Jaiprakash Associates - Diwali Picks - IndiaNivesh

Cement business restructuring: Jaiprakash Associates (JPA) has cement capacity of 35 mtpa (inc. recently acquired Andhra Cements) spread pan-India. JPA is pursuing restructuring by (1) selling Rs.93 Target Rs.newly commissioned 5.0 mtpa cement plant at Gujarat & (2) strengthening its presence across Southern India post Andhra Cements acquisition. As a result of this initiative, on completion of sale, (1) debt burden would reduce, and (2) margins would stabilise.

With BOT projects commissioning, Balance Sheet stress to reduce: Yamuna Expressway recently got commissioned and is expected to contribute ~Rs 3.0 bn to FY14E top-line. Also, 2 more BOT projects, Ganga Expressway & Jaypee Agra Vikas would commence operations in H1FY14. On getting commissioned, cash inflows (mainly toll income) from these projects would reduce stress on company's balance sheet.

Gain from appreciation in NCR land parcels: Recent approval of Gr. Noida master plan & commissioning of Yamuna Expressway, has led to 10-25% appreciation in Gr. Noida land rates. JPA has 5 land parcels of 1,235 acres each (2 in Noida & Gr. Noida) and of this JPA has launched only 20 mn. sq. ft. to-date. With huge land parcel yet to be developed & launched, there exists scope for appreciation in NAV.

Capex in Power business to drive future growth: JPA has 2 power plants (~700 MW) operational & 16 under development stage. Through a judicial mix of coal & hydro fuel, JPA intends to expand its power portfolio to 13,720 MW by FY21E. We expect JPA to manage financial health effectively through internal accruals, regular FCCB launches & receivables securitization. This when coupled with timely commissioning of projects should contribute to future growth of the company.

Valuation

At CMP of Rs 93, the stock is trading at FY13E and FY14E, EV/EBITDA multiple of 9.1x and 7.4x, respectively. Given the diversified business model, we have valued JPA using the SoTP method. With our base assumptions of (1) EV/tonne of $120 for the cement business, (2) FY14E Target EV/EBITDA multiple of 5.0x for construction business, (factoring declining order book & award environment), (3) 20% discount to NAV of land parcels (lack of clarity on timings of land parcels to be developed), (4) 5.0x target EV/EBITDA multiple for hotel business & (5) 20% discount to market value to investment in listed subsidiaries, we have arrived at FY14E based fair price of Rs 163. Given the 75.3% upside from current levels, we maintain a BUY on the stock.

Source : Equity Bulls

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