The ideal shipping port is in calm waters. Those operated by Gautam Adani offered a choppy way for investors to ride a part of India’s infrastructure boom but an initial public offering from billionaire Sajjan Jindal will test their appetite for something more anchored.

The chairman of JSW group, is taking India’s second-largest commercial port operator public in Mumbai just months after $20 billion Adani Ports & Special Economic Zone (APSE.NS) lost about 40% of its market value and then mostly recovered from a short attack. Adani denied allegations of stock manipulation and fraud made by Hindenburg Research but scrutiny on the company will intensify after its auditor, an affiliate of Deloitte, this week sounded a note of caution on some of the company’s transactions and gave its books a “qualified opinion”. For the public market wannabe, it tees up a tricky benchmark in a global industry with few listed giants.

JSW Infrastructure is closely aligned to India’s growth story. It owns and operates nine port concessions including in Goa and Tamil Nadu, some lasting up to 50 years. It helps move iron ore for the group’s flagship steel business, JSW Steel (JSTL.NS), and serves private customers too. It will use proceeds from the $340 million share offer to pay down debt and for the expansion of a liquefied petroleum gas terminal at its Jaigarh Port, among other things.

Ports generate long-term stable cash flows and would typically be attractive to global investors seeking refuge from high inflation in the West. More than half of cargo handled at Indian ports last year was coal, petroleum oil and lubricants. And while the global energy transition is disrupting infrastructure investments, India’s growing energy demand means it will continue to import some of these items in increasing quantities.

Though Adani is mired in a governance controversy, its underlying ports business is compelling. JSW Infrastructure grew revenue 92% in the three years to March 2022, three times as fast as its rival. But Adani handles five times the cargo traffic and its net profit margin was 12 percentage points higher by the end of that period because a bigger share of its customers are third-parties whom it can charge higher rates. On its peer’s 34 times earnings for the year to March 2022, JSW would be worth $1.4 billion.

Where Jindal’s deal eventually prices will deliver a fresh market verdict of sorts on Adani’s recovery too.

Adani Ports & Special Economic Zone on May 30 said its auditor had signed off its books with a “qualified opinion”. Deloitte Haskins & Sells flagged concerns about some transactions adding it was unable to verify the company’s claim that those entities it dealt with were unrelated to it.

Deloitte noted that some of the entities were affiliated to parties identified in a short-seller report published by Hindenburg Research in January which accused the wider Adani group of stock manipulation and fraud. Adani has dismissed those allegations. The auditor added that Adani did not consider it necessary to have an independent external review partly due to an ongoing investigation of the group by the Securities and Exchange Board of India.

JSW Infrastructure, India’s second largest commercial ports operator by cargo handling capacity, in May filed for an initial public offering in Mumbai to raise up to 28 billion rupees ($340 million). The company will use the proceeds to cut debt and fund capital expenditure. JM Financial, Axis Bank, State Bank of India, HSBC and Credit Suisse are among the banks advising on the deal.

Source : reuters