Basic analysis of JSW infrastructure
Basic analysis of JSW infrastructure: India’s remarkable economic growth trajectory, driven by the government’s proactive policies such as Aatmanirbhar Bharat and trade revitalization, has significantly increased the demand for efficient logistics and port operations.
This rapid development requires India’s coastline to have the most technologically advanced ports that can make the logistics of goods as smooth as possible.
Today we will look at one such port operator, which is part of a larger parent group that operates ports across several states in the United States. Let’s take a closer look at the business and the financial aspects surrounding it.
Basic analysis of JSW infrastructure
Company Overview
JSW Infrastructure It is India’s second-largest commercial port operator and the country’s fastest-growing port-related infrastructure company. The company was established in 2002 with a port concession from Goa’s Mormugao port.
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Afterwards, it expanded to nine port licenses and was reborn as a diversified port company. A port concession is a long-term contract of approximately 30 to 50 years, under which the company develops, operates and manages the port. concession contract.
In return for developing and managing the port, companies such as JSW use the port to provide maritime-related services such as cargo handling, storage solutions, logistics services and other value-added services.
As of June 30, 2023, the company’s cargo handling capacity was 158.43 MTPA. This is a 15% increase over 119.23 MTPA in FY21. The cargo volume at JSW port reached 92.83 million metric tons in FY23.
JSW’s ports span the Indian coastline, serving the industrial hinterlands of Maharashtra, Goa, Karnataka, Tamil Nadu, Andhra Pradesh, Chhattisgarh, Jharkhand and Odisha. In addition to its India operations, the company operates two ports in the UAE under operations and maintenance agreements for a cargo handling capacity of 41 MTPA as of June 30, 2023.
Industry Overview
India is one of the fastest growing economies in the world, with an average growth rate estimated at around 6.6% between FY24 and FY26. The country’s strong growth is driven by the government’s capital spending drive, progressive policies such as production-linked incentives (PLI), and healthier corporate balance sheets.
From FY13 to FY22, exports grew at a CAGR of 7.6%, while imports grew at a CAGR of 6.2%. In fiscal year 2023, exports increased by 16% and imports increased by 24%, the highest growth rate ever. The total value of exports and imports stood at Rs. 36 Lakh Cr and 57 Lakh Cr respectively in FY23.
As of FY21, logistics costs in India were 14% of GDP, as per Niti Aayod, compared to 10-11% in other BRICS countries and 8-9% in developed countries. In the future, these costs are expected to be reduced by initiatives such as investment in road infrastructure and the development of inland waterways.
Other significant developments include the development of dedicated freight corridors. “Sagarmala” (Port-Led Prosperity) is another initiative launched by the central government in April 2016 to optimize infrastructure investments to reduce logistics costs for both domestic and import-export cargo.
The Sagarmala program aims to boost India’s port capacity to over 3,300 MTPA by 2025. According to the Ministry of Shipping, this will include 2,219 MTPA of capacity in major ports and 1,132 MTPA in non-major ports by 2024-2025.
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Fundamental Analysis of JSW Infrastructure – Finance
memo: JSW issued shares to the public in September 2023. Because of this, we only have access to three years of financial data for the company, starting from FY21.
Sales and Net Profit
JSW’s infrastructure growth has been quite remarkable and consistent over the last three years, with the company growing 41% from Rs. 2273 Cr in FY22 to Rs. FY23 has 3195 Cr. The increase in sales is a result of increased cargo volumes due to expansion of the port’s handling capacity and increased demand.
Revenues expanded in the 40% range, but the bottom line performance was even stronger, growing 127% from 330 Cr in FY22 to Rs. 750 Cr in FY23. Since FY21, JSW’s net profit has increased by 27%.
profit
The company’s EBITDA margin was 53.3% in FY23, an improvement from 51% in FY22. The margin improvement was the result of a decrease in other expenses as a percentage of sales. JSW Port’s operating expenses are over 38% of its revenue, allowing it to maintain strong margins in the 50%+ category.
The company reported a net profit margin of 22% for FY23, a significant increase from 13.9% in FY22. Profit margins are burdened by debt, as the company pays out 19% of its profits as follows: interest cost. As the company’s long-term debt increased in FY22, its finance costs increased at a CAGR of 27%.
rate of return
The company’s return on equity increased from 9.52% in FY22 to 18.33% in FY23. This is the result of an increase in net profit compared to the previous year. Starting next year, the return on equity is expected to decrease or decrease somewhat due to an increase in equity capital due to public offering.
Return on capital employed remains high at 20%, which is commendable for a company of this size with a lot of debt. Since the company has not increased debt since FY22 and has doubled its revenue, we can see that its return on capital employed has increased from 10.88% in FY22 to 19.5% in FY23.
debt analysis
The company’s debt-to-equity ratio increased from 1.3x in FY21 to a high of 1.41x in FY22 and stabilized at 1.28x as of FY23. This is a result of a 21% increase in long-term borrowings compared to FY21-22. However, the debt ratio decreased in FY23 even though the debt burden remained unchanged. This is because equity has increased as the business retains more profits.
The interest coverage ratio is 2.36 times, which is a somewhat safe level. The company has a lot of debt, but it has enough profits to cover its interest expenses. An interest coverage ratio greater than 1.5x is a safe measure of interest coverage ratio. Understood the financials of JSW Infrastructure Fundamental Analysis.
Fundamental Analysis of JSW Infrastructure – Key Indicators
Key indicators of JSW infrastructure include:
Basic analysis of JSW infrastructure – future plans
- Expanding presence outside of India’s major ports through greenfield or brownfield expansion to increase the company’s optimal cargo mix of bulk, containers, liquids and gases across all ports.
- The company will work towards securing more ports across the country’s coastline.
- JSW Infrastructure will pursue synergistic businesses, including the development of liquid storage terminals, container freight stations, complex logistics complexes, and inland container warehouses.
- The majority of JSW ports are accessed by the JSW Group itself, which contributes 67% of its revenue. JSW Infrastructure plans to seek business diversification to attract more business from non-group companies.
- The company will make greater efforts to build a sustainable port that can curb pollution caused by imports of metals and minerals such as coal and steel.
These are the future plans of JSW Infrastructure listed in the fundamental analysis of JSW Infrastructure.
Read more: Crisil’s Fundamental Analysis
conclusion
In this article on the fundamental analysis of JSW Infrastructure, JSW Infrastructure is a good diversification for the JSW Group as it allows for vertical integration in importing and exporting raw materials and finished products both domestically and internationally.
These ports are strategically located on the coastline where JSW factories are located. Port operators benefit these companies by reducing logistics costs, while JSW Infrastructure secures stable cash flow from its sister companies.
This is the biggest advantage of JSW infrastructure. In addition to this, the company has continued to grow revenue and significantly improve margins. Debt is still a significant burden, but if earnings continue to grow, debt to equity will fall below 1x.
Nonetheless, with everything going well for the company, the company is currently trading at a very high premium of 64x. So, is it a good idea to buy JSW infrastructure at this price point? Let us know in the comments below.
Written by Nasir Hussein
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