Acquisitions, partnerships to drive operational gains for JSW Infra

JSW Infrastructure (JSWIL) is looking at a series of significant deals which will have a positive impact on its earnings. JSWIL will acquire JSW group companies JSW Rail, JSW Minerals Rail Logistics and JSW South Rail for an enterprise value of ₹1,210 crore, including equity of ₹670 crore (rest is existing debt and liabilities), funded through JSWIL’s current balance sheet without immediate equity dilution. 

 

This deal provides access to Indian Rail schemes such as general purpose wagon investment scheme or GPWIS and liberalised special freight train operator or LSFTO where the companies already possess licenses and clearances.

 

This at a time where new GPWIS licenses will not be issued until 2027. Guidance is for ₹150 crore operating profit by the financial year 2027 (FY27), implying 8.1 times enterprise value to operating profit valuation. 

Given long-term contracts from JSW Steel, BPSL among others, the transaction should see instant earnings with JSW Rail and JSW Minerals Rail Logistics together generating over ₹127 crore in revenue and over ₹21 crore in net profit.

 

Integrated port-rail operations at Paradip and Goa will create synergies.

 

The other key deal is a partnership with Minerals Development Oman (MDO) by acquiring 51 per cent equity stake in a new port special purpose vehicle or SPV. The SPV will develop and operate a 27 million tonnes per annum (mtpa) greenfield bulk port to support industrial minerals projects in the Dhofar region of Oman.

 

With a total project capex of $419 million and a construction timeline of 36 months, the port is expected to commence operations in Q1FY30 handling minerals from MDO’s concessions.

 

JSWIL had announced ₹30,000 crore of port-related capex at end-FY25. Key projects under execution are Jatadhar port in Odisha along with a slurry pipeline to support JSW Steel’s pellet plant. Ports of Dharamtar and Jaigarh are being expanded

and PNP port was acquired to support steel capacity increase at Dolvi from 10 mmtpa to 15 mmtpa.

 

The Oman deal adds to the capex pipeline and supports development of three mineral concessions. The Oman port development could see cash return on capital employed or RoCE of 16 per cent (around $70 million in FY31) or more at a decent valuation.

 

A key factor is JSWIL’s strong balance sheet with net debt/equity at 0.16 times and net debt to operating profit at 0.75 times, which allows deals like these, without undue stress.

 

By FY28, operating profit could be in the range of ₹4,500-5,000 crore which would be twice that of FY25 and could lead to positive re-rating.

 

The Oman port project also enhances penetration in India’s steel and cement ecosystem since it supports mine development by JSW group in the region for limestone and gypsum. India lacks steel grade limestone so this could shore up domestic supply chains and there could also be gypsum supplied to cement manufacturers in western India.

 

Acquisition of the group’s rail business aligns with plans for a logistics build-out and lifts pressure off JSW Steel’s total logistics expenses. A plan to add third party volume on return legs to reduce empty running costs would improve RoCE if successful. The intra-group acquisition offers visibility of ₹700 crore or better of logistics operating profit by FY30.

 

Analysts estimate that FY26 operating profit will be at ₹2,600 crore and H1 indicates this is on track. By FY28, there may be addition of ₹810 crore operating profit from slurry pipeline (take-or-pay), ₹300 crore -400 crore operating profit at Jatadhar (8mmt of pellet exports), ₹800 crore from additional cargo at Dharamtar and Jaigarh to support 5mmt steel capacity expansion and ₹150 crore-250 crore from rail ramp-up.

 

The management targets ₹2,000 crore operating profit against a capex of ₹9,000 crore by FY30. Given a strong balance sheet, JSWIL may acquire more rail containers or invest in inland container depots or ICDs. This implies there is potential for growing operating profit by FY30 to around 4 times the levels of FY25. There is a significant chance of a primary equity sale or an OFS which would support capex and this could come at an improved valuation.