Buy Jaiprakash Associates; target of Rs 104: Motilal Oswal

“Jaiprakash Associates (JPA) reported standalone PAT of INR1.4b for 1QFY13, marginally lower than our estimate of INR1.6b. While EBITDA was in-line at INR7.7b, led by better operating performance of the Cement and EPC divisions, PAT growth was arrested by higher depreciation and dismal performance of the real estate (RE) division.”

“Cement volumes were 3.59m tonnes (ex-Gujarat/Andhra Pradesh) and realization was up INR385/tonne QoQ. Increase in cost (~INR200/tonne) restricted EBITDA improvement - up INR188/tonne to INR1,035/tonne. Higher depreciation restricted EBIT growth; EBIT for 1QFY13 was INR2.3b, lower than our estimate of INR2.4b, despite higher EBITDA. EPC division performance continued to surprise. EBIT margin was a robust 30% (fourth consecutive quarter of high margin). Revenue was in-line at INR12.2b (v/s INR12.7b in 1QFY12). RE division revenue was INR1.6b (v/s INR5.6b in 4QFY12 and INR3.5b in 1QFY12), the lowest since 4QFY10, despite pre-sales of INR70b+ as at March 2012. The management had indicated focus on delivery/execution in our interaction in the past; revenue booking should have accelerated, in our view. EBIT margin was 40% v/s 44% in 4QFY12 and 53% in 1QFY13.”

“We marginally downgrade (by ~4%) our FY13 earnings estimates to factor in higher depreciation, dismal RE performance, partly offset by Cement/EPC division performance. We expect JPA to report standalone net profit of INR8b in FY13 (down 22%) and INR10.3b in FY14 (up 29%). Maintain Buy,” says Motilal Oswal research report. 

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