Jaiprakash Associates (JAIASS) 35

Transcription

1 Event Update Rating matrix Rating : Hold Target : 38 Target Period : months Potential Upside : 7% What s changed? Target Changed from 76 to 38 EPS FY15E Unchanged EPS FY16E Unchanged Rating Changed from BUY to HOLD Key financials Crore FY13 FY14 FY15E FY16E Net Sales 13, , , ,897.4 EBITDA 3, , , ,814.8 Net Profit (547.1) EPS ( ) (2.2) 1.6 Valuation summary FY13 FY14 FY15E FY16E P/E NM 22.4 Target P/E NM 24.0 EV / EBITDA P/BV RoNW (%) NM 2.6 RoCE (%) Stock data Particular Amount Market Capitalization ( crore) 8,513.4 Total Debt ( crore) 28,163.0 Cash ( crore) EV ( crore) 35, week H/L ( ) 90 / 28 Equity capital ( crore) Face value ( ) 2 Price performance (%) 1M 3M 6M 12M JP Associates (31.5) (50.1) (26.7) (11.4) GMR Infrastructure (9.2) (30.0) Sadbhav Engg Analyst Deepak Purswani, CFA deepak,purswani@icicisecurities.com Nikunj Gala nikunj.gala@icicisecurities.com Regulatory hurdles may delay asset monetisation further September 23, 2014 Jaiprakash Associates (JAIASS) 35 We had highlighted that Jaiprakash Associates (JAL) would be a key beneficiary of a stable government being in place on the back of progress on asset monetisation and anticipated infrastructure and economic recovery. However, recent regulatory uncertainties pertaining to power plants and real estate projects may adversely affect the company s asset monetisation drive. This, in turn, may impact the company s plans to reduce its consolidated debt of ~ 70,400 crore, which has remained a major concern for investors. Hence, we reduce our target price to 38 and downgrade the stock to HOLD. CEA show-cause notice may delay asset monetisation Media reports indicate that the Central Electricity Authority (CEA) is likely to issue a show cause notice to one of JAL s power subsidiary for alleged violations with respect to techno-economic clearance granted to the Karcham Wangtoo hydroelectric project in Himachal Pradesh. It is alleged that the techno-economic clearance was given for 1,000 MW while the plant is running at 1,200 MW generation capacity. The Central Electricity Regulatory Commission (CERC) has asked one of its power subsidiaries to expedite the filing of a tariff petition for the Karcham Wangtoo hydro project. The direction from CERC came after the utility sought the withdrawal of a provisional tariff petition related to the plant. We highlight that the Karcham Wangtoo project is part of an 1,800-MW MoU signed with Reliance Power for three hydel projects. Hence, due to regulatory uncertainties pertaining to the plant, there is a possibility of a delay in asset monetisation and consequent debt reduction. Supreme Court rejects Jaypee Infratech plea Recently, the Supreme Court refused to entertain a plea of Jaypee Infratech (JPIL), one of JAL s real estate subsidiaries, seeking direction to the Noida Authority to grant a completion certificate to its projects falling within a 10-km radius of the Okhla Bird Sanctuary. Around 4,000 flats are ready for handover. Hence, this may hamper its real estate business. Supreme Court judgment on coal block remains key The Supreme Court recently termed all captive coal blocks allocated by the government from 1993 to 2010 as illegal. The final verdict is yet to come but any unfavourable Supreme Court judgment in the coal block allocation case may impact its cement and power division performance, going ahead. Asset monetisation may get delayed; downgrade to HOLD Given the regulatory hurdles, we believe JAL s asset monetisation and consequent debt reduction plans may get impacted. Hence, we recommend HOLD on the stock with a revised SOTP based target price of 38/share. We value JAL s cement business at 60/share (24.3 MTPA capacity is valued at US$100/tonne), construction business at 30/share (5x FY16E EV/EBITDA), power & real estate at 9/share and 20/share, respectively (at 20% discount to CMP). ICICI Securities Ltd Retail Equity Research

2 Promoter stake sale Recently, one of the promoters of the company viz. Jaypee Infra sold 1.3 crore shares of Jaiprakash Associates for 62.4 crore through the open market route. This small shareholding has been disposed off by the promoter company to meet its requirement of funds, including for social cause as per disclosures made by JAL to the stock exchanges. Consequently, this has led to negative investor sentiments and JAL s shares corrected to 37.7 (down 18%) compared to the previous close of Outlook and valuation Recent regulatory uncertainties pertaining to power plants and real estate projects may adversely affect the company s asset monetisation drive. This, in turn, is affecting the company s plans to reduce its consolidated debt of ~ 70,400 crore, which has remained a major concern for investors for long. In addition to these, the recent stake sale by Jaiprakash Infra in the open market has impacted investor s sentiment (as reflected in the stock price correction of ~18% on the day of the event). Hence, we recommend HOLD on the stock with a revised SOTP based target price of 38/share. We value JAL s cement business at 60/share (24.3 MTPA- JAL s economic interest at US$100/tonne), construction business at 30/share (5x FY16E EV/EBITDA), power & real estate at 9/share and 20/share (at 20% discount to CMP), respectively. Exhibit 1: Valuation summary Business Value ( cr) Per share Comment Cement Division Value 24.9 MTPA (Economic interest MTPA ) capacity at US$100/tonne Construction Division x FY16E EV/EBITDA Power Division JPVL At 20% discount to CMP Real Estate Division Yamuna Expressway At 20% discount to CMP Jaypee Greens - Noida & Greater Noida Valued at 0.5x of its NAV Hotel Division x FY16E EV/EBITDA Jaypee Sports International Ltd x P/BV Himalayan Expressway x P/BV Wind Power x P/BV Treasury shares crore valued at 20% discount to CMP Total Enterprise Value Less: Net debt Less:Net debt after adjusting for Gujarat, Panipat & Bokaro sales procees Target Exhibit 2: Valuation matrix Sales Growth EPS Growth PE P/B RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY14E NM NM FY15E NM NM FY16E NM ICICI Securities Ltd Retail Equity Research Page 2

3 Company snapshot Target Price Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jan-12 Promoters were fined by Sebi for insider trading activities Q1FY13 Stock fell sharply over concerns of FCCB repayment Aug-12 Raised $150 million through rasing of FCCB Sep-12 Redeemed FCCB of $523.6 million (48% premium) through the newly raised debt and FCCB, leading to recovery in stock prices Q3FY13 Stock ran up sharply over talks of cement stake sale only to fall drastically over deal cancellation and concerns over debt Sep-13 Completed Gujarat cement plant stake sale to UltraTech at a EV ~ 3800 crore Mar-14 TAQA acquired two hydroelectric plants (Baspa Stage II & Karcham Wangtoo) aggregating 1390 MW in India from a JAL subsidiary at the equity valuation of US$616 million ( 3,820 crore) and at an EV of US$1.6 billion (~ 10,000 crore) Mar-14 JAL hived off its stake in the cement plant in Bokaro to Dalmia Cements for an equity valuation of 690 crore Jun-14 Himachal Pradesh State Pollution Control Board (HPSPCB) directed Jaypee Cement's plant to stop overproduction with immediate effect Jul-14 JP Associates raised $250 million through a share issue to QIBs at the price of 70.3 per share Jul-14 TAQA called off the agreement to purchase two of JP's subsidiary's hydropower plants in Himachal Pradesh Jul-14 Reliance CleanGen Ltd (RCL) - a 100% subsidiary of Reliance Power has signed an MoU with the Jaypee group to acquire 1800 MW hydro assets Jul-14 JP plans to consolidate its entire cement manufacturing operations under one company that it will eventually list on the stock exchange Sep-14 Jaypee Infra sold 1.3 crore shares of JP Associates for 62.4 crore through open market sale route Sep-14 The media reports indicate that CEA is likely to issue show cause notice to one of its power subsidiary for alleged violations with respect to techno-economic clearance granted to Karcham Wangtoo hydroelectric project in Himachal Pradesh Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Jaypee Group 30-Jun LIC Nomura Mutual Fund Asset Management Company Ltd 30-Jun Platinum Investment Management Ltd. 30-Jun JEL Trust 30-Jun HSBC Global Asset Management (Hong Kong) Limited 30-Jun JCL Trust 30-Jun JHL Trust 30-Jun Dimensional Fund Advisors, L.P. 31-Aug The Vanguard Group, Inc. 31-Jul HDFC Asset Management Co., Ltd. 31-Jul Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Birla Sun Life Asset Management Company Ltd m 15.71m HSBC Global Asset Management (Hong Kong) Limited m m ICICI Prudential Asset Management Co. Ltd. 7.91m 8.40m T. Rowe Price International (UK) Ltd m m Platinum Investment Management Ltd. 6.46m 6.15m Deutsche Asset & Wealth Management Investment GmbH m m APG Asset Management 4.10m 2.59m Raiffeisen Kapitalanlage-Gesellschaft mbh -5.25m -5.83m Jain (Suren) 2.28m 2.33m PGGM Vermogensbeheer B.V m -5.44m ICICI Securities Ltd Retail Equity Research Page 3

4 Financial summary Profit and loss statement Crore ( Crore) FY13 FY14E FY15E FY16E Net Sales 13, , , ,897.4 Growth (%) Op.Expenditure 10, , , ,082.6 EBITDA 3, , , ,814.8 Growth (%) Other income Depreciation EBIT 2, , , ,321.2 Interest 2, , , ,747.7 PBT Tax Extraordinary item Rep. PAT before MI MI Rep. PAT after MI Adjustment Adj. Net Profit Growth (%) NM NM Reported EPS ( ) Cash flow statement Crore ( Crore) FY13 FY14E FY15E FY16E Net Profit before tax Depreciation & Amortisation Others 5.0 2, , ,346.9 Direct tax paid CF before change in WC 1, , , ,624.9 Inc/Dec in Trade Recv Inc/Dec in Inventories Inc/Dec in Loans & Adv ,461.1 Inc/Dec in other current assets 1, , Inc/Dec in cur liabilities , , ,599.5 CF from operations 2, , , ,698.5 Purchase of Fixed Assets -4, , , ,000.0 (Inc)/Dec in investments -2, , CF from investing -6, , , ,596.2 Inc/(Dec) in Debt & interest expenses 3, , , ,747.7 Inc/(Dec) in Net worth , CF from Financing 3, , , ,747.7 Net Inc/Dec in cash & eq , ,645.5 Opening cash balance 1, , ,705.9 Closing cash balance 1, , Balance sheet Crore ( Crore) FY13 FY14E FY15E FY16E Liabilities Equity capital Reserves & Surplus 12, , , ,363.1 Shareholder's fund 13, , , ,849.6 Secured & unsecured debt 24, , , ,163.3 Deferred Tax Liablity 1, , , ,372.7 Sources of funds 39, , , ,385.6 Assets Gross Block less: Acc. Depreciation Net Block Capital WIP Net Fixed Assets Investment Inventories Trade Receivables Cash Loans & Advances Other current assets Total current assets Current Liab. & Prov Net Current Asset Application of funds 39, , , ,863.7 Key ratios FY13 FY14E FY15E FY16E Per share data ( ) EPS (recurring) Cash EPS BV Revenue per share Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Net Sales PAT Margin Working Capital (ex cash) days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E NM 22.4 EV / EBITDA EV / Net Sales Price to Book Value Solvency Ratios (x) Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 4

5 ICICIdirect.com coverage universe (Infrastructure) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) P/B (x) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E JP Associates (JAIASS) Hold 8, NM NM 2.6 IRB Infra (IRBINF) Hold 7, Sadbhav Engg. (SADENG) Buy 3, ICICI Securities Ltd Retail Equity Research Page 5

6 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ANALYST CERTIFICATION We /I, Deepak Purswani, CFA, PGDM (Finance); Nikunj Gala, MBA (CM) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees ( ICICI Securities and affiliates ) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Deepak Purswani, CFA, PGDM (Finance); Nikunj Gala, MBA (CM) research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Deepak Purswani, CFA, PGDM (Finance); Nikunj Gala, MBA (CM)research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 6