Jaiprakash Associates-Strong topline growth:: Religare

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Jaiprakash Associates Ltd
Strong topline growth, robust operating performance


Jaiprakash Associates (JPA) reported strong numbers with 62% YoY sales, 43%
YoY EBITDA and 64% YoY PBT growth. Numbers were ahead of our
expectations, driven by strong revenue growth in construction segment and
higher than estimated cement volumes. While operating margin was largely in
line, QoQ improvement in construction EBIT margin will allay concern that
arose due to dismal operating performance in Q1FY11. Reported PAT (down
3% YoY) was impacted due to high deferred tax (non cash item). We maintain
our positive view with Mar ’11 target price of Rs 150.
Construction segment led surprise on topline: Construction segment accounted
for over 80% of surprise on overall sales of Rs 30bn, 26% higher than our
estimates. This segment witnessed 73% YoY growth in revenues, which were
53% higher than estimates.
Strong cement volumes led to cement revenue growth of 43% YoY: JPA’s
capacity expansion in last 12 months led to 59% YoY rise in cement volumes in
Q2FY11, even though realizations were down 10% in line with our expectation.
Robust operating performance of Q2 will allay concerns raised post Q1 results:
In Q1, construction segment’s EBIT margin at 7% was impacted due to project
specific issues. In Q2, construction segment performance improved considerably
with 20.9% EBIT margin. On the cement business also, EBIT margins were only
10.5ppt lower YoY despite the fact that realization was 10% lower YoY. Overall
operating margins were only 25bps lower than our estimates. EBITDA grew 43%
YoY to Rs 6.8bn, 25% higher than estimates.
Despite strong PBT growth, reported PAT growth was lower due to high
amount of deferred tax: Interest and depreciation were in line with estimates,
while other income was lower. Recurring PBT grew 64% YoY to Rs 2.9bn.
However, deferred tax of Rs 1.2bn which took effective tax rate to 60% for the
quarter, led to Rs 1.1bn of recurring PAT, down 3% YoY.
Expect revenue/earnings CAGR of 22%/25% over FY10-FY13, BUY: Over
FY10-13, we expect JPA’s cement and EPC revenues to see a 30% and 17%
CAGR respectively. The company’s real estate revenues are also likely to pick up.
This will support a 22%/25% CAGR in revenues/earnings over this period. Our
SOTP based March ’11 target price is Rs 150. Maintain BUY.