Jaiprakash Associates = Construction rebounds sharply: Emkay

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Jaiprakash Associates

Construction rebounds sharply-Numbers in line

ACCUMULATE

CMP: Rs 120                                       Target Price: Rs 150

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n     JPA Q2FY11 numbers ahead of estimates at EBITDA level, 3X increase in deferred tax leads to in line PAT.  Topline growth of 62.3% - construction up 73%, cement up 43%

n     Construction segment rebounds sharply with 83% growth in EBIT, margins at ~21% (v/s ~7.3% in Q1FY11). Realty segment delivers a whopping 356% growth in EBIT

n     JPA is on strong growth path across all its segments- plans to reach a cement capacity of 37 mtpa by end FY12. Expect significant order accretion from New HPPs like lower Siang

n     Stock trades at 22.6X its FY12 standalone earnings and 7.6X EBIDTA. Maintain our earnings, ACCUMULATE rating and price target

Topline growth of 62.3%- construction up 73% & cement up 43%

JPA continued its solid topline performance with revenues at Rs29.9 bn (our exp –

Rs25.4 bn) growing by 62.3% yoy. The quarter saw construction segment rebounding

sharply and posting an impressive 73% yoy growth in revenues to Rs15.7 bn (our

estimates Rs11.35 bn). The segment’s performance was impacted by execution issues

at Bagilhar II projects & the Srisailam tunnel project. Driven by volume growth of ~60%,

the cement revenues registered a growth of 43% yoy to Rs12.08 bn (our estimates

Rs12.07 bn). We were positively surprised by significant traction in real estate segment

with the division registering growth of 266% yoy with revenues of Rs3.2 bn (Our

estimates (Rs2.1 bn).

EBIDTA up 43% driven by construction & realty segment

With construction segment rebounding sharply and registering a sharp 73% growth in its

EBIT (Rs3.28 bn ) and realty segment delivering a whopping 356% growth in EBIT, JPA

recorded a smart 43% yoy growth in EBIDTA (Rs6.8 bn). As expected, impacted by

declining cement realization and increasing cost pressures, Cement segment registered

a 14.5% decline in EBIT (Rs1.88 bn).

PBT beats estimate, however higher tax provisioning drags the PAT

After many quarter JPA interest and depreciation charges are receding, lessening its

impact on profits. JPA’s pre-exceptional PBT for the quarter jumped an impressive 65%

yoy to Rs2.89 bn, even after interest cost increased by 25% yoy and depreciation

charges jumped 39% yoy on account of commissioning of cement capacities. However

the quarter saw JPA witnessing a significant 3X increase in its deferred tax.

Consequently the pre-exceptional net profit at Rs1.15 bn remained flat yoy (Our est

Rs1.14 bn).

Segmental Performance

Construction revenues up 73% - EBIT margins see sharp rebound qoq

The quarter saw construction segment posting an impressive 73% yoy growth in revenues

to Rs15.7 bn (our estimates Rs11.46 bn). We would like highlight that the segment’s

performance was impacted by execution issues at Bagilhar II projects & the Srisailam

tunnel project during Q1FY11. However during the quarter the segment rebounded sharply

and registered a sharp 83% growth in its EBIT (Rs3.28 bn ) with EBIT margins of 20.9%.

Cement volume up 59% yoy – realisation down 10.1% yoy

Cement revenues at Rs12.08 bn grew by 43% yoy driven by 59% volume growth (3.4 mt)

while realization declined by 10.1% yoy and 6.2% qoq (Rs3528/t). Volumes grew as JPA

commissioned new capacities and ramped up utilization. However as expected the

segment’s performance was severely impacted by declining realization and increasing cost

pressures particularly Coal & fly ash. The segment’s EBIT/ton stood at Rs550/t, declining by

46.2% yoy and 26.4% qoq. EBIT margins also fell 1048 bps yoy & 428 bps qoq to 15.6%.

Realty revenues continue to surprise positively

Realty segment was a big surprise as the revenues realty segment delivering a whopping

356% growth in EBIT. During the quarter the company has sold over 14 lac square feet of

real estate in Noida & Greater Noida.

Maintain earnings & reco

JPA is on strong growth path across all its segments. The company plant to reach a cement

capacity of more than 35 mtpa by end FY12 and 50 mtpa by FY14-15. Though the

construction segment can face issue of near term earnings visibility with Yamuna

expressway and Karcham wangtoo HPP expected to be complete by FY12, we believe

significant order accretion from new HPPs like lower Siang will rejuvenate the order

backlog. JPA stock is currently trading at 27.2X its FY12 standalone earnings and 8.7X

EBIDTA. We maintain our earnings estimates as well as the ACCUMULATE Rating on the

stock with price target of Rs150.