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Feb 12, 2013, 12.46 PM IST | Source: CNBC-TV18

JP Asso Q3: Soft margins led to weak result, says Kotak

Murtuza Arsiwalla of Kotak Institutional Equities believes the company's construction and real estate figures look lopsided. According to him, margins across segments took a beating and contributed to the poor performance in Q3.

Jaiprakash Associates reported over 64 percent decline in its standalone net profit at Rs 110.93 crore in the third quarter of FY13. The company's net sales however went up by 15.32 percent at Rs 3398.39 crore during the quarter ended December 31 against Rs 2947.01 crore in the same period last fiscal.

Murtuza Arsiwalla of Kotak Institutional Equities believes the company's construction and real estate figures look lopsided. According to him, margins across segments took a beating and contributed to the poor performance in Q3. Besides, Arsiwalla feels liquidity constraints may be weighing on Jaiprakash Associates at the moment.

In order to cope with the liquidity problems, Arsiwalla thinks, an asset sale or equity dilution can be a good way of reducing their overall debt burden. He is also in favour of operational ramp ups that can address the issue.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Were you disappointed with the Jaiprakash Associates numbers?

A: When you look at the standalone numbers of Jaiprakash Associates, construction and real estate tends to be pretty lopsided. So, this quarter the real estate revenues nearly doubled to about USD 6 billion, which did mean a revenue beat but the margins across segments, be it cement, construction or real estate were soft. To that extent, the company has leveraged and the impact on bottom-line is pretty significant.

Q: Do you subscribe to the rumours or the news that is doing the rounds that they have been unable to pay some of the penalties because of liquidity issues. Did your discussion with the management throw up the very constrained liquidity position?

A: My view on that is yes, Jaiprakash is a highly leveraged company because they have had pretty aggressive capacity additions, but the quantum of penalties that is being talked about is pretty small for a company of Jaiprakash's size. Maybe it is a little exaggerated but, we do have liquidity issues that need to be addressed and maybe some of the asset sales that have been talked about for some time have helped address that situation.

Q: On that accord though, are you feeling more confident because people seem to be wondering what exactly is happening with the sale of their cement assets. They have talked about it for the last couple of quarters but nothing is moving?

A: My confidence is as good as the timeline when the deal concludes. But, essentially to my mind, given the press releases that you saw from some potential acquirers etc in the past, it seems to be a case more on valuation rather than the potential acquirer for the asset. That is something the buyer and seller need to negotiate and come to a common ground over as to what valuation one is agreeable on. To my mind, that appears to be the road block to the conclusion of asset sale.

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