Acquisition Of Navkar Corporation Will Improve Operational Efficiency

Key Takeaways

• Expanding capacity and logistical efficiencies aim to drive significant revenue and earnings growth through ambitious projects and asset-light models by FY 2030.
  
• Diversifying revenue streams with increased third-party cargo handling may enhance stability and growth, reducing dependency on the JSW Group.
  
• Significant capital expenditures and reliance on third-party logistics and regulatory approvals present financial risks, alongside market cyclicality affecting revenue growth and potential earnings volatility.

Catalysts

An infrastructure development company, operates commercial ports in India and internationally.

• The ambitious expansion plan to increase capacity to 400 million tonnes per annum by FY 2030 includes greenfield and brownfield projects, which are expected to drive revenue growth significantly.
  
• Strengthening the logistics business aiming for a top line of ₹8,000 crores and EBITDA margins of 25% by FY 2030 suggests higher revenue and earnings potential due to improved efficiency and asset-light business models.
  
• The increase in third-party cargo handling to 49% indicates diversification in revenue streams and reduces reliance on the JSW Group, potentially improving revenue stability and growth.
  
• Recent capacity expansions at key terminals, such as the Mangalore coal terminal and PNP port, along with interim operations at JNPA and Tuticorin, should contribute to higher volumes and revenues.
  
• The acquisition of Navkar Corporation and strategic focus to leverage group companies for logistics growth can enhance operational efficiency and EBITDA margins.

JSW Infrastructure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JSW Infrastructure's revenue will grow by 26.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.8% today to 26.6% in 3 years time.
• Analysts expect earnings to reach ₹23.2 billion (and earnings per share of ₹11.08) by about February 2028, up from ₹13.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.0x on those 2028 earnings, up from 41.3x today. This future PE is greater than the current PE for the IN Infrastructure industry at 23.4x.
• Analysts expect the number of shares outstanding to grow by 0.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.38%, as per the Simply Wall St company report.

JSW Infrastructure Future Earnings Per Share Growth

Risks

• There is a significant capital expenditure plan totaling ₹9,000 crores in logistics and another ₹15,000 crores for port expansions, which, if not managed efficiently, could strain financial resources and impact net margins.
  
• JSW's logistics business is betting heavily on capturing group cargo and third-party logistics, but any failure to achieve expected third-party volumes could result in lower than targeted revenue and EBITDA margins.
  
• Dependency on successful interim operations and regulatory clearances at JNPA and Tuticorin terminals suggests potential financial risks that could impact revenue if delays occur.
  
• The company has seen a decline in volumes in its iron ore segment due to market cyclicality, which, if prolonged, could affect revenue growth targets.
  
• The mark-to-market unrealized losses, driven by sharp currency depreciation and changes in the yield curve, indicate potential volatility in earnings and financial instability.

Valuation

• The analysts have a consensus price target of ₹339.09 for JSW Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹400.0, and the most bearish reporting a price target of just ₹230.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹87.1 billion, earnings will come to ₹23.2 billion, and it would be trading on a PE ratio of 47.0x, assuming you use a discount rate of 15.4%.
  
• Given the current share price of ₹266.8, the analyst's price target of ₹339.09 is 21.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.