Hold Jaiprakash Associates; target of Rs 28: ICICIdirect

ICICIdirect.com's report on Jaiprakash Associates

"Jaiprakash Associates (JAL) has signed an MoU to sell two cement plants in Madhya Pradesh to UltraTech Cement. The deal includes two integrated units with 5.2 million tonnes per annum (MTPA) clinker capacity and 4.9 MTPA grinding capacity along with 180 MW captive thermal power plants (CPP) at an EV of Rs 5400 crore. While the deal implies EV/tonne of US$135/tonne on expanded capacity (please refer details below), the deal is likely to help JAL reduce its standalone debt of ~Rs 28,000 crore and consolidated debt of Rs 70,400 crore. Nonetheless, we wait to see a debt reduction and improvement in operation performance post asset monetisation. Hence, we maintain our HOLD recommendation on the stock with an SOTP based target price of Rs 28/share."

"It has been seen in the past that due to regulatory concerns JAL’s asset monetisation and consequent debt reduction plans have been delayed. Hence, we would like to wait further till the planned asset monetisation fructifies into debt reduction and improvement in earnings. Hence, we recommend HOLD on the stock with a revised SOTP based target price of Rs 28/share (refer exhibit 1 for more details on valuation)", says ICICIdirect.com research report.

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