Rationale
For arriving at the
ratings, ICRA has taken a consolidated view of JSW Infrastructure Ltd (JSWIL)
and its subsidiaries due to the significant operational and managerial linkages
between them, and will henceforth be referred to as JSW Infra Group. The JSW
Infra Group entities are mainly engaged in port operations and are
strategically important to broader JSW Group entities, such as JSW Steel
Limited (JSW Steel; rated [ICRA]AA(Stable)/A1+) and JSW Energy Limited, for
handling their critical cargo (coal, iron ore and other materials) due to the
favourable location near the manufacturing facilities. The assigned rating
considers the healthy business risk profile of JSWIL, marked by its favourable
operating characteristics, geographical footprint and contracts with JSW Group
entities, with a take-or-pay provision for minimum guaranteed volumes. The
rating also considers the experienced management and the benefits accruing to
JSWIL as part of the diversified JSW Group, including healthy financial
flexibility with lenders and expected growth in cargo volumes of JSW Steel and
JSW Energy Limited, due to expansion projects undertaken. ICRA also notes the
gradual increase in third-party cargo to ~30% in FY2021 from only 6% in FY2018.
The same expected to increase to ~40% in the medium term with the acquisition
of three terminals from the Chettinad Group in FY2021, as well as commissioning
of a coal terminal at Paradip Port in November 2021. Despite FY2021 being
impacted by Covid-19, the consolidated cargo volume increased to 45.55 million
metric tonne (MMT) from 34.0 MMT in FY2020, driven by the commissioning of the
iron ore terminal at Paradip, Odisha, which witnessed healthy ramp up and
incremental cargo from acquired assets for part of the year. Moreover, Jaigarh
Port also handled 4.47 MMT transshipment cargo for JSW Steel, leading to the
total volumes handled of 50.02 MMT in FY2021. ICRA also notes anticipated cargo
volume growth in FY2022 following expected increase in cargo requirement for
JSW Steel, benefit of the full year operations for the three acquired terminals
and commencement of coal terminal at Paradip from November 2021. The cargo volume
has witnessed improvement in Q1 FY2022 to 17.34 MMT, on a consolidated basis.
The rating also considers the healthy profitability of JSWIL, which enables it
to maintain an adequate liquidity position. The net leveraging (net
debt/OPBDITA), on a consolidated basis, remained high at 4.4 times as on March
31, 2021, due to additional debt of Rs. 700 crore towards acquisition of three
terminals in November 2020 along with the ongoing debt-funded capex at
different ports. ICRA expects the leveraging and credit metrics to improve with
realisation of operating profit from recent acquisitions, higher cash flow
generation as the cargo volumes ramp up at its various ports/terminals and no
major capex plans beyond FY2022. ICRA notes that ~93% of JSWIL's equity shares
have been pledged against the debt raised by the promoter group entities;
however, the risk is mitigated by the strong credit profile and financial
flexibility of the broader JSW Group. Further, JSWIL faces risk from
restrictions on specific cargo segments as well as susceptibility of
performance to volatility in demand for coal and iron ore from steel and power
sectors, which are the largest commodities handled by JSWIL. The Stable outlook
reflects ICRA's expectations that given the favourable long-term outlook for
growth in cargo volumes and the upside potential from recently completed
acquisitions and capex programmes, JSWIL's revenue and profitability growth is
expected to be robust supporting its overall credit profile.
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