More asset sales by end FY13, macro hurting: JP Associates

Manoj Gaur, executive chairman and CEO of Jaiprakash Associates is satisfied with his company’s performance for the September quarter. In an interview with CNBC-TV18, he said that the second quarter (July-September) is seasonally a weak quarter due to monsoon. Sales of cement, one of the three key businesses of the company, were hurt by the stronger-than-usual monsoon this time, Gaur said.

Despite adversities, the company still managed to report a year-on-year growth in cement, Gaur said. Yet, the outlook for the sector as a whoel remains challenging because of the oversupply situation he said. The other two key businesses of JP Associates are engineering & construction, and real estate. Gaur said the sluggishness in macroeconomic environment was hurting both these divisions. He said order inflow in the E&C division was weak, but this was a trend across the industry. The company currently has five projects in the E&C business, and Gaur expects revenues to grow at 8-10 percent. He said his company is planning to sell some more assets by the end of this financial year. Brokerage house Credit Suisse has an ‘outperform’ rating on the stock, but trimmed earnings estimates for FY14-16 by 20-31 percent and said that debt reduction would be key to the stock’s performance. For the last couple of quarters, the company’s interest expenses have been more than its earnings before interest and taxes (EBIT). Brokerage house Goldman Sachs has retained its ‘neutral’ rating on the stock after the second quarter earnings. The brokerage is wary of the company’s ability to refinance its debt and said it would turn positive on the stock only after more asset sales. Also read: Holcim's India operation restructuring plan gets FIPB nod Below is the verbatim transcript of his interview on CNBC-TV18 Q: Could you take us through your Q2 results - what were the pressure points in the results this time? Has execution started showing some signs of pick up? A: The revenue for the quarter is recorded at about Rs 3,300 crores, which is 9% more than the corresponding quarter of last year and EBITDA at Rs 915 crores, which is again 9% more than the corresponding quarter of the previous year. This is the monsoon quarter and given the circumstances and the fact that the country was fortunate to have good rains but good rains mean cement sales are impacted but even then we were able to get this revenue. So, we can say it was reasonably good performance this quarter by JP Associates. Although the profit after tax (PAT) was down to 47%, I feel Q3 ending December 2014, and Q4 of this financial year augers well for the company and the group. Q: While we are aware - Q2 is a seasonally weak quarter for cement companies - the cement side of business is under severe stress - both on the pricing and demand front. And although it is an industry wide phenomena, what is your outlook on cement pricing for H2FY14? Is there any recovery in sight? A: As far as this quarter is concerned it was very tough for cement. However, as far as JP is concerned we could just maintain the performance of the previous year at about Rs 1,342 crores in terms of revenue.  EBITDA was the place where we lost the sheen because realisations came down and costs went up because of logistics and other aspects. At this moment when the economy is not doing as well as it should be doing and cement being a very important part of the economy in most of the zones of the country there are capacity imbalances, but I would like to say that what we have achieved in this quarter it was very tough and I think this current quarter should be better than what collectively cement companies which are reeling under pressure have achieved in the previous quarter Q: That's a very cautious tone but for the investors what is the runrate they can expect for the cement business for H2FY14? Can we expect some respite on margins going forward? A: JP Associates has three important segments, engineering construction, cement and real estate. We also have hospitality but its contribution is less than five percent. In the first half that is from April to September, as a company we had 26% EBITDA as percentage of revenue despite a depressing Q2. So I must reinforce that the company's fundamentals are very strong and company is able to execute projects in difficult times. In cement we may not be the lowest cost producers but we are among the low cost producers of cement. So, even with the backdrop of Q2, JP as a cement division has been able to register about 8% growth in terms of dispatches. I feel we will be able to produce 8-10% growth in cement for the year as a whole vis-à-vis what we could do in the previous year. Q: For the last 2-3 quarters - a sort of one-off in the results saved the company from reporting a bottomline loss. Last quarter (in Q1) it was a big exceptional gain of around s 400 crore and this time it is an unusually high other income which you have reported. Can you tell us what is the Rs 125 crore amount on account of? A: This is an organisation which not only has strong revenue streams but also is holding company for power for JP infratesch and so there are multiple revenue streams. This is an organisation which is on a strong footing _PAGEBREAK_ Q: On the construction side of business, your declining order inflows have been a point of stress with your investors. - has there been any meaningful pick up in order inflows in Q2? What is the current order book for this business? A: There are debates going on how infra growth is muted, on how projects are not coming for bidding and project implementations are getting affected. So, therefore we are also a company working for India and we do not have investments outside. We have invested around Rs 60,000 crores in the future of our country and if due to various reasons of economy, projects are not coming then definitely project book will not look as good as it would have been three years back. Currently, we have almost five projects; One in Jammu and Kashmir, there are four projects in Bhutana. Also our earlier very  big projects  in Andhra Pradesh, where we are working and at the same time a lot of construction of real estate is taking place. Therefore, I have reason to believe that revenue from E&C will continue to grow by about 8-10%. I don’t know how the critics would like to take but for a company which is running with a growth rate of 8-10% in these times, is not doing a bad job. Q: Do you stick to your guidance of Rs 15,000 crore of debt reduction in FY14. Will we hear something by the end of this calendar year or will we have to wait for March 2014? A: No I don’t think you have to wait for March, I think we have still got almost 6 in this calendar year and you would hear some steps from us.