Hold Jaiprakash Associates; target of Rs 93: Emkay

Emkay Global Financial Services has recommended hold rating on Jaiprakash Associates with a target of Rs 93, in its November 15, 2012 research report.

“Jaiprakash Associates, APAT -48.5% yoy at Rs1.28bn led by lower cement volumes & lower realization. Cement volumes at 3.2mn declined 11% sequentially, Realisation dip 1.5%. Cement EBIT at Rs 1.4bn -41%qoq. Although quarterly performance came in ahead of expectation solely led by robust E&C vertical where EBIT margins stood at 34% owing to one off’s. Real estate EBIT at Rs 0.95bn came in lower owing to sharp margin contraction at 35.5% down 771bps yoy. Revenue at Rs 29.8bn +4% yoy came in line, Construction revenues at Rs 12.9bn v/s exp of Rs 12.5bn, Cement revenues at Rs 13.7bn v/s exp. of Rs 14.9bn & Real estate revenues at Rs 2.67bn v/s exp of Rs 2.5bn. EBITDA grew 5.3%yoy to Rs 7.9bn led by a sharp out performance from the E&C segment. Interest expense offered no respite to the overall performance witnessing +23% yoy growth at Rs 4.6bn.”

“Cement revenues (Ex JCCL) at Rs 13.72bn declines 12.2qoq led by 10.9%qoq decrease in cement volumes to 3.2mn ton & a 1.5% correction in cement realization at Rs 4,287/ton. Operating cost per ton grew by 4%qoq which led to 34%yoy decline in EBIT/t at Rs 418/t. Overall Cement EBIT declined 41% qoq to Rs 1.3bn. Prices in Oct-12 are +5.5% v/s Avg Q2 price prevailing in northern region while they are up 2.6% for the central region where JPA has strong presence will result in better operating performance for the cement vertical in Q3FY13E.”

“Weak external awarding in the infrastructure vertical continues to exert pressure on order inflow. Coupled with high E&C EBIT margin which continues to remain at elevated levels and prospects appear incrementally unsustainable at 34%. We believe the longer term E&C margins will stabilize around 20% for JPA. JCCL divestment will reduce leverage driving the interest cost lower. E&C order flow continues to remain challenges in a backdrop where no major hydro power company is expanding capacity and the existing development plans are stuck owing to clearance issues. We have upgraded our FY13E earnings owing to better than expected margin performance of the E&C vertical in 1HFY13 by 16% to Rs 3.7/share and also introduced FY14 earnings at Rs 4.1/share. We believe possible upside in stock price from divestment of JCCL is already reflected in CMP. We maintain our HOLD rating with a TP of Rs 93,” says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos  

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