Buy JP Associates, target price Rs 930: Citigroup

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Buy JP Associates, target price Rs 930: Citigroup

Citigroup is bullish on Jaiprakash Associates and has maintained a buy rating on the stock with a target price of Rs 930.

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Citigroup is bullish on Jaiprakash Associates and has maintained a buy rating on the stock with a target price of Rs 930.

Citigroup research report on Jaiprakash

Raising target price

We raise our target price to Rs930 (from Rs674) as we (1) now value the 2nd parcel of land in Noida that JPA expects to get by Oct. '07 and (2) roll forward our target multiples on cement and construction to FY09E.

We also change our FD EPS by +5% and -3% for FY08E and FY09E. v Potential upside from Taj Expressway - Even though the entire Taj Expressway related land parcels could be worth Rs478, we think it is prudent to only include Rs285 for the two Noida parcels. We could consider including the remaining parcels when we get closer to the allocation dates or in case of a government notification to this effect. This could imply a further upside of Rs194. v 24.1 MMTPA of cement by FY11E

We expect JPA to have cement capacity of 24.1 MMTPA by FY11E, making it one of the largest cement players in India. FY08E is likely to be the year of peak realizations and EBITDA margins in line with our view on the cement industry. JPA's rapidly expanding capacity should provide support to cement numbers when oversupply hits the markets. v Strong E&C order pipeline 

 JPA's E&C division ended FY07 with an order backlog of Rs115billion (6.9x FY07 sales). Order inflow pipeline looks stronger than ever with the Rs150billion Noida real estate construction project and approx  Rs63billion of hydel projects where MoA has been signed to be recognized in the near future. JPA is also pre-qualified to bid for approx Rs85billion of HEP projects. v Key stock triggers ahead 

 (1) Allotment of 588 acres of land in Noida in Sept./Oct. 2007 and

(2) Commissioning of UPSCL cement capacity in FY08E. Target price raised to Rs930

 We raise our target price to Rs930 from Rs674 earlier as:

• We now also value the second parcel of land that JPA is expected to get in Noida by October 2007 as the UP Government is now showing increasing  alacrity to move ahead, keeping in mind the Commonwealth Games in 2010
• We roll forward our target construction EV/EBITDA multiple to FY09E from FY08E previously
• We now value 15 MMTPA of cement capacity that would get commissioned byFY09E end vis-à-vis the previous 13.5 MMTPA of cement capacityassumption by FY08E end We factor in changes to the Jaypee Greens model
• We factor in dilution on account of the recent USD 400 million FCCB