Jaiprakash Associate Target Rs 156- Buy says ICICI Sec

Jaiprakash Associates (JPA) is a multi-year play on high-growth diversified
infrastructure, with track record of strong execution across varied businesses.
Over the next few years, the company would: i) be among the top three leading
cement groups, ii) enjoy >Rs381bn order backlog in EPC, predominantly in-house,
besides potential Rs200bn EPC orders from its own power portfolio, iii) have
13.5GW power portfolio, comprising a healthy mix of hydro and thermal with 40%
merchant, iv) build 1,212Kms expressway with tolling rights and v) have real
estate development rights of 408mn sqft. We expect consolidated revenues,
EBITDA and PAT CAGR to be 28%, 46% and 59% in FY10-12E. Till the time the
capacities are ramped-up and investments fructify fully, short-term profitability
will be under strain (due to higher depreciation and interest). However, long-term
growth prospects remain intact. Our revised sum-of-the-parts (SOTP) target price
for JPA is Rs330bn or Rs156/share. Maintain BUY.
􀁦 Aggressive cement capacity addition. We expect JPA to increase its capacity to
over 31mtpa by FY12E (33mnte as per the company) from 19.1mnte in FY10. Since
new capacities are being added across regions, JPA would become a pan-India
player from a regional one. We expect JPA’s market share to rise to 7.8% by FY12E
from 5.4% at present. We are factoring in 36% volume CAGR over FY10-12E with
EBITDA/te of Rs940-1,020 over FY11E-12E.
􀁦 Lumpiness in E&C margin. Unexecuted orderbook stood at Rs81bn as on March
31, ’10. Margins have historically remained lumpy, within 12-31% over the past eight
quarters, mainly due to the mix of projects and hence, an area of concern, especially
when the segment derives 80%+ from in-house projects. The management expects
EBIT margin to be in the range of 15-18% in FY11 (I-Sec: 16%).
􀁦 Emerging strong in real estate. JPA has recently launched Jaypee Green Sports
City, which has a planned area of 2,500 acres. In Q1FY11, JPA sold 0.6mn sqft
premium real estate at Noida (0.32mnsqft) and Greater Noida (0.28mnsqft) at an
average rate of Rs5,700/sqft. Besides, Jaypee Infratech (JIL) – 83% stake owned by
JPA – sold 3.8mn sqft at an average rate of Rs3,100/sqft.
􀁦 Power-packed portfolio. With 700MW operational assets and 2,820MW projects
under implementation (1,000MW transmission rights) in power, JPA is likely to
increase its power portfolio to ~8.8GW by December ’15.