Hold Jaiprakash Asso; target of Rs 75: Emkay

Emkay Global Financial Services has recommended hold rating on Jaiprakash Associates with a target of Rs 75 in its August 1, 2012 research report.

"Jaiprakash Associates, PAT down 24.5% yoy at Rs1.39bn came in below est. v/s Rs1.5bn. Real estate and Cement performance were the major disappointments for Q1. Revenue at Rs 29.6bn +2% yoy came in lower v/s expectation of Rs 32.6bn. Real estate revenue at Rs1.65bn v/s exp Rs3.75bn & Cement revenues at Rs15.6bn v/s exp. Rs16.9bn owing to lower than expected volume ramp up which stood at 3.59MT witnessing only 10%yoy growth. Cement realization surprised positively at Rs4354/ton witnessing jump of 10%yoy & 8.4%qoq. E&C revenues at Rs12.1bn came in flat, however E&C EBIT margins at 29.6% owing to one off component relating to claim settlement to the tune of Rs1bn at multiple sites. Adjusted for one offs, E&C margins stood at 20.3%. Total EBITDA witnessed 3% yoy growth and stood at Rs7.7bn v/s exp Rs8bn led by dismal real estate performance.”

“Cement revenues (Ex JCCL) at Rs 15.6bn grew 21.8%yoy led by 10.3%yoy increase in realization to Rs 4,354/ton. Volumes increased 10%yoy to 3.59MT from 3.25MT. Operating cost per ton grew by 12.5%yoy which led to 1.4%yoy decline in EBIT/t at Rs 631/t. Overall Cement EBIT improved just 8.9% yoy to Rs 2.26bn. Prices in July-12 are +7.6% v/s Avg Q1 price prevailing in central region which if sustain may lead to segmental out performance in Q2FY13E. ~50%of installed capacity for JPA is located in Central region producing 2.5MT/quarter in FY12.”

“Divestment of cement subsidiary will remain critical to the de-leveraging of the parent balance sheet. We value JPA’s cement business at USD 110/t & maintained our FY13E estimates of capacity addition to 33.4 MT(inclusive of JV capacity). We maintain construction multiple at 5x EBITDA for FY13E. With slowdown in order awarding the E&C vertical is likely to witness 5% decline in revenues for FY13E. We believe the stock price has already factored partial upsides from the probable divestment of JCCL. Incrementally owing to weak macro awarding scenario coupled with exhausting visibility on the existing Orderbook the E&C segment is incrementally appearing more risky."

"We believe the stock at 7.5x FY13E EBIDTA is fairly valued, hence maintain hold with a Target price of Rs 75. Fair value leaves little upsides. Target price is adjusted for the change in fair value of listed subsidiaries and a 20% holding company discount for the listed subsidiaries is maintained,” says Emkay Global Financial Services research report.

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