ICICIdirect.com is bullish on JP Associates and has recommended buy rating on the stock with a target of Rs 76 in its August 14, 2014 research report.
ICICIdirect.com`s research report on JP Associates
“Jaiprakash Associates (JAL) reported 8.8% YoY decline in revenues at Rs 2994 crore (lower than our estimate: Rs 3207 crore) impacted by real estate revenues that slumped 83.6% YoY to Rs 74 crore and construction revenues that declined 4.3% YoY to Rs 1197 crore. On the positive side, cement revenues grew 9% YoY at Rs 1677 crore vs. our estimate of Rs 1672 crore. While the cement division volume declined 3.5% YoY to 3.6 MTPA, the realisation/EBITDA per tonne improved by Rs 537/Rs 12 YoY to Rs 4699 and Rs 896, respectively. The EBITDA margin at 25.2% was higher than our expectation of 19.7% boosted mainly by better-than-expected EBIT margins in the construction segment (35.2% vs. our estimate of 20.3%). JAL reported a net loss of Rs 80.6 crore (our estimate: net loss of Rs 98.6 crore), aided mainly by superior EBIT margins in the construction segment and deferred tax write-back of Rs 121.2 crore during the quarter.”
“Recently, TAQA had withdrawn its deal with the Jaypee group to acquire two of its hydropower assets for US$1.6 billion (~Rs 10,000 crore). After the withdrawal of the deal by TAQA, one of the subsidiaries of JP Associates (JAL-stake: 60.7%) announced that Reliance Power has signed an exclusive MoU to acquire 100% of the entire hydropower portfolio of 1700 MW (Baspa II – 300 MW, Vishnuprayag – 400 MW, & Karcham Wangtoo – 1000 MW). While the deal valuation is yet unknown, media sources indicate the valuation in the range of Rs 12000-15,000 crore for these assets. Recently, JAL also completed a QIP of US$250 million (~Rs 1500 crore) at the price of Rs 70.3/share (including a premium of Rs 68.3/share). While this is likely to lead to an equity dilution of ~10% from this QIP, the impact on the valuation is likely to be minimal as these funds would be utilised for debt reduction.”
“JAL, unlike other infrastructure conglomerates whose recovery is dependent on government reforms, is one of the very few stocks in the infrastructure space which has majority of its business (70-80%) linked to an economic recovery. Hence, JAL, along with its focus on asset monetisation & anticipated economic recovery with a stable government in place, is likely to see an improvement in financials, going ahead. Hence, we recommend BUY on the stock with a revised SOTP based target price of Rs 76/share. We value JAL’s cement business at Rs 76/share (operational capacity at US$125/tonne), construction business at Rs 30/share (5x FY16E EV/EBITDA), power & real estate at Rs 9/share and Rs 37/share, respectively (refer exhibit 16 for valuation summary),” says ICICIdirect.com research report.
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