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November 16, 2011

Reco

Hold

Previous Reco

AccumulateCMP

Rs67

Target Price

Rs 66

EPS change FY11E/12E (%) -14.6/-11.0

Target Price change (%) -8.3%

Nifty 5,069

Sensex 16,883

Price Performance

(%) 1M 3M 6M 12M

Absolute (5) 13 (15) (45)

Rel. to Nifty (4) 13 (9) (34)

Source: Bloomberg 

Relative Price Chart

50

70

90

110

130

150

Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11

Rs

-50

-38

-26

-14

-2

10%

Jaiprakash Associates (LHS) Rel to Nifty (RHS) 

Source: Bloomberg 

Stock DetailsSector Construction

Bloomberg JPA@IN

Equity Capital (Rs mn) 4253

Face Value(Rs) 2

No of shares o/s (mn) 2126

52 Week H/L 130/54

Market Cap (Rs bn/USD mn) 149/2,940

Daily Avg Volume (No of sh) 18950017

Daily Avg Turnover (US$mn) 25.9

Shareholding Pattern (%)

Sep-11 Jun-11 Mar-11

Promoters 46.9 46.8 46.9

FII/NRI 19.7 20.4 21.8

Institutions 12.9 11.6 10.8

Private Corp 6.1 7.2 7.0

Public 14.5 14.0 13.6

Source: Capitaline 

Ajit Motwani

ajit.motwani@emkayglobal.com

+91 22 6612 1255

Jitesh Bhanot

jitesh.bhanot@emkayglobal.com

+91 22 6624 2491 

   R  e

  s  u   l   t   U  p   d  a   t  e

 

Jaiprakash Associates 

Quarterly performance driven by one off in construction

§  APAT at Rs 0.1bn(-91% yoy) below our estimates (Rs 0.73bn)

led by EBIT loss in Cement (Rs0.3bn) as cement realizations

decline 9% yoy, RPAT at Rs1.3bn driven by Rs1.7 bn one off in

Construction

§  Adj. Revenues at Rs 29bn (-3.2% yoy), Real estate rev. decline

37.6%yoy (Rs 2bn), Key project near completion lead to 12%

yoy decline in construction revenues to Rs13.85bn

§  Looking to divest stake in Gujarat & Andhra cement plants

(capacity - ~10MTPA). Key monitorable in the deal valuation

& cash inflow to parent that can help deleverage B/s

§  Dismal Q2 leading to earnings downgrade of –14.6%/-11% for 

FY12E/FY13E. Valuations at 7.1X FY13 EV/EBITDA appearsfairly priced. Downgrade to HOLD with a Target price of Rs66

Disappointing performance in cement biz impacts quarterly performance- one time income in construction segment boost reported PAT

JPA’s Q2FY12 APAT at a meager Rs100 mn was significantly below our & street

expectation dragged by disappointing cement performance which reported EBIT loss of

Rs295 mn. A one-time completion payment of Rs1.7 bn from the power sub Karcham

Wangtoo (accounted in construction segment) boosted reported net profit to Rs1.3 bn.

We have adjusted the quarterly revenues & profitability for this one time item. EBITDA

stood at Rs5.13bn vs. estimates of Rs6.12bn. Overall EBIT of Rs4.6bn, down 25% yoy,

below estimates of Rs5.3bn.

Adjusted revenues decline 3.2% as key construction projects nearingcompletion, & slower realty sales

Revenues for the quarter declined 3.2% yoy to Rs28.9bn (lower than estimates of

Rs32.8bn) as cement revenues growth of 9.6% was negated by 12% decline in

construction revenues & 38% decline in real estates revenues. In the construction

business, completion of Karcham Wangtoo resulted in a one time payment of Rs1.7bn,

included in construction revenue. Adjusted construction revenues declined 12% yoy to

Rs13.85bn, below estimates of Rs14.9bn. However construction EBIT margins of 28.3%

were ahead of estimates of 20%.

Sharp correction in North & Central regions realization impacts cement

vertical

Though cement revenues at Rs13.2bn , grew 10% yoy, they were below our estimates

of Rs14.52bn as prices in central and north India declined 33% and 24% qoq resulting

in lower cement realizations of Rs3217/t , down 9% yoy ( vs est of Rs3527/t). This

coupled with higher costs for coal and freight resulted in cement division reporting a loss

of Rs295mn at EBIT level.

Financial Snapshot (Standalone) Rs Mn

YE- Net EBITDA EPS EPS RoE EV/ P/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA BV

FY10 103,554 28,914 27.9 7,063 3.3 -21.3 9.7 20.2 7.4 1.7

FY11 137,692 37,557 27.3 11,669 5.5 65.2 13.4 12.2 6.8 1.5

FY12E 138,071 33,208 24.1 5,712 2.7 -51.0 6.1 24.9 7.9 1.5

FY13E 152,016 37,301 24.5 7,353 3.5 28.7 7.4 19.4 7.1 1.4

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  Jaiprakash Associates Result Update

Emkay Research 16 November 2011 2

 

Results table

Rs mn Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12A YoY (%) QoQ (%) YTD12 YTD11 YoY (%)

Revenue 29,933 28,937 39,977 31,423 28,974 -3.2 -7.8 60,398 61,675 -2.1

Expenditure 23,122 21,022 31,728 24,051 23,842 3.1 -0.9 47,893 48,443 -1.1

as % of sales 77.2 72.6 79.4 76.5 82.3 76.5 79.8 

(increase) / Decrease in stock in Trade -1,164 -586 208 122 690 -159.3 466.7 812 -834 -197.4

as % of sales -3.9 -2.0 0.5 0.4 2.4 0.4 1.0 

Direct construction, manufacturing 19,086 16,821 24,056 17,665 16,331 -14.4 -7.6 33,996 39,021 -12.9

as % of sales 63.8 58.1 60.2 56.2 56.4 56.2 62.8 

Staff costs 1,453 1,492 1,550 1,744 1,846 27.0 5.9 3,590 2,918 23.0

as % of sales 4.9 5.2 3.9 5.5 6.4 5.5 4.6 

Other expenditure 3,747 3,295 5,915 4,520 4,975 32.8 10.1 9,495 7,338 29.4

as % of sales 12.5 11.4 14.8 14.4 17.2 14.4 11.3 

EBITDA 6,811 7,915 8,249 7,373 5,132 -24.6 -30.4 12,505 13,232 -5.5

Depreciation 1,528 1,542 1,507 1,721 1,761 15.3 2.3 3,482 3,031 14.9

EBIT 6,721 6,373 6,743 5,652 3,371 -49.8 -40.4 9,023 11,639 -22.5

Other Income 820 588 769 409 1,210 47.7 195.6 1,619 1,255 29.0

Interest 3234 3382 4048 4264 4049 25.2 -5.0 8313 6513 27.6

Prior period adjustments 0 0

PBT 2,869 3,580 3,464 1,798 532 -81.5 -70.4 2,329 4,943 -52.9

Total Tax 1,741 1,245 997 725 432 -75.2 -40.5 1,157 2,757 -58.0

Adjusted PAT 1,128 2,335 2,467 1,072 100 -91.1 -90.7 1,172 2,186 -46.4

(Profit)/loss from JV's/Ass/MI 0 0

APAT after MI 1,128 2,335 2,467 1,072 100 -91.1 -90.7 1,172 2,186 -46.4

Extra ordinary items -27 9 138 2 1193 -4455.5 1195 4088 -70.8

Reported PAT 1155 2327 2611 1070 1287 11.4 20.2 2357 6315 -62.7

Adjusted EPS 0.5 1.1 1.2 0.5 0.0 -91.6 -91.0 0.5 1.0 -47.1

Margins (%) (bps) (bps) (bps)

EBIDTA 22.8 27.4 20.6 23.5 17.7 -504.1 -575.1 20.7 21.5 -75

EBIT 20.4 24.1 18.8 19.3 15.8 -457.7 -347.8 14.9 18.9 -393

EBT 9.7 12.3 8.7 5.7 1.8 -785.2 -389.1 3.9 8.0 -416

PAT 3.9 8.0 6.2 3.4 0.3 -352.6 -307.3 1.9 3.5 -160

Effective Tax rate 60.1 34.8 28.8 40.4 81.7 2160.7 4132.8 49.7 55.8 (610)

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  Jaiprakash Associates Result Update

Emkay Research 16 November 2011 3

 

Segmental Results

Segment revenue Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12A YoY (%) QoQ (%) YTD12 YTD11 YoY (%)

Cement & Cement Products 12,084 12,374 15,685 15,272 13,239 9.6 -13.3 15,272 14,415 6.0

Construction 15,710 12,639 17,806 12,746 13,848 -11.9 8.6 12,746 14,410 -11.5

Hydro Electric & Wind Power 122 43 39 119 161 31.7 34.8 119 110 8.4

Investments 40 39 924 54 560 1304.0 935.5 54 33 63.4

Hotel/Hospitality & Golf course 375 549 517 424 380 1.4 -10.3 424 369 14.7

Real Estate 3,233 4,255 5,968 3,469 2,018 -37.6 -41.8 3,469 3,661 -5.2

Un-allocated/investments 344 348 435 201 271 -21.0 35.1 201 296 -32.2

Total 31,907 30,248 41,374 32,286 30,477 -4.5 -5.6 32,286 33,295 -3.0

Inter-segment revenue 1,155 722 627 456 293 -74.6 -35.7 456 1,117 -59.2

Total sales / Income from operations 30,752 29,526 40,746 31,831 30,184 -1.8 -5.2 31,831 32,178 -1.1

Segment results

Cement & Cement Products 1,883 1,422 2,229 1,940 -295 -115.7 -115.2 1,940 2,863 -32.2

Construction 3,279 2,706 2,185 2,500 3,916 19.4 56.6 2,500 1,055 137.0

Hydro Electric & Wind Power 81 2 -30 71 111 37.1 57.2 71 70 1.4

Investments 40 39 924 54 560 1304.0 935.5 54 33 63.4

Hotel/Hospitality & Golf course -15 93 100 -17 -70 358.6 314.9 -17 -13 33.3

Real Estate 1,332 2,942 2,855 1,851 873 -34.5 -52.9 1,851 1,558 18.8

Unallocated 9 8 -14 -19 -63 -817.0 226.9 -19 5,132 -100.4

Total 6,607 7,211 8,249 6,380 5,032 -23.8 -21.1 6,380 10,698 -40.4

Interest 3,234 3,382 4,048 4,264 4,049 25.2 -5.0 4,264 3,279 30.0

Other Un-allocable expenditureNet of Un-allocable income

477 258 326 320 456 -4.5 42.4 320 219 46.1

PBT 2,896 3,571 3,876 1,796 527 -81.8 -70.6 1,796 7,199 -75.1

EBIT Margin (%) (bps) (bps) (bps)

Cement & Cement Products 15.6% 11.5% 14.2% 12.7% -2.2% -1780.7 -1492.8 13% 20% 715.8

Construction 20.9% 21.4% 12.3% 19.6% 28.3% 741.0 866.4 20% 7% -1229.5

Hydro Electric & Wind Power 66.1% 3.5% -76.2% 59.0% 68.9% 274.2 981.7 59% 63% 407.9

Investments 100.0% 100.0% 100.0% 100.0% 100.0% 0.0 0.0 100% 100% 0.0

Hotel/Hospitality & Golf course -4.1% 16.9% 19.3% -4.0% -18.3% -1429.0 -1438.2 -4% -3% 55.4

Real Estate 41.2% 69.1% 47.8% 53.4% 43.2% 205.2 -1011.4 53% 43% -1079.1

Unallocated 2.6% 2.2% -3.1% -9.6% -23.2%

Cement division performance

Cement Business Q310 Q410 Q111 Q211 Q311A YoY (%) QoQ (%)

Sales volume (Million Tonne) 3.4 3.6 4.2 3.9 4.1 20.2 6.6

Realisation (Rs/Ton) 3528 3411 3726 3956 3217 -8.8 -18.7

Sales (Rs mn) 12084 12374 15685 15272 13239 9.6 -13.3

EBIT (Rs mn) 1883 1422 2229 1940 -295 -115.7 -115.2

EBIT(%) 15.6% 11.5% 14.2% 12.7% -2.2% -1780.7 -1492.8

EBITA/Ton 550 392 529 502 -72 -113.0 -114.3

Op Cost /Ton 2978 3019 3196 3453 3288 10.4 -4.8

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  Jaiprakash Associates Result Update

Emkay Research 16 November 2011 4

 

Downgrade earnings by -14.6%/-11.0% for FY12E/FY13E- cut target to Rs66

On account of disappointing Q2FY12 numbers by cement, real estate & construction

segment we are downgrading our FY12E/13E earnings by -14.6%/-11.0%. We have

reduced our construction execution significantly over the current and next year leading to

overall reduction in earnings & Target price. The downgrade complements our earlier

downgrade that we did in our preview estimates. With downgrade in earnings we lower our

target price on JPA to Rs66 (Earlier Rs72).

FY12E FY13E

Rs Mn Earlier Revised change Earlier Revised change

Sales 142331 138071 -3.0% 159001 152016 -4.4%

EBIDTA 34602 33208 -4.0% 37588 37301 -0.8%

EBIDTA (%) 24.3 24.1 23.6 24.5

APAT 6685 5712 -14.6% 8265 7353 -11.0%

EPS 3.1 2.7 -14.6% 3.9 3.5 -11.0%

Exhausting Orderbook position indicates slowdown - Downgrade to HOLD

Jaiprakash Associates has seen a significant run up in stock price to F1 event, although the

event panned out well, the disappointing earnings performance is reflecting a slow down in

real estate activity in an around Noida region. Coupled with a weak Orderbook position &

slow ramp up will ensure subdued FY13E slowing down the growth pace of JPA. Amongst

the immediate triggers in the stock will be the unlocking of value in the carved out Cement

subsidiary which can be used for de-leveraging the highly indebted financial position. We

believe the stock is fairly valued at CMP or 7.1X FY13E EBIDTA, hence downgrade the

stock from ACCUMULATE to HOLD with a fair value of Rs 66. We have upgraded the

value JPA’s cement business at USD 110/t & maintained our FY13E estimates of capacity

addition to 30.1 MT. We maintain the multiple for construction segment at 6.0x EV/EBITDA

due to declining growth visibility. The lowering of price target are also driven by significantcorrection in market price for JPA’s listed subsidiaries namely Jaypee Infratech.

SOTP Valuation Measure Multiple Value Value/Share

Cement Business Enterprise Replacement Cost/Ton 110 162947 77

Construction Business EV/EBIDTA 6 47983 23

Hotel & Hospitality EV/Sales 2 3546 2

Jaypee Greens NAV 100% 19001 9

Jaypee Infratech NAV 100% 48510 23

Jaiprakash Power Ventures CMP 64188 30

Total Enterprise Value 346176 163

Less : Debt 218325 103

Target Market Capitalisation 127851 60

ADD: Value of treasury stock Target Value 1 11624 5

Fair Value 139475 66

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  Jaiprakash Associates Result Update

Emkay Research 16 November 2011 5

 

Financials (Standalone)

Income Statement Balance Sheet

Y/E, Mar (Rs. m) FY2010 FY2011 FY2012E FY2013E Y/E, Mar (Rs. m) FY2010 FY2011 FY2012E FY2013E

Net Sales 103,554 137,692 138,071 152,016 Equity share capital 4,249 4,253 4,253 4,253

Growth (%) 68.4 33.0 0.3 10.1 Reserves & surplus 80,758 89,721 94,431 100,493

Total Expenditure 74,640 100,135 104,863 114,714 Net worth 85,007 93,974 98,683 104,746

Variable divisional exps 63,771 87,220 90,624 99,428 Secured Loans 113,580 149,296 149,296 149,296

Selling & Dist exps 1,158 1,157 1,272 1,399 Unsecured Loans 65,507 67,780 69,029 69,029

Manpower Exps 4,534 5,957 6,692 7,361 Loan Funds 179,087 217,076 218,325 218,325

Others 5,177 5,802 6,275 6,525 Net Deferred Taxes 9,233 11,940 11,940 11,940

EBIDTA 28,914 37,557 33,208 37,301 Total Liabilities 273,327 322,990 328,948 335,011

Growth (%) 40.1 29.9 (11.6) 12.3

EBITDA margin (%)  27.9 27.3 24.1 24.5 Gross Block 128,471 147,964 162,769 173,133

Depreciation 4,561 6,078 7,302 8,146 Less: Acc Depreciation 22,285 28,395 35,698 43,843

EBIT 24,354 31,478 25,906 29,156 Net block 106,187 119,569 127,072 129,289

EBIT margin (%)  23.5 22.9 18.8 19.2  Capital WIP 38,916 63,527 63,527 63,527

Other Income 0 0 0 0 Investment 55,763 64,838 81,944 65,069

Interest 10,558 13,942 17,118 18,181 Current Assets 130,990 131,523 130,052 157,648

EBT 13,796 17,537 8,788 10,974 Inventories 15,536 16,665 22,697 24,989

Tax 6,733 5,867 3,076 3,622 Projects under dev. 13,561 16,169 18,914 20,824

Effective tax rate (%) 48.8 33.5 35.0 33.0 Sundry Debtors 22,850 28,106 28,371 31,236

Adjusted PAT 7,063 11,669 5,712 7,353 Cash and Bank 38,792 24,625 2,194 16,877

Growth (%) -21.3 65.2 -51.0 28.7 Other Current Assets 304 262 1,135 1,249

Net Margin (%)  6.8 8.5 4.1 4.8  Loans and Advances 39,947 45,697 56,741 62,472

(Profit)/loss from JVs/Ass/MI Current Liab & Prov 58,529 56,467 73,646 80,523

Adj. PAT After JVs/Ass/MI 7,063 11,669 5,712 7,353 Current liabilities 52,014 50,910 68,090 74,967

E/O items 10,021 8 0 0 Provisions 6,515 5,556 5,556 5,556

Reported PAT 17,084 11,678 5,712 7,353 Net current assets 72,461 75,057 56,405 77,125

Growth (%) 90.4 -31.6 -51.1 28.7 Miscellaneous Exps 0 0 0 0

EAT (%) 16.5 8.5 4.1 4.8 Total Assets 273,327 322,990 328,948 335,011

Cash Flow Key Ratios 

Y/E, Mar (Rs. m) FY2010 FY2011 FY2012E FY2013E Y/E, Mar FY2010 FY2011 FY2012E FY2013E

PBT (Ex-Other income) 13,796 16,322 5,706 7,892 Profitability (%)

Depreciation 4,561 6,078 7,302 8,146 EBITDA Margin 27.9 27.3 24.1 24.5

Interest Provided 10,558 13,942 17,118 18,181 Net Margin 6.8 8.5 4.1 4.8

Other Non-Cash items -6,143 0 0 ROCE 10.3 10.6 8.0 8.8

Chg in working cap -23,198 -15,286 -3,780 -6,036 ROE 9.7 13.4 6.1 7.4

Tax paid 6,733 -2,837 -3,076 -3,622 RoIC 22.7 20.7 14.9 15.9

Operating Cashflow -1,553 12,076 23,270 24,561 Per Share Data (Rs)

Capital expenditure -30,376 -46,830 -14,805 -10,364 EPS 3.3 5.5 2.7 3.5

Free Cash Flow 28,823 -34,754 8,465 14,198 CEPS 5.5 8.3 6.1 7.3

Other income 0 2,354 3,082 3,082 BVPS 38.5 43.2 45.5 48.3

Investments -11,111 0 -17,107 16,875 DPS

Investing Cashflow -41,487 -49,192 -14,025 19,957 Valuations (x)

Equity Capital Raised 2,985 134 0 0 PER 20.2 12.2 24.9 19.4

Loans Taken / (Repaid) 37,989 1,249 0 P/CEPS 12.3 8.0 10.9 9.2

Interest Paid 10,558 -13,162 -17,118 -18,181 P/BV 1.7 1.5 1.5 1.4

Dividend paid (incl tax) -2,224 -2,012 -1,002 -1,290 EV / Sales 2.1 1.9 1.9 1.7

Income from investments 0 0 0 EV / EBITDA 7.4 6.8 7.9 7.1

Others 0 0 0 Dividend Yield (%)

Financing Cashflow 48,787 22,950 -16,872 -19,472 Gearing Ratio (x)

Net chg in cash 5,747 -14,167 -22,431 14,683 Net Debt/ Equity 1.71 2.09 2.24 1.96

Opening cash position 29,086 38,792 24,625 2,194 Net Debt/EBIDTA 4.85 5.12 6.51 5.40

Closing cash position 38,792 24,625 2,194 16,877 Wkg cap. cycle (days) 118.7 133.7 143.3 144.7

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  Jaiprakash Associates Result Update

Emkay Research 16 November 2011

Recommendation History: Jaiprakash Associates – JPA IN

Date Reports Reco CMP Target

16/08/2011 JP Associates Q1FY12 Result Update  Accumulate 58 72

16/05/2011 JP Associates Q4FY11 Result Update  Accumulate 88 96

31/01/2011 JP Associates Q3FY11 Result Update  Buy 84 110

01/11/2010 JP Associates Q2FY11 Result Update   Accumulate 120 150

Recent Research Reports

Date Reports Reco CMP Target

15/11/2011 India Cements Q2FY12 Result Update  Hold 75 86

14/11/2011 IVRCL Q2FY12 Result Update  Buy 38 60

11/11/2011 IRB Infrastructure Q2FY12 Result Update  Buy 163 250

11/11/2011 Shree Cement Q2FY12 Result Update  Accumulate 2,025 2,400

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