July 30, 2013 / 12:37 IST
After having posted a loss of Rs 61 crore, Jaiprakash Associates is now languishing at below Rs 40 per share. Jaspreet Singh Arora, Analyst - Cement & Construction of Anand Rathi Institutional says the company’s debts are the biggest worry on its fundamentals.
"The way debt is moving up, with Rs 25,000 crore in standalone, Rs 55,000 crore in consolidated, which is about 4.5 times net gearing, it just doesn’t seem to be helping on the profit and loss (P&L) side. So, they have to do something to cut down this debt otherwise it is not going to help on the profit side," adds Arora.
However, Arora is hopeful of the stock seeing a level of Rs 55-60 in the near-term.
Below is the edited transcript of Arora's interview to CNBC-TV18.Q: What do the actual numbers look like if you adjust the performance at the net level, can you conclude that they have reported a loss this quarter?A: They have reported a Rs 61 crore loss. I don’t know the tax element adjusted for the extraordinary income, but if one adjusts the Rs 395 crore exceptional income that is coming in from the sale of Jaypee Infratech shares at the debt at the last quarter, we are expecting about a similar number but on the positive side and we were quite low compared to the street estimates but yes that is how it is.
Q: Which segment according to you led to this negative surprise?A: To break it down between the EBITDA and the profit level- at EBITDA they did largely in-line with our estimates at about Rs 755 crore versus our expectation of Rs 720 crore. So, there was no problem there. All the three divisions cement, construction and real estate did reasonably okay.
The problem happened below EBITDA wherein interest ballooned again sequentially from some Rs 550 crore to Rs 590 crore. It is almost a 10 percent jump and the tax was slightly higher than what we had expected. So, both these things put together have led to the profit this time around.
Q: It is a sub-Rs 40 stock now, how do you go about valuing this one, what kind of reasonable earnings estimates can you attach to it, how do you approach this stock?A: If you look at the three companies which is Jaiprakash Associates, Jaiprakash Power Venture Ltd (JPVL) and Jaypee Infratech, all of them were almost 2X the price that are currently now about five-six months back and all of them have successfully recapitalized their balance sheets in the past six months.
For example, Jaiprakash Associates did equity raising at Rs 83 which is now sub Rs 40, JPVL did the same thing and so did on the power side. The way the market has taken the stocks down from shows that there are a couple of things which are impacting this group.
The first one is that there was the expectation of interest rate softening which is clearly not happening in the near-term. Our sense is in today’s policy, there might be a status quo but even if there is some increase – the impact of interest rate is huge on somebody like Jaiprakash Associates. Our sense is that on every 50 basis points (bps) hike, the profits will get eroded by about 12-13 percent. So, in case there is any hike, maybe today or maybe later on, there will be a 12 percent impact on the profit levels. That is one.
Furthermore, the way rupee has moved against dollar and there is some bit of unhedged exposure of foreign currency debt in Jaiprakash that will have some kind of impact. Lastly, the way debt is moving up, Rs 25,000 crore in standalone Rs 55,000 crore consolidated, which is about 4.5 times net gearing, it just doesn’t seem to be helping on the profit and loss (P&L) side. So, they have to do something to cut down this debt otherwise it is not going to help on the profit side.
The way the two stocks have behaved at the subsidiary level, our sense is that the fair price in the near-term could be possibly in the range of Rs 55-60. But yes, still a decent upside from what the current stock price is.
