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Research
Jaiprakash Associates - Asset monetisation need of the hour!!! - ICICIdirect
Posted On : 2013-07-31 10:55:19( TIMEZONE : IST )
JAL's reported net profit in Q1FY14 was above our expectations on account of one-time profit of Rs. 395.3 crore (pre-tax) from sale of shares of Jaypee Infratech during the quarter. However, the net profit after adjusting for profit on sale works out to Rs. 24.8 crore (decline of 82% YoY). In the cement division, volumes grew 3.1% YoY to 3.7 MT while the realisation improved by Rs. 90/tonne at Rs. 4160/tonne and the EBITDA declined by Rs. 55/tonne to Rs. 884/tonne in Q1FY14. Going ahead, with the interest coverage ratio (0.9x in Q1FY14) – lowest in the last seven years, de-leveraging of balance sheet through asset monetisation is the need of the hour and would act as a key catalyst for the stock performance.
Disappointing Q1FY14 results...
JAL's adjusted net profit declined 82% YoY to Rs. 24.8 crore due to lower margins (22.9% in Q1FY14 vs. 26% in Q1FY13), and higher interest and depreciation cost (grew 26.8% and 10.2% YoY to Rs. 590 crore and Rs. 194.3 crore, respectively). The standalone cement division volumes grew 3.1% YoY to 3.7 MT in Q1FY14. On a sequential basis, while the realisation/tonne improved by Rs. 89.9 to Rs. 4160.4, the EBITDA declined Rs. 55 to Rs. 884/tonne in Q1FY14. On the positive side, real estate revenues grew 175.2% YoY to Rs. 454.3 crore, which led to revenue beat.
Interest coverage ratio at 0.9x, debt reduction need of the hour...
The interest coverage ratio at 0.9x in Q1FY14 is at the lowest level in the last seven years. The interest expenses pressure is expected to weigh on earnings till some meaningful debt reduction is seen. The management has continued to maintain that it is looking to reduce ~Rs. 6000 crore debt by FY14 end through asset monetisation.
Balance sheet de-leveraging holds key for stock performance...
With the interest coverage ratio (0.9x in Q1FY14), lowest in the last seven years, de-leveraging of balance sheet through asset monetisation is the need of the hour and would act as key catalyst for the stock performance. We have assigned a BUY rating with an SOTP based target price of Rs. 50 purely on the valuation (currently trading at 0.6x FY14E P/BV).
