Jaiprakash Associates (JAIASS) 35

Event Update Rating matrix Rating : Hold Target : 38 Target Period : 18-24 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 13,208.7 12,973.2 13,819.7 15,897.4 EBITDA 3,175.5 3,107.6 2,559.7 3,814.8 Net Profit 501.3 413.9 (547.1) 380.6 EPS ( ) 2.3 1.9 (2.2) 1.6 Valuation summary FY13 FY14 FY15E FY16E P/E 15.5 18.8 NM 22.4 Target P/E 16.6 20.2 NM 24.0 EV / EBITDA 9.9 11.5 12.5 8.8 P/BV 0.6 0.6 0.6 0.6 RoNW (%) 3.8 3.0 NM 2.6 RoCE (%) 6.9 5.9 4.1 7.1 Stock data Particular Amount Market Capitalization ( crore) 8,513.4 Total Debt ( crore) 28,163.0 Cash ( crore) 879.8 EV ( crore) 35,796.6 52 week H/L ( ) 90 / 28 Equity capital ( crore) 486.5 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) 4.3 5.5 Sadbhav Engg. 8.0 17.6 156.6 283.1 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

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 45.75. 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 14597 60 Value 24.9 MTPA (Economic interest - 24.3 MTPA ) capacity at US$100/tonne Construction Division 7338 30 5x FY16E EV/EBITDA Power Division 2111 9 JPVL 2111 9 At 20% discount to CMP Real Estate Division 4894 20 Yamuna Expressway 2090 9 At 20% discount to CMP Jaypee Greens - Noida & Greater Noida 2804 12 Valued at 0.5x of its NAV Hotel Division 371 2 5x FY16E EV/EBITDA Jaypee Sports International Ltd 697 3 1x P/BV Himalayan Expressway 143 1 1x P/BV Wind Power 245 1 1x P/BV Treasury shares 535 2 18.9 crore valued at 20% discount to CMP Total Enterprise Value 31078 128 Less: Net debt 21686 89 Less:Net debt after adjusting for Gujarat, Panipat & Bokaro sales procees Target 9392 38 Exhibit 2: Valuation matrix Sales Growth EPS Growth PE P/B RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY13 13208.7 3.7 2.3-51.8 17.3 0.6 3.8 6.9 FY14E 12973.2-1.8 1.9 NM NM 0.6 3.0 5.9 FY15E 13819.7 6.5-2.2 NM NM 0.6-2.2 4.1 FY16E 15897.4 15.0 1.6 NM 22.4 0.6 2.6 7.1 ICICI Securities Ltd Retail Equity Research Page 2

Company snapshot 200 180 160 140 120 100 80 60 40 Target Price 38 20 0 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-14 30.0 729.6 0.0 2 LIC Nomura Mutual Fund Asset Management Company Ltd 30-Jun-14 4.5 108.9-0.2 3 Platinum Investment Management Ltd. 30-Jun-14 3.8 93.0 6.2 4 JEL Trust 30-Jun-14 2.8 67.9 0.0 5 HSBC Global Asset Management (Hong Kong) Limited 30-Jun-14 2.7 65.1-14.9 6 JCL Trust 30-Jun-14 2.0 49.7 0.0 7 JHL Trust 30-Jun-14 1.9 45.1 0.0 8 Dimensional Fund Advisors, L.P. 31-Aug-14 1.7 41.9 0.0 9 The Vanguard Group, Inc. 31-Jul-14 1.1 27.8 0.5 10 HDFC Asset Management Co., Ltd. 31-Jul-14 1.1 27.1-3.0 Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Promoter 45.12 45.12 45.12 45.08 45.07 FII 23.77 24.86 27.41 28.91 30.94 DII 12.01 10.08 9.91 8.55 7.93 Others 19.10 19.94 17.56 17.46 16.06 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Birla Sun Life Asset Management Company Ltd. 12.07m 15.71m HSBC Global Asset Management (Hong Kong) Limited -19.16m -14.90m ICICI Prudential Asset Management Co. Ltd. 7.91m 8.40m T. Rowe Price International (UK) Ltd. -17.86m -13.89m Platinum Investment Management Ltd. 6.46m 6.15m Deutsche Asset & Wealth Management Investment GmbH -13.46m -11.60m 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. -4.79m -5.44m ICICI Securities Ltd Retail Equity Research Page 3

Financial summary Profit and loss statement Crore ( Crore) FY13 FY14E FY15E FY16E Net Sales 13,208.7 12,973.2 13,819.7 15,897.4 Growth (%) 3.7-1.8 6.5 15.0 Op.Expenditure 10,033.2 9,865.5 11,260.0 12,082.6 EBITDA 3,175.5 3,107.6 2,559.7 3,814.8 Growth (%) -4.6-2.1-17.6 49.0 Other income 303.4 354.3 367.1 403.8 Depreciation 726.1 773.6 835.1 897.4 EBIT 2,752.8 2,688.4 2,091.6 3,321.2 Interest 2,011.4 2,752.1 2,989.8 2,747.7 PBT 741.4-63.7-898.2 573.5 Tax 249.5-73.7-351.1 192.9 Extraordinary item 9.3 403.9 0.0 0.0 Rep. PAT before MI 501.3 413.9-547.1 380.6 MI 0.0 0.0 0.0 0.0 Rep. PAT after MI 501.3 413.9-547.1 380.6 Adjustment 9.3 403.9 0.0 0.0 Adj. Net Profit 492.0 10.0-547.1 380.6 Growth (%) -51.8-98.0 NM NM Reported EPS ( ) 2.3 1.9-2.2 1.6 Cash flow statement Crore ( Crore) FY13 FY14E FY15E FY16E Net Profit before tax 741.4 331.5-898.2 573.5 Depreciation & Amortisation 726.1 773.6 835.1 897.4 Others 5.0 2,399.8 2,624.7 2,346.9 Direct tax paid -120.5 73.7 581.1-192.9 CF before change in WC 1,352.1 3,578.5 3,142.8 3,624.9 Inc/Dec in Trade Recv. 431.3 11.3-298.1-612.7 Inc/Dec in Inventories -278.0-43.9-266.7-202.9 Inc/Dec in Loans & Adv -990.3-480.3-710.9-1,461.1 Inc/Dec in other current assets 1,409.6-58.1 3,121.3-249.3 Inc/Dec in cur liabilities 787.4-1,561.5 1,962.3 1,599.5 CF from operations 2,712.1 1,446.0 6,950.7 2,698.5 Purchase of Fixed Assets -4,234.9-1,723.3-1,000.0-1,000.0 (Inc)/Dec in investments -2,008.8-1,195.8-632.9-596.2 CF from investing -6,243.7-2,919.1-1,632.9-1,596.2 Inc/(Dec) in Debt & interest expenses 3,304.6 1,067.9-3,989.8-4,747.7 Inc/(Dec) in Net worth 517.5-15.8 1,500.2 0.0 CF from Financing 3,822.1 1,052.2-2,489.6-4,747.7 Net Inc/Dec in cash & eq. 290.4-420.9 2,828.1-3,645.5 Opening cash balance 1,022.2 1,302.7 879.8 3,705.9 Closing cash balance 1,302.7 879.8 3,705.9 57.5 Balance sheet Crore ( Crore) FY13 FY14E FY15E FY16E Liabilities Equity capital 443.8 443.8 486.5 486.5 Reserves & Surplus 12,888.5 13,302.4 13,982.5 14,363.1 Shareholder's fund 13,332.3 13,746.2 14,469.0 14,849.6 Secured & unsecured debt 24,343.3 28,163.3 27,163.3 25,163.3 Deferred Tax Liablity 1,372.7 1,372.7 1,372.7 1,372.7 Sources of funds 39,048.3 43,282.2 43,005.0 41,385.6 Assets Gross Block 17191.2 18685.2 20685.2 22685.2 less: Acc. Depreciation 4033.5 4827.4 5644.8 6542.2 Net Block 13157.7 13857.9 15040.5 16143.1 Capital WIP 5800.8 6030.1 5030.1 4030.1 Net Fixed Assets 18958.5 19888.0 20070.6 20173.2 Investment 8891.3 10441.3 11441.3 12441.3 Inventories 1969.5 2013.4 2280.1 2483.0 Trade Receivables 2435.1 2423.8 2721.9 3334.6 Cash 1302.7 879.8 3705.9 57.5 Loans & Advances 5299.5 5779.8 6490.6 7951.7 Other current assets 7136.8 7195.0 4073.7 4323.0 Total current assets 18143.5 18291.7 19272.3 18149.8 Current Liab. & Prov. 6945.0 5383.5 7345.8 8945.3 Net Current Asset 11198.5 12908.2 11926.4 9204.4 Application of funds 39,048.3 43,282.2 43,483.1 41,863.7 Key ratios FY13 FY14E FY15E FY16E Per share data ( ) EPS (recurring) 2.0 0.0-2.2 1.6 Cash EPS 5.0 3.2 1.2 5.3 BV 54.8 56.5 59.5 61.0 Revenue per share 54.3 53.3 56.8 65.4 Cash Per Share 5.4 3.6 15.2 0.2 Operating Ratios (%) EBITDA Margin 24.0 24.0 18.5 24.0 PBT / Net Sales 5.6-0.5-6.5 3.6 PAT Margin 3.7 0.1-4.0 2.4 Working Capital (ex cash) days 273.5 338.4 217.1 210.0 Debtor days 73.2 68.4 68.0 69.5 Creditor days 313.8 294.5 270.5 294.2 Return Ratios (%) RoE 3.8 3.0-2.2 2.6 RoCE 6.9 5.9 4.1 7.1 RoIC 7.7 6.7 5.1 8.5 Valuation Ratios (x) P/E 15.5 18.8 NM 22.4 EV / EBITDA 9.9 11.5 12.5 8.8 EV / Net Sales 2.4 2.8 2.3 2.1 Price to Book Value 0.6 0.6 0.6 0.6 Solvency Ratios (x) Debt/EBITDA 7.7 9.1 10.6 6.6 Debt / Equity 1.7 2.0 1.6 1.7 Current Ratio 2.6 3.4 2.6 2.0 Quick Ratio 2.4 3.2 2.1 2.0. ICICI Securities Ltd Retail Equity Research Page 4

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) 35 38 Hold 8,415 1.9-2.2 1.6 28.9 NM 34.5 13.0 14.3 10.0 1.0 0.9 0.9 3.0 NM 2.6 IRB Infra (IRBINF) 239 269 Hold 7,958 13.8 20.4 20.5 18.7 12.6 12.6 9.8 7.5 6.5 2.4 2.1 1.9 12.9 16.6 14.8 Sadbhav Engg. (SADENG) 230 265 Buy 3,472 7.0 6.7 8.6 32.0 33.8 26.3 17.1 13.7 11.9 3.6 3.3 2.9 11.1 9.6 11.1 ICICI Securities Ltd Retail Equity Research Page 5

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