Jaiprakash- Limited Good 2Q Led By E&C & Realty; BofA ML

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Jaiprakash Associates Limited
Good 2Q Led By E&C & Realty;
Cement weak
�� 2Q – strong E&C & realty make-up for weak cement & higher tax
A solid E&C margins (21%) and good E&C and realty execution - sales +73% &
266% resp., led JPA 2Q parent Rec. PAT (ex-dividend) of Rs1.1bn +22%YoY.
Weak cement (ASP -10%) and higher deferred tax pulled back growth.
Importantly, its key subs. (a/c for 53% of SOTP) – JP Power did well and JP Infra
had stellar 2Q with PAT +21x, which will drive consol. results. Buy JPA on Infra
assets trading at 40% discount to NAV, which could be un-locked by improving
visibility of cash flows and option value in its power / realty assets.
2Q – E&C and Realty surprise; JP Infra realty to boost Consol. Nos.
E&C sales was aided by strong execution at karcham HEP and start of realty
build-out by JPA for JP infra. E&C EBIT 83%YoY. Real estate sales +266%YoY;
EBIT +356%YoY. JP Infra had another strong quarter on Kensigton plot sales
while JP power PAT 10% ahead of MLe.
Cement weak YoY but much stronger vs sector EBITDA/tn
Cement sales +43%YoY but EBIT fell 15%YoY as its ASP fell 10% and industry
leading sales also brought start-up costs of 4.4mtpa (21% of capacity) added in
4Q. 2Q cement nos. mixed - volume +59%YoY; capacity +27%; realization/tn -
10%; EBITDA/tn fell 37% and EBIT/tn -46% on start-up costs. Overall, JPA had
industry leading 2Q EBITDA/tn of Rs888/tn v/s ACC at Rs340/tn and Guj. Ambuja
at Rs650/tn, which are richly valued vs our US$85/tn for JPA.
Execution on-track at – Power, Roads, Realty
JPA appears on-track to complete its key Infra SPVs on-time or ahead. Its largest
hydro project, Karcham Wangtoo is likely to start 6 months ahead of schedule in
4QFY11. Robust consol realty bookings till 1HFY11 - 41mn sqft for Rs143bn led by
success of AMAN/KOSMOS/ Klassic, to support FY11-12E consol P&L, in our view.
Buy value assets 40% discount & 21% EPS CAGR in FY10-12E
JPA offers a blend of asset play (40% disc to NAV) & 21% CAGR in parent EPS
(FY10-12E). Triggers are a) timely execution of projects (esp. Karcham),
equipment order for 2GW Karchana project, b) monetization of realty land bank, c)
bottom-out of cement prices in 2HFY11 & d) approval for Gr. NOIDA airport.