Arun Maheshwari, Joint MD & CEO, JSW Infrastructure

29 Sept 2023 , 03:40 PM

How do you differentiate JSW Infrastructure with respect to other listed ports companies?

JSW Infrastructure is purely a ports and related services’ companies. Adani Group and Pipavav are other two listed port companies. Our company started with its own group captive cargo, way back in 2004. We continued to handle the group cargo till 2018 and thereafter we thought that this a good space to be in, with good returns and limited competition and there is the need for a sound group with a good cargo profile. That is when we started the journey of third party business development, 2018 onwards. In 2019, only 6% of our cargo was coming from outside the group. 2023 we ended with 37% of cargo coming from outside the group for the June 2023 quarter. Our journey has been very robust; very clear intentions were there to drive overall growth of the company. Most of the investments after 2018 have been towards developing the third party businesses. What differentiates us is that 50% of our cargo capacity comes from greenfield ports and the other 50% comes from terminals which are into the major ports. The second differentiator for our company is that we have an in-house, solid anchor customer. Any ports company needs to have a solid anchor customer. It’s even better when that solid anchor customer belongs to your own group and which is also growth hungry. For instance, our steel and energy businesses have been growing rapidly. We are in a sweet spot. Our solid balance sheet coupled with a huge opportunity landscape in India are other key levers.

Has the company achieved the right mix of in-house and third-party customers? Or is there more to come?

We would like to continue that journey. The big challenge for us is that the JSW group is growing very fast. So if we do not grow the third party business, again our cargo mix will start skewing towards the anchor customer. All our biddings and all our further investments on the brownfield side, we are doing to develop the third party business’ share. Over the longer term, our cargo mix will be in the range of 50:50 between the JSW group and the third party business. 

Is there room to grow for all players to grow in the ports sector? Given that the ports business itself is opening up significantly.

This sector offers opportunity to everyone. I think we have very less number of players in India today in the sector. There is room for everyone to grow, there is a huge coastline, the total capacity of India is about 2,600 million tons, which is very low, particularly if we have to take the economy Rs. 4 trillion to Rs. 10 trillion. We need to build more ports and more efficiencies have to be brought in. If one looks at America, Europe or China or India. It is now India’s turn to develop these capacities because 13-14% of our GDP costs in India is on logistics, which has to be brought down to 8-9%. And seaports play a major role for 95% of Exim. So, ports have to be developed very strategically and efficiently for India to remain competitive over longer periods of time. The government has realized this in a timely manner and has stepped up investments in the ports sector. Government has introduced several schemes to boost prospects of the ports sector. These include Gati Shakti, Bharat Mala, Sagar Mala, single video clearance and so on. This sector is growing very nicely. Also, today, about 1,400 million tons of port capacity is still owned by government of India today. And they are inviting private players to mechanize, modernize and invest in the terminals. The government’s focus is not on running the business but on charging a small royalty per ton. This process is taking place at a faster pace now and we find this space very exciting.

What are the growth strategies of the company?

So far, we have grown half of our capacity through greenfield and the other 50% through terminals bidding. We find this model robust and sustainable because the gestation periods are very different. The cashflow keep ringing in. For terminals, the risks are very low, the capacity can be built at very low capex. While we pay royalty, but the return on capital employed is slightly better. This is our experience so far. This model makes more sense for us and we will continue to maintain it. 

One of the stated objectives of the IPO is repayment of debt. How much debt is there on the books of the company now and what will it be post this repayment?

As of March 31, 2023 the net debt stood at about Rs. 2,200 Crore, of which Rs. 880 Crore will be repaid from the IPO proceeds. We have also earmarked Rs. 1,200 Crore towards capex over the next 18-24 months. We would also have steady generation of free cash flows. So, we should be a net zero debt company after this IPO. 

We all know that climate change is a reality. How is this changing the dynamics within the ports sector and what does it mean for JSW Infrastructure in particular?

ESG strategy is very different for each vertical in our group. In January 2022, JSW Infrastructure became one of the first companies to launch Sustainability Linked Bonds in the Indian ports sector. We have kept this target for ourselves to reduce our own carbon emissions. We took a target of 15% reduction in emissions from FY21 to FY26 and 35% by FY31. Our efforts are bearing fruits and we are on track to achieve these targets before time. We are making investments on renewable energy, on mechanization with the objective of reducing the carbon footprint of our operations.

Coming to the first part of your question, about how the cargo profile will change for the ports industry. Coal, crude oil and containers are driving volumes in the ports sector. Large part of our volume is coking coal which is used in steel manufacturing. India does not produce coking coal so far, not at a big scale. That demand will continue given the exponential growth of steel production in India. So far, we have not come across any substitute for coking coal. I believe for the next 2-3 decades at least, coking coal will continue to be there and its demand in India will continue to rise. In the power sector as well, coal domination is prevalent in India. Our country’s energy needs are fueling every day. While renewable energy is an option, it will take time to scale up. India will probably peak on energy through fossil fuel by 2050. India is at the cusp of growth and a sudden shift away from thermal fuel may not be possible just yet.