Hold JP Associates, target of Rs 266: Sharekhan

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Hold JP Associates, target of Rs 266: Sharekhan

Sharekhan has maintained its hold rating on Jaiprakash Associates with a target price of Rs 266. In Q1FY2010 JP Associates Ltd (JAL) has reported strong top line growth for all its business verticals. The reported bottom line of the company grew by 2.9x year on year (yoy) due to one-time items.

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Sharekhan has maintained its hold rating on Jaiprakash Associates with a target price of Rs 266 in its July 27, 2009 research report.

"In Q1FY2010 JP Associates Ltd (JAL) has reported strong top line growth for all its business verticals. The reported bottom line of the company grew by 2.9x year on year (yoy) due to one-time items. We continue to value JAL using SOTP methodology and value the stock at Rs 266 per share. We have now rolled over our target multiple for cement and E&C business to FY2011. We value the company's cement business at 6x EV/EBITDA, this implies EV/tonne of US$100 per tonne (based on our capacity expectation of 19.5MTPA in FY2011). For the construction division, we have assigned target EV/ EBITDA multiple of 6x, which is at over 50% discount to that of Larsen & Toubro. For the real estate projects, we have valued Jaypee Greens and Taj Expressway at 1x of its NAV, given the early signs of revival in demand and overwhelming response for JAL's projects during the quarter."

"For power projects, we have considered those power projects into our valuation, which are either operational or financially closed. Consequently, we arrive at a SOTP-based price target of Rs 266. With the sale of treasury shares, strong monetisation of Yamuna Expressway project and restructuring of power project under one entity, the company has addressed the project funding issues. However, the stock has run up sharply over the last three months leaving limited upside at current levels. Hence, we maintain our 'Hold' recommendation on the stock," says Sharekhan.

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