JAYPEE INFRATECH Cost overrun erodes valuation

RESULT UPDATE JAYPEE INFRATECH Cost overrun erodes valuation India Equity Research Real Estate Jaypee Infratech s (JPIN) Q2FY12 profit of INR3.1bn was higher than estimates due to higher revenue bookings and better than expected EBITDA margins. However, further escalation in the total cost of Yamuna Expressway (YE) to INR133.0bn (against the earlier guidance of INR117.2bn as of Q1FY12 and INR112.3bn as of FY11) acted as a dampener. While Noida real estate volume may recover from H2FY12 onwards, we believe that this has been factored in the stock price hence maintain our HOLD/SP rating with a target price of INR46/share. Higher revenues, margins boost earnings JPIN reported revenue of INR7.2bn, ahead of our estimate of INR6.5bn, due to stronger than expected revenue bookings from ongoing projects. EBITDA of INR3.9bn was well ahead of the estimated INR3.0bn due to higher than expected EBITDA margins of 55% (our estimate at 46%) which we believe is due to higher share of plots. As a result, profit of INR3.1bn was ahead of our estimate of INR2.4bn. While land acquisition issues in Noida have dented volume in H1FY12, the company indicated that October 2011 has seen an improvement due to better sentiment and recent F1 race. YE project to commence in CY12, but sees fresh cost escalation As per the management, YE is set to become operational in H1CY12. JPIN stated that it has spent ~INR112.3bn (INR98.6bn as of FY11) on the project as of Q2FY12 even as there has been a further revision in total costs to INR133.0bn (against the earlier guidance of INR117.2bn as of Q1FY12 and INR112.3bn as of FY11) because of an enhancement in the project scope and capitalization of interest till YE becomes operational. JPIN s net debt stands at INR62.2bn as of Q2FY12 (INR44.8bn as of FY11). Outlook and valuations: Fairly valued; maintain HOLD Our revised FY12E NAV for JPIN is INR46/share (earlier INR57) which factors in cost escalation of INR16 bn (INR12/share) for YE on account of higher interest costs. While Noida real estate volume may recover from H2FY12 onwards, we believe that this has been factored in the stock price hence maintain HOLD/SP recommendation with target price of INR 46/share at par with FY12 NAV. EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Risk Rating Relative to Sector Sector Relative to Market HOLD Performer Medium Underweight MARKET DATA (R: JYPE.BO, B: JPIN IN) CMP : INR 43 Target Price : INR 46 52 week range (INR) : 87 / 36 Share in issue (mn) : 1,388.9 M cap (INR bn/usd mn) : 60 / 1,190 Avg. Daily Vol.BSE/NSE( 000) : 788.7 SHARE HOLDING PATTERN (%) MFs, FIs & Banks 9.6% * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock FIIs 0.4% Others 6.7% Promoters* 83.3% Nifty : NIL EW Real Estate Index 1 month 8.0 10.7 17.7 3 months 17.7 (0.9) 5.0 12 months (40.2) (15.9) (37.9) Financials Year to March Q2FY12 Q2FY11 % Chg Q1FY12 % Chg FY11 FY12E Net revenues 7,158 7,115 0.6 6,170 16.0 27,787 28,716 EBITDA 3,933 5,117 (23.1) 2,974 32.3 18,134 12,828 Net profit 3,106 4,117 (24.6) 2,378 30.6 14,351 9,673 Diluted EPS (INR) 10.3 7.0 Diluted P/E (x) 4.2 6.3 EV/EBITDA (x) 5.8 10.5 ROAE (%) 42.7 18.8 Aashiesh Agarwaal, CFA +91 22 4063 5491 aashiesh.agarwaal@edelcap.com Adhidev Chattopadhyay +91 22 6623 3358 adhidev.chattopadhyay@edelcap.com November 15, 2011 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Real Estate Financial snapshot Year to March Q2FY12 Q2FY11 % Change Q1FY12 % Change FY11 FY12E FY13E Net revenues 7,158 7,115 0.6 6,170 16.0 27,787 28,716 39,556 Cost of construction (3,126) (1,931) 61.9 (2,877) 8.7 (9,215) (15,344) (23,319) Staff costs (25) (25) (2.8) (29) (15.2) (86) Other expenses (74) (42) 77.9 (290) (74.5) (376) (544) (719) (Inc)/Dec in stock NA NA Total expenditure (3,225) (1,998) 61.4 (3,196) 0.9 (9,653) (15,888) (24,037) EBITDA 3,933 5,117 (23.1) 2,974 32.3 18,134 12,828 15,519 Depreciation (4) (21) (81.3) (4) 2.6 (86) (20) (1,584) EBIT 3,929 5,096 (22.9) 2,970 32.3 18,048 12,808 13,936 Other income 20 46 (57.4) 67 (70.6) 199 139 146 Interest (65) NA (64) 2.2 (101) (856) (9,038) Profit before tax 3,883 5,142 (24.5) 2,973 30.6 18,146 12,091 5,044 Tax (777) (1,025) (24.2) (595) 30.7 (3,796) (2,418) (1,009) Net profit from ordinary activities 3,106 4,117 (24.6) 2,378 30.6 14,351 9,673 4,035 Reported net profit 3,106 4,117 (24.6) 2,378 30.6 14,351 9,673 4,035 As % of net revenues Cost of construction 43.7 27.1 46.6 33.2 53.4 59.0 Other expenses 1.0 0.6 4.7 1.4 1.9 1.8 Total expenses 45.1 28.1 51.8 34.8 55.3 60.8 EBITDA 54.9 71.9 48.2 65.2 44.7 39.2 Depreciation 0.1 0.3 0.1 0.3 0.1 4.0 EBIT 54.9 71.6 48.1 64.9 44.6 35.2 Interest expenditure 0.9 1.0 0.3 3.0 22.8 Reported net profit 43.4 57.9 38.5 51.6 33.7 10.2 Tax rate 20.0 19.9 20.0 20.9 20.0 20.0 2 Edelweiss Securities Limited

Company Description Jaypee Infratech Jaypee Infratech (JPIN, 83.1% owned by Jaiprakash Associates, JPA) comprises a single project the Yamuna Expressway. This project was awarded to JPA vide a concession agreement dated February 2003 with the Yamuna Expressway Authority (YED). The concession was awarded through a competitive bidding process, consisting of a prequalification stage and a final bidding stage. JPA was awarded the concession in January 2003, based on its proposed 36 year concession period the shortest period proposed by any bidder. As per the terms of the concession agreement, the concessionaire would be entitled to Collect tolls at rate not exceeding the rates notified by the Government of Uttar Pradesh (GoUP) for a period of 36 years from the date of receiving the completion certificate and Receive a total of 6,175 acres of land across five different sites at the government s cost of acquisition, plus, annual lease rental of INR 100/hectare (INR 41/acre). Investment Theme Large low cost land bank, backed by strong brand equity JPIN is constructing the Yamuna Expressway (YE) project, a six lane 165 km road connecting Noida to Agra, which we expect to become operational by Q1FY13. As compensation for constructing YE, JPIN has rights to collect toll for 36 years on YE and holds development rights on 6,175 acres of land (saleable area of 530 msf, of which, ~311 msf is located in the NCR), across five contiguous land parcels along YE, acquired at a low cost of INR 32 40/sf. Flexible product/pricing strategy maximises cash flows Unlike most developers who follow an inflexible pricing policy at the cost of volumes, JPIN has adopted a flexible pricing model that maximizes volumes and cash flows. With unit sizes varying from 535 2,300 sf and ticket sizes in the range of INR 1.8 7.8 mn, the company has been able to achieve cumulative sales volumes of ~33.7 msf worth INR 108.6 bn as of FY11. Key Risks Political uncertainty A change in State Government at Uttar Pradesh poses risks to the valuation of JPIN, as infrastructure development initiatives could possibly be reviewed or slow down, inhibiting/delaying development of the region, constraining value of YE as also inhibiting the attendant real estate volumes. Large supply in Noida Noida has seen large supply of land by the development authority. In addition, it is expected that additional land parcels will be released by the government in Noida over CY11 12. Coupled with proposed increases in FSI, Noida faces a risk of oversupply in the coming future, which we have factored by assuming lower volumes for JPIN, going forward. Competing NH 2 expressway may lead to lower toll revenues YE faces competition from the existing highway NH 2, which is currently toll free. While plans are afoot to make it a six lane road, post which it will be tolled, reluctance of commuters to use YE could impair its profitability. 3 Edelweiss Securities Limited

Real Estate Financial Statements Income statement Income from operations 5,545 6,407 27,787 28,716 39,556 Direct costs 1,722 367 9,215 15,344 23,319 Other Expenses 665 118 438 544 719 Total operating expenses 2,387 486 9,653 15,888 24,037 EBITDA 3,159 5,921 18,134 12,828 15,519 Depreciation and amortisation 140 162 86 20 1,584 EBIT 3,019 5,759 18,048 12,808 13,936 Other income 17 122 199 139 146 Interest expenses 8 101 856 9,038 Profit before tax 3,036 5,873 18,146 12,091 5,044 Provision for tax 369 999 3,796 2,418 1,009 Core profit 2,667 4,875 14,351 9,673 4,035 Profit After Tax 2,667 4,875 14,351 9,673 4,035 Adjusted PAT 2,667 4,875 14,351 9,673 4,035 Basic shares outstanding (mn) 965 1,126 1,389 1,389 1,389 Basic EPS (INR) 2.8 4.3 10.3 7.0 2.9 Diluted equity shares (mn) 965 1,126 1,389 1,389 1,389 Diluted EPS (INR) 2.8 4.3 10.3 7.0 2.9 Dividend per share (INR) 1.5 1.5 Dividend payout (%) 21.0 50.3 Common size metrics as % of net revenues Operating expenses 43.0 7.6 34.7 55.3 60.8 Depreciation 2.5 2.5 0.3 0.1 4.0 Interest expenditure 0.1 0.4 3.0 22.8 EBITDA margins 57.0 92.4 65.3 44.7 39.2 Net profit margins 48.1 76.1 51.6 33.7 10.2 Growth ratios (%) Revenues 15.5 333.7 3.3 37.8 EBITDA (8,905.7) 87.5 206.3 (29.3) 21.0 PBT (2,789.9) 93.5 209.0 (33.4) (58.3) Net profit (2,463.2) 82.8 194.4 (32.6) (58.3) EPS 56.7 138.6 (32.6) (58.3) 4 Edelweiss Securities Limited

Jaypee Infratech Balance sheet As on 31st March FY09 FY10 FY11 FY12E FY13E Equity capital 9,660 12,260 13,889 13,889 13,889 Reserves & surplus 2,794 7,669 33,740 41,381 41,775 Shareholders funds 12,454 19,929 47,629 55,271 55,665 Secured loans 18,675 57,210 62,500 82,153 87,592 Unsecured loans 821 903 994 Borrowings 18,675 57,210 63,321 83,056 88,585 Sources of funds 31,129 77,139 110,951 138,327 144,250 Gross block 588 628 645 108,774 108,774 Depreciation 235 396 481 501 2,085 Net block 353 232 164 108,273 106,689 Capital work in progress 25,363 51,883 73,904 Total fixed assets 25,716 52,115 74,068 108,273 106,689 Inventories 5,501 19,100 33,377 34,546 43,889 Sundry debtors 1,026 5,379 5,917 7,100 Cash and equivalents 1,909 17,830 18,508 8,280 1,706 Loans and advances 2,976 6,869 10,652 16,816 12,899 Other current assets 15 34 270 324 389 Total current assets 10,402 44,858 68,187 65,884 65,984 Sundry creditors and others 4,616 18,746 25,327 27,427 25,884 Provisions 373 1,377 5,977 8,403 2,539 Total current liabilities & provisions 4,989 20,123 31,304 35,830 28,423 Net current assets 5,413 24,735 36,883 30,054 37,561 Miscellaneous expenditure 289 Uses of funds 31,129 77,139 110,951 138,327 144,250 Book value per share (INR) 12.9 17.4 34.3 39.8 40.1 Free cash flow Net profit 2,667 4,875 14,351 9,673 4,035 Depreciation 140 162 86 20 1,584 Gross cash flow 3,114 5,577 12,237 10,410 13,905 Less: Changes in WC 2,400 2,289 9,404 3,399 14,081 Operating cash flow 714 3,288 2,833 7,011 (176) Less: Capex 14,838 24,023 18,041 26,518 Free cash flow (14,124) (20,735) (15,208) (19,507) (176) Cash flow metrics Operating cash flow 714 3,288 2,833 7,011 (176) Investing cash flow (14,821) (24,191) (18,473) (26,378) 146 Financing cash flow 15,935 36,823 16,319 9,139 (6,544) Net cash flow 1,829 15,921 679 (10,228) (6,574) Capex (14,838) (24,023) (18,041) (26,518) Dividends paid (2,031) (2,031) Share issuance/(buyback) 250 2,600 16,500 5 Edelweiss Securities Limited

Real Estate Profitability & efficiency ratios ROAE (%) 24.3 30.4 42.7 18.8 7.3 ROACE (%) 14.2 10.6 19.2 10.3 9.9 Inventory day 904 12,223 1,039 808 614 Debtors days 29 42 72 60 Payable days 1,046 11,608 873 627 417 Cash conversion cycle (days) (142) 645 209 252 257 Current ratio 2.1 2.2 2.2 1.8 2.3 Debt/EBITDA 5.9 9.7 3.5 6.5 5.7 Debt/Equity 1.5 2.9 1.3 1.5 1.6 Adjusted debt/equity 1.5 2.9 1.3 1.5 1.6 Operating ratios Total asset turnover 0.3 0.1 0.3 0.2 0.3 Fixed asset turnover 19.7 21.9 140.5 0.5 0.4 Equity turnover 0.5 0.4 0.8 0.6 0.7 Du pont analysis NP margin (%) 48.1 76.1 51.6 33.7 10.2 Total assets turnover 0.3 0.1 0.3 0.2 0.3 Leverage multiplier 1.9 3.4 2.8 2.4 2.5 ROAE (%) 24.3 30.4 42.7 18.8 7.3 Valuation parameters Diluted EPS (INR) 2.8 4.3 10.3 7.0 2.9 Y o Y growth (%) 56.7 138.6 (32.6) (58.3) CEPS (INR) 2.9 4.5 10.4 7.0 4.0 Diluted PE (x) 15.7 10.0 4.2 6.2 15.0 Price/BV (x) 3.4 2.5 1.3 1.1 1.1 EV/Sales (x) 10.6 13.8 3.8 4.7 3.7 EV/EBITDA (x) 18.6 14.9 5.8 10.5 9.5 Dividend yield (%) 3.4 3.4 6 Edelweiss Securities Limited

RATING & INTERPRETATION Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk Brigade Enterprises BUY SP M DLF HOLD SP M Jaypee Infratech HOLD SP M Mahindra Lifespace Developers BUY SP M Oberoi Realty BUY SO L Orbit corporation HOLD SU H The Phoenix Mills BUY SO M ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return 7 Edelweiss Securities Limited

Real Estate Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098. Board: (91 22) 4009 4400, Email: research@edelcap.com Vikas Khemani Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206 Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411 Coverage group(s) of stocks by primary analyst(s): Real Estate Brigade Enterprises, DLF, Jaypee Infratech, Mahindra Lifespace Developers, Oberoi Realty, Orbit corporation, The Phoenix Mills Recent Research Date Company Title Price (INR) Recos 15 Nov 11 Phoenix Mills Execution on track; Result Update 11 Nov 11 DLF Debt pangs; Result Update 08 Nov 11 Orbit Corporation Triggers awaited; Result Update 201 Buy 228 Hold 36 Hold Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Interpretation Rating Expected to Rating Distribution* 119 47 15 184 * 3 stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) 111 57 16 Buy Hold Reduce appreciate more than 15% over a 12 month period appreciate up to 15% over a 12 month period depreciate more than 5% over a 12 month period Access the entire repository of Edelweiss Research on www.edelresearch.com This document has been prepared by Edelweiss Securities Limited (Edelweiss). 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