Rating Rationale JSW Infrastructure Limited

06 January​ 2021 ​

Brickwork Ratings reaffirms the Issuer rating and the rating for the Non-Convertible Debentures issue of Rs. 488 Crs of JSW Infrastructure Limited

Particulars Rating Tenor Previous Previous Present Type Rating** Amount Amount1 Present Rating* /Instrumen ​ (17-Dec-2019) (Rs. Cr) (Rs. Cr) t Type

BWR A+/Stable BWR A+/Stable Issuer Long - - Reaffirmed Term BWR AA- BWR AA- NCD*** Long 550.00 488.00 (CE)/Stable (CE)/Stable Term Reaffirmed

Total 550.00 488.00 (INR Four Hundred Eighty Eight Crores Only) *Please refer to BWR website www.brickworkratings.com/ for the definition of the ratings ​ ​ **Advisory as on 18 December 2020 and Credit Update on 26 March 2020 ***Details in Annexure I 1 Issue​ Amount: Rs. 542.40 Crs

Rating Action: Brickwork Ratings (BWR) has reaffirmed the issuer rating of BWR A+/Stable of JSW Infrastructure Limited (JSWIL or the company) and has also reaffirmed the rating at BWR AA- (CE)/Stable for the Non-Convertible Debentures (NCDs) issue of Rs. 488 Crs.

Rationale: The ratings have factored in JSWIL’s sustained operational performance over the past few years, driven by a fair cargo volume, the company being part of a well-established and experienced promoter group, revenue visibility on account of agreements with subsidiaries/group companies and the favourable location of the ports/terminals. These strengths are partially offset by a modest scale of operations and moderate coverage indicators despite better operating profit margins due to high debt levels, which increased in FY20 and are expected to increase further in FY21 on account of the ongoing and planned capex plans. BWR has also taken note of the recent acquisition of the three terminals by the company; the company has taken over two terminals (coal and bulk) in Kamarajar Port Trust and one Terminal (Coal) in New Mangalore Port from the Chettinad group. The company has informed that the transaction was completed on 13

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November 2020 against an acquisition cost of Rs. 996 Crs. The transaction was completed pursuant to the receipt of all approvals from concerned authorities, as informed by the company. However, with the ramp-up in volumes and in cash flows from the completion of some of the planned capex and incremental revenue from the recently acquired three terminals, leverage is expected to improve over the medium term. The rating also factors in the risks related to revenue concentration and an elongated receivable cycle, and project execution risk for the ongoing expansion.

The rating with a CE subscript factors in the credit enhancement in the form of additional liquidity via a pledge of underlying securities (collateralised by the listed shares of JSW Steel Ltd and JSW Energy Ltd with a combined coverage of twice the outstanding principal and accrued interest amount), strength of the underlying companies and structural protection in the form of a top-up trigger based on the security cover.

BWR believes JSWIL’s business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of a rating change over the medium term.

BWR has essentially relied on the financial results of JSWIL up to H1FY21 and the projected financials, terms of the issues, security coverage, underlying securities and financial results of JSW Steel Ltd. up to Q2FY21 and JSW Energy Ltd. up to Q2FY21, along with publicly available information and other information/clarification provided by the company’s management.

Key Rating Drivers: Credit Strengths:

Sustained operational performance: On a consolidated basis, the total operating income grew ​ by ~5.8% in fiscal 2020 to Rs. 1144.16 Crs against fiscal 2019 levels, wherein the operating income was Rs. 1081.42 Crs, which had grown by ~8% from Rs. 999.62 Crs recorded in the corresponding period in the previous fiscal. The operating income is expected to double in FY21 mainly on account of the ramp-up in the volumes and cash flows from the completion of some of the planned capex and incremental revenue from recent acquisitions. The company has maintained fair operating profit margins over the past three years. For H1FY21, the total revenue stood at Rs. 664.36 Crs, with a PAT of Rs. 126.72 Crs, vis-à-vis for H1FY20, wherein the total revenue stood at Rs. 533.79 Crs, with a PAT of Rs. 74.84 Crs.

Well-established and experienced promoter group: JSWIL is a part of the JSW group headed by Mr. Sajjan Jindal. The JSW group has a presence in various sectors, such as steel, power, cement and infrastructure. JSWIL is the infrastructure vertical of the JSW group and is engaged in developing, operating and maintaining ports and terminals. Currently, the company operates ports and terminals in Maharashtra, Goa and Odisha that offer mechanised and multi-cargo handling facilities to customers and cater to the industrial hinterlands of Maharashtra, Goa and

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Karnataka, among others. The company also has a port of 24 MTPA capacity under management in Fujairah, the UAE.

Cargo volume: JSWIL’s overall cargo volumes grew 20% yoy to 65.20 MT in FY19 (FY18: ​ 54.30 MT), led by double-digit growth in the cargo volume handled in two of the ports, namely, JSW Jaigarh Port and Fujairah Port. For FY20,the cargo volume stood at 56.40 MT. The fall in the cargo volume in FY20 vis-a-vis FY19 was mainly on account of the fall in the cargo volume handled at JSW Jaigarh Port and Fujairah Port. In FY20, JSW Jaigarh Port handled 15.01 MT, which had decreased from 20.96 MT in FY19, vis-a-vis 15.04 MT in FY18. The company has informed that the reduction is due to the non-handling of iron ore cargo which shall be restored by the next quarter at Jaigarh Port. However, the revenue realisation is as per the TPA arrangement, and the shortfall, if any, is compensated through commitment charges. JSW Dharamtar Port handled 12.84 MT in FY20, vis-a-vis 12.69 MT of cargo in FY19, as against 11.62 MT in the last fiscal. To explore international markets, JSW Infrastructure entered an agreement with Fujairah Sea Port Authority (POF) for carrying out the operation and maintenance, and the repair of the entire bulk handling system for ship loaders and conveying system for loading cargo at berth numbers 5 and 6 at Fujairah Sea Port for five years starting FY 2017. Fujairah Port handled 17.74 MT of cargo in FY20, vis-a-vis 22.11 MT in FY19, as against 17.02 MT in the last fiscal. South West Port Ltd (SWPL) handled cargo of 6.62 MT in FY20, vis-a-vis 5.25 MT in FY19, as against 10.62 MT in the last fiscal, recording a decrease of 50.56% mainly in FY19, vis-a-vis FY18, mainly on account of restrictions on the operation of SWPL; SWPL had an approval for handling 0.4 MT/month (4.8 MTPA) of coal with 1 MTPA of steel and 1 MTPA of limestone, which as informed by the company, has now increased to 5.5 MTPA of coal with 2 MTPA of steel and 1 MTPA of limestone, totalling 8.5 MTPA, increased from 6.8 MTPA. Paradip Iron Ore Terminal of 18.0 MTPA was operational since November 2019, handled 1.01 MT of cargo in FY20, which amounted to 3.73 MT for H1FY21. The overall cargo volume for H1FY21 stood at 23.76 MT, as against 27.92 for H1FY20. Steady growth in the cargo volume is expected in the medium term owing to the ongoing expansion at the ports, recently acquired terminals and addition of Paradip Iron Ore Terminal, which is operational since November 2019, and Paradip East Quay Coal Terminal by June 2021.

Revenue visibility on account of agreements with subsidiaries/group companies: JSWIL has ​ entered an agreement with JSW Jaigarh Port Limited for the operations and maintenance of the material handling system, stevedoring works and mooring jobs at JSW Jaigarh Port. JSW Jaigarh port in turn has entered an agreement with JSW Steel Ltd and JSW Energy Ltd for cape dredging, cargo handling, and so on. JSWIL is handling cargo for JSW Steel Limited at Dharamtar Jetty. As per the agreements, JSW Infrastructure shall receive payments for the handling of at least 10 MMTPA of cargo at JSW ISPAT Jetty from JSW Dharamtar Port Limited. SWPL, a subsidiary of JSWIL, has developed and operates two multipurpose bulk cargo terminals (5A and 6A) at Mormugao Port. JSWIL has entered an agreement with SWPL for the operations and maintenance of the material handling system, stevedoring works and mooring jobs for berth numbers 5A and 6A at Mormugao Port for the cargo of 10 MTPA. SWPL does not have an agreement with JSW Steel Ltd (JSWSL); however JSWSL sources the majority of the cargo through SWPL due to competitive berth charges. JSW Energy, JSW Steel, Zuari, www.brickworkratings.com Page 3 of 11

STL and POSCO are anchor customers for Jaigarh Port; JSW Steel DolviWorks is the anchor customer for Dharamtar Port; JSW Steel Vijayanagar is the anchor customer for South West Port; and JSWSteel is the anchor customer for Paradip Iron Ore Terminal.

Credit Risks:

Leverage expected to deteriorate in the near term: Leverage (total debt /operating EBITDA) deteriorated to 5.00x in FY20, as against 3.34x in FY19 (FY18: 2.61x), and it is expected to deteriorate further in the near term and would be in the range of 5.0-5.2x as the debt levels are expected to rise on account of the ongoing and planned capex plans and recently acquired terminals. However, with the ramp-up in volumes and in cash flows from the completion of some of the planned capex and incremental revenue from the three recently acquired terminals, leverage is expected to improve over the medium term.

Revenue concentration risk and elongated receivable cycle: The company derives a ​ significant portion of business revenues from its group and associate entities, which has led to concentration risk and an elongated receivable cycle. On a consolidated basis, trade receivables as of 31 March 2020 stood at Rs. 502.18 Crs (less allowance for doubtful debts of Rs. 0.77 Cr). The receivables within the credit period stood at Rs. 242.19 Crs, between 31-60 days stood at Rs. 83.70 Crs, 61-90 days stood at Rs. 54.92 Crs, 91-180 days stood at Rs. 101.34 Crs and >181 days stood at Rs. 20.78 Crs. BWR has taken note that a significant portion of the receivables is beyond the credit period; however, as informed by the company, the receivables are largely from group companies since the transactions were done on an arm’s length basis and are realisable on demand, as per the requirement. The company has further informed that the increase in the receivable position was on account of COVID-19, during which period, liquidity conservation was necessary and was addressed accordingly by related companies to address the situation; all the liabilities of the JSWIL group with respect to vendors/debt were timely and necessarily addressed as required, and receivables from the group were released as required. Going forward, the company’s ability to timely realise its receivables will be a key rating sensitivity.

Project execution risk for ongoing expansion: JSWIL has been in the process of expanding its ​ operational capacity from the existing 122 MTPA to ~ 200 MTPA through greenfield and brownfield expansions envisaged within the next five years. The company is currently undertaking capex/expansions with a total project cost of Rs. 1,636.28 Crs, which is expected to be funded with debt of Rs. 1,219.52 Crs and equity of Rs. 416.77 Crs. JSW Jaigarh Port has a capex of Rs. 147.78 Crs, which is expected to be completed by June 2021, and as of 31 October 2020, ~60% of the cost had been incurred. JSW Dharamtar Port has a capex of Rs. 80.00 Crs, which is expected to be completed by June 2021, and as of 31 October 2020, ~38.38% of the cost had been incurred. Paradip EQ Coal Terminal has a capex of Rs. 1,254.50 Crs, which is expected to be completed by June 2021, and as of 31 October 2020, ~57.92% of the cost had been incurred. Mangalore Container Terminal will have a capex of Rs. 154.00 Crs, and as informed by the company, its financial closure is completed, and the capex is expected to be completed by November 2021. Furthermore, the company has informed that the slurry pipeline project with a project cost of Rs. 4600 Crs has been put on hold for the next two to three years, www.brickworkratings.com Page 4 of 11

based on the prevailing market conditions and recent acquisition done by the company. Additionally, the company has informed that the transaction in future will be funded by way of internal cash accruals and/or by way of a dilution in the equity holding. Although JSWIL has a track record of having successfully developed such projects in the past, any major delay and cost overrun in the ongoing expansion will be a rating sensitivity.

About the NCD: The NCDs issue of Rs. 542.4 Crs (O/s issue amount: Rs. 488 Crs) was issued in two tranches (Series A and Series B), Series A with an amount of Rs. 271.2 Crs (O/s: Rs. 216.80 Crs) and Series B with an amount of Rs. 271.2 Crs (O/s: Rs. 271.20 Crs). Series A has a maturity date of 5 March 2021, and Series B has a maturity date of 4 March 2022. The NCD is backed by underlying securities, i.e. the listed shares of JSW Steel Ltd (JSWSL) and JSW Energy Ltd (JSWEL), shares of JSW Steel equivalent to [1.7]x of the financing amount and shares of JSW Energy equivalent to [0.3]x of the financing amount pledged by the promoter group companies, with a combined coverage of 2.0 times. There is a provision for a top-up if the share collateral cover falls below 1.80x within two business days of such an event; the security provider shall create a pledge over such number of shares, such that the share collateral cover is equivalent to the required collateral cover.

Analytical Approach: For arriving at the rating, BWR has taken a view on the consolidated financial performance of JSWIL and has applied its rating methodology as detailed in the rating criteria below (hyperlinks provided at the end of this rationale).

Rating Sensitivities: Positive: A significant improvement in the leverage and coverage indicators, and remaining at those levels over the medium term, along with a reduction in the revenue concentration risk and an improvement in profitability would be positive for the rating.

Negative: A deterioration in the leverage as against the envisaged levels and/or significant decline in the revenue and profitability, negatively affecting the coverage indicators would be negative for the rating.

The ratings are sensitive to the performance of the issuer; performance of JSW Steel Ltd and JSW Energy Ltd (underlying companies), whose equity shares have been pledged; price of the pledged stock; quantum of the pledge of promoter-held shares; maintenance of enough shares as a cushion for a timely top-up and compliance to the terms of the issue.

About the Company: JSW Infrastructure Limited (JSWIL) is the Infrastructure vertical of JSW Group and is engaged in developing, operating and maintaining ports and terminals. Currently, the company operates www.brickworkratings.com Page 5 of 11

ports and terminals in Maharashtra, Goa and Odisha that offer mechanised and multi-cargo handling facilities to customers and cater to the industrial hinterlands of Maharashtra, Goa and Karnataka, among others. The company also has one port of 24 MTPA capacity under management in Fujairah, the UAE. In addition, based on the three recently acquired terminals of 20.73 MTPA; the company will have a presence in the east coast. The list of the entities included in the consolidation as of 31 March 2020 is in annexure II.

LIQUIDITY POSITION (JSWIL): Adequate JSWIL’s liquidity is driven by the cash-generative nature of its operations. The cash and cash equivalent position of JSWIL and the key subsidiaries stood at Rs. 163.41 Crs (unpledge amount) as of 30-Nov-2020. JSWIL had cash and cash equivalent of Rs. 40.91 Crs (fixed deposit: Rs. 38.20 Crs, cash in hand: Rs. 0.02 Crs and cash at bank: Rs. 2.69 Crs), JSW Jaigarh Port Ltd (JSWJPL) had cash and cash equivalent of Rs. 31.3 Crs, SWPL had cash and cash equivalent of Rs. 51.03 Crs, JSW Dharamtar Port Pvt. Ltd (JSWDPPL) had cash And cash equivalent of Rs. 18.01 Crs, JSW Paradip Terminal Pvt. Ltd had cash and cash equivalent (JSWPTPL) of Rs. 17.03 Crs and Paradip East Quay Coal Terminal Pvt. Ltd (PEQCTPL) had cash and cash equivalent of Rs. 5.13 Crs. The total O/s amount for the rated NCD issue stood at Rs. 542.11 Crs (includes accrued premium/interest), vis-à-vis the cover maintained of Rs. 1184.01 Crs as of 21 December 2020, resulting in a security cover of 2.18 times.

$ Key Financials ​ of JSW Infrastructure Limited (Consolidated): ​ Amounts in Rs. Cr. FY 19 (Audited) FY 20 (Audited) Total Operating Income 1081.42 1144.16 PAT 271.96 196.53 Tangible Networth 2743.69 2445.78 Total Debt 2050.84 3102.57 Total Debt/TNW 0.75 1.27 $ As​ per BWR calculations For H1FY21, the total revenue stood at Rs. 664.36 Crs, with a PAT of Rs. 126.72 Crs, vis-à-vis for H1FY20, wherein the total revenue stood at Rs. 533.79 Crs, with a PAT of Rs. 74.84 Crs.

Financial Performance of the Underlying Companies: JSW Steel Ltd.: JSW Steel Limited (JSWSL) is a part of JSW Group headed by Mr. Sajjan Jindal. JSW Group has a presence across various sectors, such as steel, energy, ports and cement. JSWSL is one of the leading steel producers in India with a steelmaking capacity of 18 MTPA. Its integrated steel manufacturing units across three states (Karnataka (12 MTPA), Maharashtra (5 MTPA) and Tamil Nadu (Salem: 1 MTPA)) have facilities to produce a wide range of flat and long steel products.

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$ Key Financials of JSW Steel Limited (Consolidated) ​: ​ Amounts in Rs. Cr. FY 19 (Audited) FY 20 (Audited) Total Operating Income 84,757.00 73,326.00 PAT 7524.00 3919.00 Tangible Net Worth 32,956.00 34,925.00 Total Debt 48,126.00 62,265.00 $ As​ per BWR calculations

For Q1FY21, on a consolidated basis, revenue from operations stood at Rs. 11,782 Crs, with the EBITDA at Rs. 1,341 Crs, vis-a-vis revenue from operations of Rs. 19,812 with the EBITDA at Rs. 3,716 for Q1FY20. The company’s financial performance improved in Q2FY21, wherein revenue from operations stood at Rs. 19,264 Crs with the EBITDA at Rs. 4,414 Crs, vis-a-vis revenue from operations of Rs. 17,572 Crs with the EBITDA at Rs. 2,731 for Q2FY20; however, the same remained low compared with Q2FY19, wherein revenue from operations stood at Rs. 21,552 Crs with the EBITDA at Rs. 4,906 Crs.

JSW Energy Ltd.: Incorporated in 1994, JSW Energy Limited (JSWEL) is a part of JSW Group headed by Mr. Sajjan Jindal. JSW Group has a presence in various sectors, such as steel, power, cement and infrastructure. JSWEL is the for JSW Group’s power business, with an operational capacity of 4,559 MW (consolidated) as of March 2020.

$ Key Financials of JSW Energy Limited (Consolidated) ​: ​ Key Financial Parameters Unit FY19 (Audited) FY20 (Audited) Total Operating Income Rs. Crs 9137.59 8272.71 PAT Rs. Crs 684.49 1081.18 Total Debt Rs. Crs 10554.88 9840.48 Tangible Networth Rs. Crs 10292.54 10154.71 D/E Times 1.03 0.97 $ As​ per BWR calculations

For Q1FY21, on a consolidated basis, the company achieved total revenue of Rs. 1887 Crs, with a PAT of Rs. 213 Crs, against total revenue of Rs. 2464 Crs with a PAT of Rs. 244 Crs for Q1FY20. For Q2FY21, on a consolidated basis, the company achieved total revenue of Rs. 2000 Crs, with a PAT of Rs. 352 Crs, against total revenue of Rs. 2232 Crs with a PAT of Rs. 353 Crs for Q2FY20.

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Rating History for the last three years (including withdrawn/suspended ratings) Instrument Rating History Sl. /Rating Current Rating (Year 2021) No. Type

Type Amount (Long Rating Dec-2019** 2018 2017 Term/Short (Rs Crs) Term)

Issuer 1 Long Term - BWR A+/Stable BWR A+/Stable Rating - -

BWR BWR 2 NCD Issue Long Term 488.00 AA-(CE)/Stable AA-(CE)/Stable - -

Total (INR Four Hundred Eighty Eight Crores Only)

**Advisory as on 18-Dec-2020 & Credit update on 26-March-2020

N/A: Not Available

Status of non-cooperation with previous CRA (if applicable): NA ​

Any other information: NIL ​

COMPLEXITY LEVELS OF THE INSTRUMENTS For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf​

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Annexure I: ​

Issue PresentAmou Coupon ISIN Instrument Issue Amount nt Maturity Particulars Date (Rs. Crs) (Rs. Crs) Date NCD Dec 19, 271.2 216.80 Zero March 05, INE880J08013 2019 2021 NCD Dec 19, 271.2 271.20 Zero March 04, INE880J08021 2019 2022 Total 542.4 488.0 (INR Four Hundred Eighty Eight Crores Only)

Annexure II: The list of the entities included in the consolidation as of 31-March-2020 is as:

% holding as of Name of the Company 31-3-2020 JSW Jaigarh Port Limited 100% South West Port Limited 74% JSW Shipyard Private Limited 100% West Waves Maritime and Allied Services Private Limited 100% JSW Nandgaon Port Private Limited 100% JSW Dharamtar Port Private Limited 100% JSW Mangalore Container Terminal Private Limited 100% Masad Marine Services Private Limited 100% Jaigarh Digni Rail Limited 63% JSW Salav Port Private Limited 100% JSW Paradip Terminal Private Limited 93.24% Paradip East Quay Coal Terminal Pvt. Ltd. 93.24% JSW Terminal Middle East FZE 100%

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Hyperlink/Reference to applicable Criteria

● General Criteria ● Approach to Financial Ratios ● Credit Enhancement ​ ● Infrastructure Sector ​

Analytical Contacts

Satish Jewani Bal Krishna Piparaiya Senior Rating Analyst [Sr. Director– Ratings] [Board:+91 22 2831 1426 Ext: 603 ] [Board:+91 22 2831 1426] [Email Address: [Email [email protected]] Address:[email protected]]

1-860-425-2742 [email protected]

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