitability rose y-y: Revenue grew by 26% YoY to INR 12.6bn, which was 5% ahead of our estimate and in line with consensus estimate. Port revenue came in at INR 11bn (+10% y-y). For ports, realisation/tn rose 7% y-y and EBITDA/tn rose 12% y-y. The management attributed this increase to price hike undertaken at Ennore coal terminal and South West Port Goa (which will be sustained in 2HFY26), coupled with higher volume share from Jaigarh, Dharamtar and South West port Goa (due to lower royalty at these ports).
* EBITDA in line with JMFe: EBITDA grew by 17% YoY to INR 6.1bn, in line with JMFe and consensus estimates. EBITDA margin came in at 48.2%, lower than JMFe of 49.4% and consensus estimate of 48.7%.
* PAT fell 1% y-y: PAT stood at INR 3.7bn down 1% YoY led by higher finance cost and FX losses, partially offset by higher other income and lower tax rate.
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SEBI Registration Number is INM000010361
