JSW Infrastructure Ltd. IPO: Should you apply?

Big news on the horizon- India's second-largest commercial port operator is about to drop anchor with their IPO. I am here to give you the scoop in plain sailing terms.

JSW Infrastructure Ltd. is opening the gates, inviting everyone to hop on board for their financial voyage, basically getting ready to launch their IPO.

And guess what? JSW Group, with several listed companies, is making a comeback to the IPO market after 13 years!

In this article, I will cover the basics, like what the industry is all about, what the company does, the IPO details, the financials, and why the company decided to go for an IPO. 

And yes, I promise to keep it simple and not drown you in jargon. 😌

Let's kick things off by getting to know the star of this article - JSW Infrastructure Ltd.

About the company

JSW Infrastructure Ltd. (JIL) is a part of the JSW Group, which is a big conglomerate with interests in various segments, like steel, energy, and more. They're kind of like Adani but without the special treatment from the government. 🥱

It is doing really well in the port business in India. The company has gone from having just one port in Goa back in 2002 to having nine across India by June 2023. It is the second-largest commercial port operator in India, which is no small feat.

It also handles cargo, offers storage solutions, and manages logistics. Basically, they are the ones who keep things flowing smoothly in the maritime world.

What's interesting is it has long contracts to run these ports, like 30 to 50 years. So, it can count on a steady income.

The company is not just based in India; it also runs two port terminals in the UAE.

Its ports are strategically placed, close to where cargo is made and needed. This makes it a top choice for businesses in places like Maharashtra, Goa, Karnataka, Tamil Nadu, and more. The company even serves mineral-rich areas like Chhattisgarh and Odisha.

It has built new ports and terminals and is eyeing more projects to grow even bigger. As of June 2023, it has 673 employees making things happen.

So, that's the lowdown on JIL. It is riding the wave of India's growing economy and aiming to expand even further. Now, let's sail into the industry overview.

Industry Overview

JSW Infrastructure Ltd. operates at the very core of India's logistics sector, a heartbeat as vital as your morning cup of chai. 

In a nation where 'jugaad' is practically a national pastime, efficient logistics are nothing short of treasure.

India is poised to become one of the fastest-growing major economies in the fiscal years 2024 to 2026 (Source: CRISIL Report). 

The company aims to ride this wave of robust growth by broadening its cargo portfolio, expanding its geographical footprint, and diversifying its streams of revenue.

Here's the overview of the port industry in India:

• India has a fantastic location for trade, surrounded by the Bay of Bengal, Indian Ocean, and Arabian Sea, with a coastline of about 7,517 km.
• Ports in India handle a huge amount of the country's trade – about 90% by volume and 70% by value.
• India mainly uses maritime routes to bring in important elements like crude oil, iron ore, and coal.
• India also has a vast network of waterways, including rivers, canals, and creeks, spanning about 20,275 km across 24 states.
• The Indian Ocean is a big deal globally, covering about one-fifth of the world's sea area and handling about 80% of the world's maritime oil trade.

The points mentioned above clearly highlight that India's strategic position in the Indian Ocean provides a significant trade advantage.

• According to the Chief Economic Advisor, India is aiming to become a 5 trillion dollar economy, and ports will be a crucial part of that growth.
• The Indian government is actively supporting the development of the port industry by allowing 100% foreign investment in port and harbour projects and giving tax breaks to businesses operating ports and waterways.
• The Indian port industry has two main parts: major ports (managed by the central government) and non-major ports (managed by state governments).
• As of December 2022, India has 12 major ports and nearly 217 non-major ports along its coastline.

Now, let's take a closer look at the logistics landscape in India. You might be wondering…

Well, let me clarify that one fundamental step in deciding whether to invest in a particular company is to analyse the industry it operates in. When the industry thrives, the odds of your chosen company doing well increase. And when the company succeeds, you, as an investor, reap the rewards aur phir... 

Therefore, according to a 2021 report by Niti Aayog, India's logistics cost compared to its economic output (GDP) is quite high, around 14%, while it's lower, around 10-11%, for BRICS countries and even less, around 8-9%, for developed nations. But there's hope for improvement.

Simply put, this means that in India, it costs more money to move and handle goods compared to how much the entire country makes in a year. It's like saying if India earns ₹100 in a year, it would spend around ₹14 just on logistics, like transporting goods.

India's plan is to reduce this logistics cost as a percentage of GDP. They're doing this by making changes like implementing the GST tax system, investing in better roads, developing waterways, and improving dedicated freight routes. 

One significant effort is the "Sagarmala" initiative, which started in April 2016. It's all about investing wisely in infrastructure, especially around ports, to lower logistics costs for both domestic and international trade. They want to increase India's port capacity to over 3,300 million tons per year by 2025. This includes both major ports and non-major ports.

Now that you're well-versed about the company and the industry it operates in, let's talk about the numbers.

Key Financials

Don’t worry. I won't bore you with the nitty-gritty. Here are the key takeaways you need to know:

• The company's market capitalisation is expected to fall within the range of ₹23,871 crore to ₹24,990.02 crore.
• Revenue: The total income in 2023 jumped by 41.79% to ₹3,372.85 crore, up from ₹2,378.74 crore in 2022.

The main reason for this increase was a rise in revenue from their day-to-day operations, which is explained below.

1. The operational revenue growth was largely due to handling more cargo in India. The company handled 30.87 million metric tons (MMT) more, going from 61.96 MMT in Fiscal 2022 to 92.83 MMT in Fiscal 2023. 
2. Interestingly, 13.92 MMT of this increase came from Newly Commenced Entities.

• Expenses: In Fiscal 2023, the total expenses went up to ₹2,561.86 crore, compared to ₹1,952.76 crore in Fiscal 2022. 

As a percentage of the total income, expenses made up 75.96% in Fiscal 2023, down from 82.09% in Fiscal 2022, showing that the company managed its expenses more efficiently.

• Profit After Tax (PAT): As a result of these factors, its restated profit for the year surged from ₹330.44 crore in 2022 to ₹749.51 crore in 2023. 

You can see the Revenue and PAT trends in the graph below for the past four years.

In the first quarter of FY24, the company achieved a net profit of ₹322.20 crore from a total income of ₹918.24 crore. This demonstrates consistent growth in both revenue and profit for the company.

• Over the past three fiscal years, JIL has consistently recorded an average Earnings Per Share (EPS) of ₹2.88 and an average Return on Net Worth (RoNW) of 14.52%.

Refer to the graph for a visual representation of the total borrowings.

The data shows a decrease from ₹4,408.69 crore in 2022 to ₹4,243.70 crore in 2023.

This decrease in total borrowings can indicate improved financial management or a reduction in the company's debt load, which may be seen as a positive financial trend.

• The company's Return on Equity (ROE) stands at 18.33%, while the Return on Capital Employed (ROCE) is at 19.49%.
• The company's Price-to-Earnings (P/E) ratio is 28.88, while the industry average P/E ratio is higher at 35.95.

A lower P/E ratio for the company relative to the industry could imply that the company's stock is relatively undervalued compared to its industry peers. However, it's important to consider other factors and industry dynamics when making investment decisions.

JSW Infrastructure Ltd. IPO Details

IPO Date	25th September to 27th September 2023
Face Value	₹2 per share
Price Band	₹113 to ₹119 per share
Lot Size	126 shares
Fresh Issue	₹2,800 crore

Issue Structure

QIB not less than 75% of the Net Offer HNI not more than 15% of the Offer Retail not more than 10% of the Offer

Take a look at the table below to get an idea of the shareholding % before and after the IPO.

	Pre-Issue	Post-Issue
Promoters	90.91%	80.72%
Promoters Group	5.51%	4.89%
Public	0.00%	11.20%
Shares held by Employee Trust	3.58%	3.18%

Moving on, "What will the company do of the money raised?" you ask. Well, I've got the inside scoop on that too! 

Here’s how the company plans to utilise the sum raised:

• ₹880.00 crore for debt repayment/prepayment
• ₹1,029.04 crore for expanding JSW Jaigarh Port (a subsidiary)
• ₹151.05 crore for expanding JSW Mangalore Container Terminal (another subsidiary)
• The remaining amount for general company needs

The Bottom Line 

Well, there you have it, folks! The IPO looks promising, the financials appear solid, and the promoters have a stellar reputation. Moreover, the company seems poised for growth and expansion. 

Now, whether you decide to jump in or not, remember one golden rule: “Your money, your call”. It's your hard-earned cash on the line, after all.

While longer-term investments usually make more sense, that's a choice you'll need to make.

That's a wrap for today's article.

*Disclaimer: The stock discussed above aren't recommendations from Finology, and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making an investment decision.