Jaiprakash Associates - 1QFY2014 Result Update - Angel Broking

For 1QFY2014, Jaiprakash Associates (JAL) posted a mixed set of numbers with decent performance on the revenue front while adjusted earnings were lower than our estimate owing to lower-than-expected operating performance and high interest cost. The decent performance on the revenue front was owing to cement revenue surprise. However, lower-than-expected performance of the construction segment and high input cost pressure led to a decline in the blended EBITDAM.

High interest cost dents profitability: On the top-line front, the company reported a revenue of Rs. 3,315cr for 1QFY2014, registering a growth of 10.2% yoy, which is slightly higher than our estimate. The real estate and construction segments posted a growth of 175.2% and 2.9% yoy respectively; however, the cement segment's revenue declined by 1.5% yoy. The blended EBITDA margin declined by 345bp yoy to 23.7% and was below our expectation of 26.2%. This was mainly due to a subdued performance in the construction segment. The interest cost stood at Rs. 590cr a jump of 26.8%/7.5% on a yoy/qoq basis and was higher than our estimate of Rs. 560cr. On the bottom-line front, the company reported a PAT of Rs. 335cr, a growth of 140.9% yoy, owing to an exceptional gain of ~Rs. 395cr which accrued on account of sale of equity shares. Adjusting to this gain, the company has reported a loss of Rs. 61cr in 1QFY2014 vs a profit of Rs. 138cr in 1QFY2013. This is mainly due to a lower-than-expected operating performance and high interest cost.

Outlook and valuation: Going forward, we believe deleveraging the balance sheet through monetization of land parcel and stake sale in cement business would help the company in reducing its huge debt, which continues to remain an overhang on the stock. Hence closure of such a deal would be positive for the company. We recommend a Buy rating on the stock with a SOTP target price of Rs. 53.

Source : Equity Bulls

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