BSE SENSEX S&P CNX 16,312 4,951 Bloomberg JPA IN Equity Shares (m) 2,126.5 52-Week Range (INR) 89/50 1,6,12 Rel. Perf. (%) -14/-4/-17 M.Cap. (INR b) 127.9 M.Cap. (USD b) 2.3 31 May 2012 4QFY12 Results Update Sector: Infrastructure Jaiprakash Associates CMP: INR60 TP: INR103 Buy * Not Fully Diluted; FCCB O/s of INR14b at conversion price of INR166/sh (dilution of ~5%) 4QFY12 EBITDA/PAT above estimates: During 4QFY12, Jaiprakash Associates reported standalone revenues of INR41b (up 4% YoY), EBITDA of INR10b (up 32 % YoY), and net profit stood of INR2.8b (down 3.3% YoY). Reported EBIDTA/PAT is better than our estimate of INR32b and INR6.8b, respectively. Operating performance is driven by higher EPC / RE division, while performance of Cement division was muted. Interest cost for the quarter was higher at INR5.8b (vs INR4.5b QoQ), which negated gain on operational front. Lower Tax/PBT ratio (9%) however arrested PAT de-growth (PBT down 19% YoY). Cement business performance muted: Cement division sales for 4QFY12 stood at 4.25m tons (flat QoQ) pertaining to JAL (Gujarat cement plant divested in Jaypee Cement - 100% subsidiary). Realisation / EBIDTA for the division was up by INR25/ton and INR82/ton QoQ. EBIT for the division however stood flat at INR2.1b owing to higher depreciation. E&C business performance driven by higher margin: EPC division performance was driven by superior margin (EBIT margin at 24%, while revenue down 1% YoY) due to completion of Yamuna Expressway, Karcham Wangtoo project, etc. Real estate division revenues picked up after 3-quarters of lull performance, which along with higher EBIT margin (45% for 4Q) led to higher positive contribution QoQ. Focus on deleverage (consolidated FY12 net DER at 3.8x): For JPA group, the earnings/cashflows will be driven by commissioning of projects across its cement (10m tons), power (1.5GW), infrastructure (toll road project, INR133b cost) and real estate (traction in launches, bookings) business. JPA group plans to focus on consolidation and de-leveraging (consolidated net DER of 3.8x as at March 2012) and is exploring various options. Downgrading FY13/14E estimates, maintain Buy: We marginally downgrade (2-4%) our earnings for JPA to factor in higher interest cost, which is partially set-off due to strong cement realisation, EPC/RE business traction. We now expect JPA to report standalone net profit of INR8.2b in FY13E (down 20% YoY) and INR11.1b in FY14E (up 37% YoY). Maintain Buy with TP of INR103/sh. Nalin Bhatt (NalinBhatt@MotilalOswal.com); +9122 3982 5429 Satyam Agarwal (Agarwals@MotilalOswal.com) / Pooja Kachhawa (Pooja.Kachhawa@MotilalOswal.com)
Cement division performance 4QFY12 results above estimate, higher interest set-off operating performance JPA reported standalone net profit of INR2.8b (down 3.3% YoY), above our estimate of INR2.4b. JPA 4QFY12 revenues stood at INR41b (up 4% YoY), while EBITDA stood at INR10b (up 32% YoY). Operating performance is driven largely by higher EPC division performance (led by margin, but lower revenues) and RE division (both higher bookings and margin). Performance of Cement division was muted. Interest cost for JPA stood at INR5.8b vs INR4.5b QoQ led by commissioning of Cement capacity. However, depreciation has come off QoQ to INR1.6b (INR2b QoQ). This led to lower PBT at INR3.1b (down 19% YoY), while lower tax/pbt ratio (9% for 4Q) arrested PAT de-growth (down 3.3% YoY). For FY12, standalone revenues stood at INR129b (flat YoY), EBIDTA of INR34.4b (up 19% YoY) and PAT of INR10.2b (up 38% YoY). Deviation in PAT is led by gain of INR2.3b of EBIDTA, INR1.6b on depreciation and lower tax of INR750m. Cement Business: volume flat YoY; realisation/ebidta improve marginally QoQ During 4QFY12, cement business revenues stood at INR17b, up 8% YoY; led by flat volumes but 6% YoY growth in realization. Volumes stood at 4.25m tons (vs 4.2m tons in 4QFY11 and 4.25m ton in 3QFY12), while realizations stood at INR3,969/ton (vs INR3,734/ton in 3QFY11 and INR3,994/ton for 3QFY12). Cement division sales for 4QFY12 were muted owing to transfer of Gujarat cement plant in Jaypee Cement - 100% subsidiary. Realisation / EBIDTA for the division was up by INR25/ton and INR82/ton QoQ. EBIDTA for the quarter thus stood at INR893/ton, higher than INR811/ton in 3QFY12 and compares with INR852/ton in 4QFY11. JPA reported INR61/ton of savings in cost on QoQ basis for the division. Higher depreciation on capacity commissioning led to flat EBIT for the division at INR2.1b, vs INR2.2b in 4QFY11. JPA's installed capacity has now increased to 33.3m tons, with the commissioning Balaji project (5m tons) on in March, 2012. JP Super Dalla (1.10mtpa) and Churk (1.50mtpa) projects are expected by 1QFY13E, taking the group's total capacity to 35.9m tons. This compares with cement capacity of 26.2m tons by March 2011 and up 4x since FY08 capacity of 9m tons. FY11 FY12 FY11 FY12 Revenues 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Volumes (m ton) 3.90 3.43 3.63 4.20 3.88 4.10 4.25 4.25 15.15 16.48 Revenues (INR m) 14,415 12,084 12,374 15,685 15,272 13,238 16,973 16,867 54,558 54,650 Realization (INR/t) 3,696 3,528 3,411 3,734 3,936 3,229 3,994 3,969 3,600 3,316 EBIT (INR m) 2,863 1,883 1,422 2,229 1,940 (295) 1,698 2,128 8,396 6,526 EBIT (INR/t) 734 550 392 531 500 (72) 400 501 554 396 EBIDTA (INR/t) 1,042 871 723 852 861 306 811 847 874 771 Source: Company/MOSL E&C business performance driven by higher margin EPC business revenues in 4QFY12 stood robust at INR17.8b (down 1% YoY) vs INR12.4b in 3QFY12. EBIT margins stood at 24% (up 12ppt YoY) due to completion of Yamuna Expressway, Karcham Wangtoo project, etc. EBIT for division stood at INR4.2b, up 94% YoY. 31 May 2012 2
EPC division performance FY11 FY12 FY11 FY12 Revenues 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Revenues (INR m) 14,373 15,710 12,639 17,806 12,748 15,540 12,421 17,706 60,527 58,423 EBIT (INR m) 1,048 3,279 2,706 2,185 2,500 5,458 3,707 4,232 9,267 16,054 EBIT margin (%) 7.3 20.9 21.4 12.3 19.6 35.1 29.8 23.9 15.3 27.5 Source: Company/MOSL Real Estate division: beginning to witness traction again JPA booked revenues of INR5.6b from real estate business in 4QFY12, an improved given past 3 quarter of lull performance. However, EBIT from division stood at INR2.4b, translating into EBIT margin of 44%, vs 48% in 4QFY11 and 48% in 3QFY12. Real estate division performance FY11 FY12 FY11 FY12 Revenues 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Revenues (INR m) 3,661 3,233 4,255 5,968 3,469 2,018 3,078 5,604 17,117 14,170 EBIT (INR m) 1,558 1,332 2,942 2,855 1,851 872 1,477 2,447 8,686 6,647 EBIT margin (%) 42.6 41.2 69.1 47.8 53.4 43.2 48.0 43.7 50.7 46.9 Source: Company/MOSL Project commissioning to drive earnings/cashflows, focus on de-leverage JPA is set to witness increase in earnings/cashflows owing to commissioning of projects across its cement (10m tons), power (1.5GW), infrastructure (toll road project, INR133b cost) and real estate (traction in launches) business. This, would drive earnings, cashflows for the group. On standalone business, we expect EBIDTA CAGR of 12% over FY12-14E, led by improvement in cement business performance. JPA plans to consolidate operations and de-leverage using cashflows from its cement division, possible stake sale in Jaypee Cements, divestment of stake in Jaypee Infratech (83.1%), etc to lower consolidated net DER of 3.8x as at March 2012. Also, it plans to utilise RE deposits from RE bookings/launches in Jaypee Infratech to prepay INR70b debt taken for construction of Yamuna Expressway (YE) road project over next 5 years. Thus, the group's commitment would remain to equity commitment for power projects, which will be met through fund raising in JPVL itself. For FY13E, JPVL's equity commitment is expected at ~INR15-16b, where it plans to raise money through various instruments like QIP/FCCB/FPO/ Preference shares, etc (board approved fund raising of INR35b) or Sale of treasury stock (344m shares). However, the group's endeavour to diversify in other "non-core" business on continuous basis perplexes us. In FY12, JPA has invested ~INR9.5b to take over the ailing fertilizer plan at Kanpur with rated capacity of 0.7mtpa. Earlier, JPA had also diversified into development of F1 circuit, while it had announced plans to enter into milk procurement business as well (for which job opening advertisement are already listed!). In our view, constant diversification, allocation of capital into "non-core/new" area remains a risk. Valuations and view We marginally downgrade (2-4%) our earnings for JPA to factor in higher interest cost, which is partially set-off due to strong cement realisation, EPC/RE business traction. We now expect JPA to report standalone net profit of INR8.2b in FY13E (down 20% YoY) and INR11.1b in FY14E (up 37% YoY). Buy with TP of INR103/sh. 31 May 2012 3
Jaiprakash Associates: an investment profile Company description Jaiprakash Associates (JPA) is diversified infrastructure player with presence in Cement, Power, Roads, Real Estate and Hospitality. The company is set to become third largest cement player by FY11 with target capacity of 33.5m tons, is amongst the top 10 private sector power project developer currently in terms of project under development/ pipeline (13GW) and has access to ~3.7bsf of land bank in and around NOIDA. Key investment arguments JPA plans to ramp-up cement capacity to ~35m ton by FY13E, up from 13.5m ton in FY09. Of the 13GW of power projects under development, 700MW is operational while equipment award have been placed for 3.8GW, indicating good progress. It has also begun the commissioning of 1GW of Karcham Wangtoo hydro project, beginning July 2011. JPA is an EPC contractor for the Real Estate project development at NOIDA, own power projects (~13GW), etc. This provides good revenue visibility for E&C division Key investment risks Downturn in cement business and lumpy nature of earnings Recent developments JPA has announced restructuring of the cement business with transfer of cement plants in Gujarat (4.8m tons) and Andhra Pradesh (5.0m tons) to Jaypee Cement (100% subsidiary). Jaypee Cements is also implementing capacity addition of 3m tons in Karnataka (under initial stages of construction). Local farmers have raised agitation against the ongoing Yamuna Expressway project and proposed township by UP state government. Valuations and view We now expect JPA to report standalone net profit of INR8.2b in FY13E (down 20% YoY) and INR11.1b in FY14E (up 37% YoY). Buy with TP of INR103/sh. EPS: MOSL forecast v/s consensus (INR) MOSL Consensus Variation Forecast Forecast (%) FY13 4.6 4.1 12.4 FY14 5.3 5.4-1.3 Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) 60 103 70.7 Buy Stock performance (1 year) Shareholding pattern (%) Mar-12 Dec-11 Mar-11 Promoter 46.8 46.8 46.9 Domestic Inst 13.7 12.9 10.8 Foreign 20.6 19.1 21.8 Others 18.9 21.1 20.6 31 May 2012 4
Financials and Valuations 31 May 2012 5
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