Jaiprakash Associates - Focus on de-leveraging continues - Motilal Oswal

Transfer 74% stake in Bokaro cement grinding unit

- JPA has announced transfer of 74% stake in Bokaro cement unit, held in JV with SAIL, to Dalmia cement at an equity value of INR6.9b, while JV's total debt as at March 2013 stood at INR2.8b.

- EV for proportionate share of JPA would thus work out ~INR9b and thus, deal values cement assets ~USD94/ton. EBIDTA for the unit in FY13 stood at INR1.8b (JPA's share at INR1.3b) and thus, EV/EBIDTA works out to 7x. EBITDA/ton works out to INR1,450/ton in FY13 and has moderated to INR985/ton in 9MFY14.

Focus on de-leveraging continues

- Current divestment (EV of INR9b) represents its second sell-off in cement business (Divestment of 4.8m tons Gujarat unit to Ultra Tech at EV of INR38b) and third divestment at consolidated level in last 6-7 months, including divestment of two hydro projects to TAQA in Jaiprakash Power Ventures. The deal was valued at an EV of INR100b, of which ~INR80-85b could be used towards corporate debt repayment, while balance money would be utilized towards equity contribution in Bara project.

- Thus, on consolidated level, the potential debt reduction from the recent divestment by JPA would amount to INR100b, taking its share of debt reduction in JPVL on proportionate basis. On gross basis, the debt reduction would work out to INR145-150b. Current deal re-iterates management's focus to de-leverage.

Consolidated DER to taper off

- Consolidated debt on books as at FY13 stood at INR631b (including current maturity of long-term debt) and DER stood at 5x (net worth of INR125b), but at 3.8x including minority interest. Post this, the DER for consolidated entity would taper off to 4.3x on its consolidated net worth.

- JPA group plans to lower debt by INR250b and thus, further divestment in Cement and Power business may continue.

Deal neutral to earnings, valuation, Buy

- Current deal is neutral to earnings as Bokaro unit had an EBIDTA of ~INR1b (JPA's proportionate share) in FY13 and could be lower in FY14E. Thus, the net proceeds (await clarity on taxation) would yield to similar savings in interest cost.

- We were valuing JV assets at USD100/ton and thus, valuation was largely in-line with our estimate. Stock trades at PER of 29x FY15E and P/BV of 0.8x (RoE of 3%).

Source : Equity Bulls

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