03 October 2010
NEW DELHI: Real estate firm has fixed a price band of Rs 253 to Rs 260 a share for its initial share sale offer, through which the company expects to garner up to Rs 1,000 crore.
"The price band for the public issue has been fixed at Rs 253 to Rs 260 per equity share," an investment banking source, working on the issue, told PTI today.
The IPO will hit the capital market on October 6 and will close on October 8.
The Mumbai-based real estate developer is coming out with an offer size of 39,562,000 shares of face value of Rs 10 each. At the upper end of the price band, the realtor will be able to raise up to Rs 1,028.61 crore, while at the lower end the IPO is valued worth Rs 1,000 crore.
The firm may consider participation of anchor investors. They can bid a day prior to the opening of the issue, sources said.
Kotak Mahindra, , Morgan Stanley India and are book-running lead managers to the issue.
With a sharp rise in the stock markets, many companies are now hitting the Dalal Street to cash in on the increased investor appetite for these issue.
Good response to the recent IPOs has also encouraged firms to launch their planned issues.
Execution to gain momentum. Reliance Power (RPWR) remains confident of
achieving its ambitious target of 5 GW by FY2012E, 25 GW by FY2015E and 35 GW by
FY2017E. We believe that these targets are ambitious given the inherent execution risk
involved along with high fuel risk for its proposed 10,000 MW of gas-based capacities.
We maintain our SELL rating with target price of Rs135/share, noting the 18%
downside and risk to earnings from delayed execution and non-availability of fuel.
Ambitious plans to scale up to 25 GW by FY2015, 35 GW by FY2017
RPWR remains confident of achieving its targeted capacity of 25 GW by FY2015E which in our
view is ambitious given the high degree of execution risks involved. Our skepticism stems from the
present status of projects which are significantly lagging their original execution schedule. The
sluggish pace of execution is evident from the slow capex run rate having incurred ~Rs35 bn in
FY2010 marginally lesser than Rs37 bn in FY2009. We note that as of end FY2010, RPWR had
utilized Rs55 bn of the total IPO proceeds of Rs116 bn while Rs61 bn still remains unutilized.
High fuel risk for gas-based capacities, coal-based plants better positioned
RPWR plans to set up ~10,000 MW of gas-based capacities with 7,480 MW in Dadri and 2,400
MW in Samalkot (expansion of existing 220 MW at Samalkot which will be transferred to RPWR
from Reliance Infrastructure). Management highlighted that location of gas based capacities
remains flexible owing to uncertainties involved with land at Dadri.
In our view gas-based capacities face a high degree of fuel availability risk given the present
demand supply scenario of gas in India. In our view, securing allocations for ~28mcm/d of gas (the
approximate amount required for RPWR’s gas-based capacities) will likely be an uphill task given
the ever-increasing mismatch between demand and supply of gas. Fuel risk for coal-based
capacities is relatively lesser, with RPWR largely dependent on captive coal blocks secured in India
and Indonesia, to meet the requirement of associated capacity additions.
High execution and fuel risk, expensive valuations – maintain SELL
RPWR is currently trading at a P/B of 2.3 X on FY2012E net worth which we believe is expensive as
the 18% downside to our fair value estimate of Rs135 along with high earnings risk stemming
from execution and fuel uncertainties. Moreover, we highlight that a large portion of capacity
would be UMPPs (12,000 MW) that are not value accretive given the competitive nature of their
bids. Our DCF-based valuation for Sasan and Krishnapatnam implies a P/B of 1X on the total equity
investment for these projects. Acceleration of the commissioning schedule across the various
projects being implemented by the company could be an upside risk to our estimates.
160 to 165
46 to 49
11 to 13
Ramky Infrastructure Ltd.
24 to 27
Orient Green Power
1 to 1.10
1 to 2
395 to 425
4 to 5
40 to 45
23 to 26
Sea TV Network
10 to 15
95 to 102
8 to 9
125 to 127
5 to 7
225 to 250
10 to 12
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.
Post the merger of Grasim’s cement division and UltraTech Cement (UTCL),
Grasim would house India’s largest pure play cement company besides being a
leader in viscose stable fibre (VSF). This would result in better financing options to
fund the next phase of organic/inorganic expansion. Its VSF division is delivering
strong and consistent performance, both in terms of volume and realisations.
After factoring in a 20% holding company discount to current market price of
UTCL, our sum-of-the-parts (SOTP) target price is Rs2,650/share. We believe the
market is assigning significantly higher holding company discount of ~45%, which
seems unjustified as cement still contribute 75%+ to revenue and 70%+ to EBITDA
on a consolidated basis. Besides, VSF cashflows would continue to fund
expansion of the cement division. Grasim currently trades at an attractive FY11E
EV/E of 5.4x and FY12E EV/E 4.9x. Grasim is among our top picks in the sector.
Cement – Higher volumes & cost efficiencies. The 4.5mnte Shambhupura
capacity in Rajasthan commenced commercial production in Q2FY10, while the
4.9mnte Kotputli capacity (in Rajasthan) started production in Q4FY10. We expect
UTCL to post industry-average volume growth over FY11-13. With diversified
presence resulting in better realisations, strong volume growth and increased cost
efficiencies & productivity, UTCL is better placed to contain margin erosion caused
by any pricing pressure. We raise our FY11-12E EBITDA by 6-8%.
Next expansion phase announced for setting up a 9.2mnte grinding unit in the next
three years at a capex of Rs56bn via brownfield expansion. This also includes
setting up additional clinkerisation plants at Chhattisgarh and Karnataka and bulk
packaging terminals across states. Besides, Rs26bn would be spent on augmenting
grinding capacity in Gujarat and installing waste heat recovery systems. The
acquisition of 3mnte ETA Star Cement is likely to be completed soon.
VSF – Momentum to continue. VSF demand is likely to continue both domestically
and internationally on revival in consumer offtake and fall in global cotton production.
But margin could come under pressure due to rise in raw material costs. Grasim has
announced setting up a Rs10bn VSF plant, which would increase capacity 25%.
Also, the Chinese JV would double capacity to 70,000te from 35,000te by March ’10.
Robust cashflows. Grasim is expected to generate Rs16bn FCF standalone and
Rs55bn on a consolidated basis. Cashflows from Grasim’s VSF division (say, via
rights issue of equity shares to Grasim) can be utilised for expansion in cement.
Shree Cement (SCL) has de-risked its business from earnings cyclicality through
diversifying into power. SCL’s power capacity is expected to rise to 563MW
(including 43MW waste heat recovery) by FY12E from 120MW at present and the
company aims for 1,000MW power capacity by ’14. Hence, we believe that most of
the decline in EBITDA from the cement division in FY11E will largely be offset by
rise in EBITDA from power. Even in cement, SCL is a market leader in North India
with better cost efficiencies. SCL will likely generate Rs38bn operating cashflows
versus Rs25bn planned capex over FY11E-13E. Maintain BUY with a revised target
price of Rs2,575 based on 5x average FY12E-13E EV/E for cement, 2x P/B
ascribed to 143MW operational power plants and 1x P/B assigned to the balance
300MW thermal power plants.
De-risking from earnings cyclicality. SCL’s power capacity is expected to rise to
563MW by FY12E, of which 110MW will be for captive purposes and 453MW
(including 43MW waste heat recovery) for merchant sale. We estimate SCL to
produce and sell 285mn, 970mn and 1.6bn units of power resulting in revenues of
Rs5.2bn, Rs8.1bn and Rs12.2bn and EBITDA of Rs2.5bn, Rs3.2bn and Rs4.1bn in
FY11E, FY12E and FY13E respectively. Thus, power is likely to form ~23% of
revenues and EBITDA by FY13E from 5% and 7% respectively in FY10.
Ramping up cement capacity 50% by December ’10. SCL’s split grinding units of
1.5mnte capacity each at Suratgarh (Rajasthan) and Rourkee (Uttarakhand)
commenced production by February-March ’10 and another 1.5mnte at Jaipur is
expected by December ’10, thus increasing integrated cement capacities 50% to
13.5mnte by December ’10. Also, the company has recently acquired land (~90%
complete) in Karnataka, which would have 5mnte clinker capacity.
EPS CAGR of 25% over FY11-13E. We estimate cement volumes to grow 5% to
9.7mnte and clinker volumes to decline 37% to 0.6mnte. We factor in 11% volume
CAGR over FY12E-13E with 11.5mnte and 12.7mnte volumes in FY12E and FY13E
respectively. We expect utilisation in North India to drop to ~81% in FY11E from
90%+ and hence, factor in a 2% realisation drop in FY11E.We have factored in a
Rs1,000 EBITDA/te from cement (EBITDA margin of 30%) in FY11E compared with
Rs1,350/te in FY10.
Beawar Power plant with 300MW capacity likely to be complete by June ’11
versus the earlier estimate of December ’11. But no fuel arrangements seems to
have been made yet (SCL intends to import coal and/or participate in e-auctions).
UltraTech Cement (UTCL), post the merger with Grasim’s cement division, has
emerged as India’s largest cement company with ~49mnte capacity and ~19%
market share. Its geographic mix, which was skewed towards the West and the
South (~84%), would be more diversified with South, West and North constituting
27%, 25% and 23% respectively. We believe the larger entity would aid fund
raising and inorganic plans. With high quality and better profitability assets in
white cement and wall care putty, overall profitability would likely improve. UTCL
is focussing on improving its operating efficiency via increasing blending,
increased use of CPPs to 80% from the current 70% and better logistic
infrastructure. With capacity addition ahead of peers, better cost efficiency and
larger diversified pan-India presence, discount versus peers will likely reduce.
Maintain BUY with a price target of Rs1,200 (7.2x EV/E of average FY12-13E).
Setting up 2mnte grinding unit at its Gujarat plant. UTCL exports ~2.5mnte
clinker from its Gujarat plant as it does not have adequate grinding units. UTCL,
accordingly, is expanding its jetty and setting up a 2mnte grinding unit to convert
clinker exports into cement. This is expected to be operational by Q4FY12, which
would improve blended realisations.
Next expansion phase announced for setting up a 9.2mnte grinding unit in the
next three years at a capex of Rs56bn via brownfield expansion. This also includes
setting up additional clinkerisation plants at Chhattisgarh and Karnataka and bulk
packaging terminals across various states. Besides, Rs26bn would be spent on
augmenting grinding capacity in Gujarat and installing waste heat recovery systems.
The acquisition of 3mnte ETA Star Cement is likely to be completed soon.
Strong cashflows. We expect UTCL, post its merger with Samruddhi Cement, to
generate Rs33bn FCF over FY11E-13E, resulting in D/E declining to 0.4x. Also,
cashflows from Grasim’s VSF division (say, via rights issue of equity shares to
Grasim) can also be utilised for expansion in cement.
Margin performance to improve. Post the merger with Samruddhi Cement,
UTCL’s geographic mix would become more diversified, resulting in better
realisations. Also, due to slowdown in clinker export, clinker sale would come down
which would lead to better blended realisations. Besides, white cement assets have
better profitability. Also, lower external clinker purchase would lead to savings of
Rs45/te in FY11E. We factor in ~24-25% EBITDA margin and EPS CAGR of 18%
over FY11E-13E.We raise FY11-12E EBITDA by 5-8%.
ACC has been a laggard in terms of volume growth over the past two years and
its market share has declined to ~9.9% at present from 11.7% in ’08 due to
capacity constraint, wagon shortage and unavailability of key raw materials.
However, its 1mnte Bargarh plant (in the East) and 3mnte Wadi capacity (in the
South) would be ramped-up by December ’10. Besides, its 3mnte Chanda plant
(in the West) would be operational by Q1CY11. Hence, we expect ACC to post
volume growth in line with the industry after December ’10. ACC is focussing on
improving its operating efficiencies via increased use of CPPs and alternative
fuels, higher domestic coal linkages and SG&A rationalisation. Pan-India
presence, better market mix, strong brand equity (ACC is the oldest cement
brand) and higher rural penetration would boost realisations. Corporate action in
the form of special dividend / bonus share is a possibility as ’10-11 is being
marked as a Platinum Jubilee Year. Maintain BUY with revised target price of
Rs1,200 (7.7x average of CY11-12E EV/E). Increase in stake by Holcim and merger
with Ambuja Cements can provide additional triggers. ACC is our top pick.
Next phase of expansion likely to be announced by end-CY10. ACC is likely to
announce ~7mnte new capacities in North / East (to maintain its market share),
which is expected to be operational post CY13E. ACC has a net cash of Rs8.5bn
and is expected to generate FCF of ~Rs22bn over CY10-12E.
Better cost efficiencies to contain margin erosion. ACC is setting up 90MW
CPP, taking the total CPP to 351MW which would increase its CPP consumption to
~80% from 70%. ACC imports only 10% of its coal requirement, whereas it has
linkages for 60-65% – the biggest cost advantage among peers. Increased use of
alternative fuels and industrial wastes led to Rs408mn savings in ’09 versus
Rs228mn in ’08. Besides, EBIT losses from the RMC business have reduced to
Rs477mn in ’09 from Rs918mn in ’08; RMC will likely turn around by ’11. ACC is
expected to have significant coal cost advantage in the long term via insourcing of
coal from the mines (currently being developed through JVs with the state
Governments of Madhya Pradesh and West Bengal), which will be operational over
the next 3-4 years.
EPS CAGR of 15% over CY11E-12E. We factor in a 10% volume growth over
CY11E-12E with average realisation inching up 1.5-3.5% over CY11E-12E. EBITDA
margin will likely remain in the band of 24.5-25.5% over CY10-12E. We raise our
CY10-11E EBITDA estimates ~3-5%.
Post capacity expansion, Ambuja Cements (ACEM) is set to strengthen its
presence in the North and the East, which are likely less vulnerable to pricing
pressure. Volume growth would accelerate to ~10% as capacities are ramped up to
27mnte by end ’10E. ACEM is best placed among peers to contain margin erosion
led by better realisation, increased power from CPP, lower imported coal costs
and better logistic infrastructure. Capacity addition in the North and the East
(lower pricing pressure) and no presence in the South (high pricing pressure)
besides higher proportion of premium retail sales and increased rural penetration
will ensure better realisation. Hence, ACEM would continue to enjoy valuation
premium versus peers. ACEM outperformed the broad markets ~23% and peers
13-18% in the past year and is currently valued at CY11E EV/E of 8.6x and
US$161/te. Maintain BUY with Rs161 target price (8.5x average CY11-12E EV/E).
Increase in stake by Holcim and merger with ACC can provide additional triggers.
Next expansion phase likely to be announced by end-CY10. ACEM is likely to
announce ~7mnte new capacity in its existing markets (to maintain its market share),
which is expected to be operational after CY13E. The current net cash is in excess of
Rs18bn and ACEM is expected to generate Rs17bn FCF over CY10E-12E. ACEM is
scouting for acquisitions, but valuations are the key hindrance. Thus, ACEM is best
placed to fund its next phase of expansion.
Best placed among peers to contain margin erosion. ACEM commissioned
109MW CPP in CY09 and another 30MW in Q1CY10, the full benefit from which
would accrue in CY10E. The share of imported coal in fuel mix will likely reduce to
~25% from 30% and that of pet coke rise from 10%, leading to fuel cost savings.
Better logistic infrastructure and benefit of sea transport would contain freight costs.
EPS CAGR of 14% in CY11E-12E. We factor in a 10% volume growth with average
realisation inching up 1.5-3.5% over CY11E-12E. With the North, the Central and the
East constituting 63% of revenues and no exposure in the South, ACEM’s
realisations would lead the industry. EBITDA margin is likely to be ~27-28% in ’10E-
12E. We raise our EBITDA estimates ~2-4% for CY10-11E.
Valuation premium to sustain. Given better geographic presence, superior
realisations, consistent and industry leading margins, improving financial
performance and strong cashflow & balance sheet, we expect ACEM to continue
enjoying premium valuations versus peers.
Despite the recent ~15% run-up, we maintain our positive stance on cement
stocks as we believe earnings could surprise and sector could re-rate with
utilisation increasing to 86% from 80% over next three years. We raise our FY11-
12E earnings 2-16% and target price 4-27% as we roll forward our valuations on
average of FY12-13E and increase our target multiple to a higher range of midcycle
valuation. We expect the pace of capacity additions to decelerate and
demand to surprise positively. We believe next 12 months would lay the
foundation for the next up-cycle. Recent ‘unreasonable and arguably
unsustainable’ price hikes in the South could lead to gradual pan-India price hike,
as busy construction season resumes post monsoon and festive season. We
factor in ~2-4% YoY increase in average price realisation for FY12-13E. We expect
EPS CAGR of 14-17% over FY11-13E for top three pure play cement companies.
Demand could surprise positively in H2FY11E and FY12E given: i) in the last 18
months of XI Five Year Plan (FYP), the Government would accelerate infrastructure
spend; ii) higher rural housing demand on better monsoon this year; iii) forthcoming
elections in few large states; and iv) low base effect of H1FY11. We believe the
cement industry is at inflection point led by structural shift in demand drivers. Hence
the demand is expected to be in low double digits over the next three to five years.
Pace of supply to decelerate. Capacities of ~52mnte were added in FY10;
however lesser 37mnte and 16mnte are expected to be added in FY11E and FY12E
respectively. Utilisation is expected to increase from 72% in Q2FY11E to 84% by
Q4FY11E. Hence, prices are unlikely to touch the recent lows of August ’10. Also,
unlike the last year, we expect prices in most regions to move in identical direction.
Prices in the South seem to have bottomed out; though would remain volatile.
Higher concentration and cost escalations may result in better pricing
discipline. Top 10 cement groups constitute almost three-fourth of the industry;
whereas top five enjoy ~55% market share. Costs have spiked 10-12% YoY and we
believe that the companies would attempt to protect their margins by raising prices.
On the other hand, consensus (including us) is factoring in an average 3-7% decline
in realisation in FY11E owing to over-supply. Thus, any price hike to mitigate cost
rise would lead to an earnings surprise.
Sector likely to get re-rated. We replace Ambuja Cement (strong outperformance
of 23% YoY) with ACC (volumes to pick up; cost efficient) as our top pick, followed
by Grasim Industries (strong VSF; higher unjustified holding company discount) and
Shree Cement (diversified).
Key risks: Lower-than-expected demand; higher cost escalations.