Hold JP Associates; target of Rs 66: Emkay

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Hold JP Associates; target of Rs 66: Emkay

Emkay Global Financial Services has recommended hold rating on Jaiprakash Associates with a target of Rs 66, in its November 16, 2011 research report.

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Emkay Global Financial Services has recommended hold rating on Jaiprakash Associates with a target of Rs 66, in its November 16, 2011 research report.

"Jaiprakash Associates (JPA)'s Q2FY12 APAT at a meager Rs100 mn was significantly below our & street expectation dragged by disappointing cement performance which reported EBIT loss of Rs295 mn. A one-time completion payment of Rs1.7 bn from the power sub Karcham Wangtoo (accounted in construction segment) boosted reported net profit to Rs1.3 bn. We have adjusted the quarterly revenues & profitability for this one time item. EBITDA stood at Rs5.13bn vs. estimates of Rs6.12bn. Overall EBIT of Rs4.6bn, down 25% yoy, below estimates of Rs5.3bn."

"Revenues for the quarter declined 3.2% yoy to Rs28.9bn (lower than estimates of Rs32.8bn) as cement revenues growth of 9.6% was negated by 12% decline in construction revenues & 38% decline in real estates revenues. In the construction business, completion of Karcham Wangtoo resulted in a one time payment of Rs1.7bn, included in construction revenue. Adjusted construction revenues declined 12% yoy to Rs13.85bn, below estimates of Rs14.9bn. However construction EBIT margins of 28.3% were ahead of estimates of 20%. Though cement revenues at Rs13.2bn , grew 10% yoy, they were below our estimates of Rs14.52bn as prices in central and north India declined 33% and 24% qoq resulting in lower cement realizations of Rs3217/t , down 9% yoy ( vs est of Rs3527/t). This coupled with higher costs for coal and freight resulted in cement division reporting a loss of Rs295mn at EBIT level."

"Jaiprakash Associates has seen a significant run up in stock price to F1 event, although the event panned out well, the disappointing earnings performance is reflecting a slow down in real estate activity in an around Noida region. Coupled with a weak Orderbook position & slow ramp up will ensure subdued FY13E slowing down the growth pace of JPA. Amongst the immediate triggers in the stock will be the unlocking of value in the carved out Cement subsidiary which can be used for de-leveraging the highly indebted financial position. We believe the stock is fairly valued at CMP or 7.1X FY13E EBIDTA, hence downgrade the stock from ACCUMULATE to HOLD with a fair value of Rs 66. We have upgraded the value JPA's cement business at USD 110/t & maintained our FY13E estimates of capacity addition to 30.1 MT. We maintain the multiple for construction segment at 6.0x EV/EBITDA due to declining growth visibility. The lowering of price target are also driven by significant correction in market price for JPA's listed subsidiaries namely Jaypee Infratech," says Emkay Global Financial Services research report.

Public holding more than 90% in Indian cos

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