JP ASSOCIATES Construction & real estate surprise positively::Edelweiss

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􀂃 Construction and real estate propel revenue beyond estimates
Jaiprakash Associates (JPA) reported Q2FY11 revenue of INR 30.7 bn (up 63%
Y-o-Y) ahead of our estimate of INR 25.2 bn on back of stronger-than-expected
performance across construction (INR 15.7 bn versus our estimate of INR 11.5
bn) and real estate (INR 3.2 bn against our estimate of INR 1.4 bn) while
revenues of cement division was lower than estimates (INR 12.1 bn against our
estimate of INR 12.6 bn).



􀂃 Positive surprise on margins from construction segment
Reported EBIT margin of ~21% was broadly in line with our estimate of ~22%
with core PBT at INR 2.9 bn, higher than our estimate of ~INR 2.4 bn. The
variance was largely due to the construction segment reporting EBIT margin of
~21% versus our expectation of ~7%, although cement segment PBIT margin of
15.6% (~20% in Q1FY11) was in line with our estimate of 16%.

􀂃 PAT below estimate due to high deferred taxes
JPA has provided for tax of INR 1.74 bn for the quarter, of which INR 1.2 bn was
towards deferred taxes, implying a tax of INR 0.57 bn towards core business. As
a result, reported core business PAT of ~INR 1.1 bn was lower than our estimate
of INR 1.6 bn.

􀂃 Operational update: Real estate showing volume and price traction
During the quarter, JPA reported cement despatches of 3.43 MT, up 57% Y-o-Y
and down 12% sequentially. In the real estate division, the company sold 0.88
msf in Q2FY11 versus 0.59 msf in Q1FY11 (ex-Jaypee Infratech). Cumulative
average realization jumped 4% YTDFY11, signaling improvement in realisations.
Besides this, Jaypee Infratech sold 3.9 msf during the quarter and cumulative
~6.8 msf in H1FY11. JPA management has also indicated that Karcham Wangtoo
hydro-power project (1,000 MW) will likely commission six months ahead of
schedule by March 2011.

􀂃 Outlook and valuations: Attractively valued; maintain ‘BUY’
We have revised our SOTP value for JPA to INR 150/share (INR 153 earlier) to
adjust for higher depreciation/interest costs across businesses over FY11-12E
and higher net debt on account of cement and power plants becoming
operational over the same period. We maintain our ‘BUY/Sector Performer’
recommendation/rating on the stock.