By Anant Agarwal

India Ratings and Research (Ind-Ra) has assigned JSW Shipping & Logistics Private Limited (JSLPL) a Long-Term Issuer Rating of ‘IND A+’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

 

 

 April 2028

INR3,350

IND A+/ Stable

Assigned 

Proposed term loan*

 

 

 

INR3,650

IND A+/ Stable

Assigned 

Proposed fund-based working capital*

 

 

 

INR500

IND A+/ Stable/IND A1+

Assigned 

*Unallocated

Analytical Approach: To assign the ratings, Ind-Ra has factored in the 100% ownership of JSLPL by Sajjan Jindal Family Trust and the company’s strong strategic and operational linkages with the JSW Group and JSW Steel Limited (JSWL; ‘IND AA’/Stable), which belongs to the same group.

KEY RATING DRIVERS

Strong Operational Linkages with JSW Group: JSLPL’s two-member board wholly comprises representatives from the JSW Group. Also, JSLPL’s senior management team has been drawn from JSW Group companies. Ind-Ra expects the JSW Group to monitor JSLPL's operations and financial position closely (including the treasury functions). Overall, Ind-Ra views JSLPL to be operationally integral to the JSW Group, given the critical nature of services provided to JSWL, the flagship company in the group.

Strategic Importance to JSWL: Ind-Ra believes JSLPL’s strategic importance to the JSW Group is evident from  JSLPL being wholly owned by the JSW Group and the company’s usage of the JSW brand name, attaching significant reputational risks for the group. JSWL will have significant reliance on JSLPL for logistics support with respect to the transportation of raw materials for its Dolvi plant, which, post-expansion, will form around 42% of total steel capacity for the group. The Dolvi plant is now set to expand its capacity to 10MTPA from 5MTPA. The new logistics arrangement under JSLPL will enable the transportation of raw materials in efficient, mini bulk carriers (MBCs), implying lower logistics cost per tonne. Ind-Ra also takes comfort from the JSW Group completing the acquisition of Bhushan Power & Steel Ltd through its special purpose vehicle Piombino Steel Limited in March 2021. JSLPL holds a 51% stake in Piombino Steel. 

Long-term Contracts provide Revenue Visibility: JSLPL will be signing long-term contracts for the 14 MBCs (seven of these are take-or-pay contracts that have already been signed). Ind-Ra believes the contracts provide significant revenue visibility by 1) allowing a contracted quantity each month, 2) setting tariffs with annual escalation clauses, 3) allowing for the monthly settlement of dues between JSWL and JSLPL. Ind-Ra also takes comfort from the duration of the contracts being longer than the loan duration.

Strong Counterparty: The key customer for JSLPL’s operations will be JSWL, which has a strong credit profile marked by moderate leverage and coverage ratios, adequate liquidity cushion, dominant market share especially in southern and western India and lower cost of operations than peers. However, any deterioration in JSWL’s credit profile could weigh on JSLPL’s ratings as its financial strength is linked to that of the former.

Liquidity Indicator - Adequate: JSLPL’s liquidity is supported by the inherent financial flexibility it enjoys by being part of the JSW Group. JSWL, the flagship entity of the group and the sole off-taker of volumes for JSLPL, had cash and cash equivalents of INR13.9 billion, unused fund-based and non-fund-based working capital limits of close to INR100 billion, and an undrawn capital expenditure funding line of INR41 billion at end-December 2020.

Legal Linkages Weak: JSWL or the JSW Group has not provided any explicit support to JSLPL in terms of corporate guarantees and/or cross-default clauses with regard to the latter's debt. However, 100% of the share capital of JSLPL is held by the JSW Group.  

Operational Risks: The key risks for JSLPL include any operational mishaps or accidents which prevent it from carrying out its obligations to JSWL. Also, slower-than-expected ramp-up of the capacity expansion/utilisation at the Dolvi plant will adversely impact the financial profile of JSLPL and thus affect the ratings negatively. However, JSLPL can mitigate this risk by redeploying the MBCs for third-party cargo. 

Standalone Financials:  JSLPL commenced operations in January 2021 and FY22 will be the first full year of operations for the firm. The total project cost (the purchase price for 14 MBCs) is INR10,240 million. JSWL has provided an interest-bearing security deposit to JSLPL basis the terms of the contract. A total of five MBCs are operational as of now and the rest will be operational by 3QFY22. The company has availed a disbursement of INR3,340 million against seven MBCs. According to the provisional financials for FY21, JSLPL achieved a revenue of INR145 million with an operating margin of 60%. 


RATING SENSITIVITIES

Positive: Developments that could, individually or collectively, lead to a positive rating action include the timely ramping up operations, thereby achieving revenue and profitability in line with Ind-Ra’s expectations, leading to improved visibility of the net leverage (net debt to EBITDA) being below 1.75x on a sustained basis. 

Negative: Developments that could, individually or collectively, lead to a negative rating action include:

·       JSLPL’s weakening of linkages with the JSW Group and JSWL

·       inordinate delays in the ramping up of operations at JSLPL, leading to weaker probability and/or higher-than-expected debt levels resulting in a material deterioration in the credit ratios


COMPANY PROFILE

JSLPL was set up in February 2014 as part of Sajjan Jindal family trust (Sajjan Jindal is the promotor of JSW Group and  holds the position of chairman & managing director at JSWL. The company is undergoing capital expenditure to provide logistic services to JSWL. The project is under the development phase and has commenced partially in January 2021. 

JSWL, a member of the JSW Group and part of the JSW Group, is an integrated manufacturer of a diverse range of steel products with an export presence in over 100 countries. JSWL has a total steel-making capacity of 18MTPA and is among the leading producers and exporters of coated flat steel products in India. JSWL is commissioning the capacity expansion by 1HFY22 at its Dolvi plant.

 FINANCIAL SUMMARY

The financial summary is not applicable as the project is under construction.
 



COMPLEXITY LEVEL OF INSTRUMENTS

 

Instrument Type

Complexity Indicator

Term loan

Low

Fund based working capital

Low

 

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Anant Agarwal

    Senior Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurgaon Haryana 122002
    0124 6687271

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121