JP Associates - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Jaiprakash Associates (JAL) reported in-line performance on the revenue front, but above-expectation numbers on the EBITDAM and PAT level. This outperformance can be attributed to good performance in the construction segment both on the revenue (up 42.6% qoq) and margin front (EBIT margin - 23.9%). Further, JAL's earnings were aided by lower tax, thus lowering the impact of higher interest cost. We recommend Buy on the stock.

Revenue in-line; Higher EBITDAM and lower tax result in higher-than-expected earnings despite increased interest cost: On the top-line front, the company's revenue increased by 2.9% yoy to Rs.4,062cr, as per our estimate of Rs.4,063cr. The cement segment reported 7.5% yoy growth; however, the construction and real estate segments' revenue declined by 0.6% and 5.9%, respectively, on a yoy basis. Blended EBITDA margin came in at 25.1%, registering an improvement of 380bp yoy and ahead of our expectation of 22.9%. The construction segment's margin stood at 23.9%, which led to good show on the overall margin front. The company's interest cost during the quarter stood at Rs.580cr, up 35.4% yoy/31.4% qoq. Depreciation cost came in at Rs.164cr, a jump of 8.5% yoy. The company's bottom line came in at Rs.284cr, down 6.6% yoy and higher than our estimate of Rs.231cr due to higher EBITDAM and lower tax rate despite higher interest cost.

Outlook and valuation: JAL had demerged its cement operations in Andhra Pradesh and Gujarat into a separate entity with a plan to divest a minority stake to private equity firms. Further, the company is looking for an outright sale of the Gujarat plant and is expecting ~Rs.6,000cr. However, the overall environment is not very conducive for such deals; and if JAL is able to reduce its debt, it would definitely help improve its profitability as high interest cost is currently eating its earnings. We recommend Buy on the stock with an SOTP target price of Rs.88.

Source : Equity Bulls

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