BofA Merrill Lynch:: Jaiprakash Associates-Realty surprise offset by weak cement and E&C

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Jaiprakash Associates Limited  
Realty surprise offset by weak cement and E&C 

„Inline 3Q; Strong realty offset by weak Cement and E&C
JPA (Parent) 3Q - Rec PAT Rs2.3bn (inline). Strong realty in 3Q with revenues
+23%YoY and EBIT +100%YoY on high margin plot sales, was off-set by 5%YoY
fall in cement ASP and weak E&C execution (sales -16%YoY) due to after-effects
of obstruction of work at Yamuna expressway on account of agitation in 2Q. Rep
PAT Rs2.3bn +126%YoY on one-offs in 3QFY10. We cut FY12E EPS by 15% to
factor-in weak cement ASP but maintain PO as we use down-cycle value ($85/tn).
Catalysts are start of – 1) Karcham Hydro plant March’11, 2) Yamuna expressway
in 2Q, 3) F1 race on Oct 3’11 and 4) peak of capex at parent & JP Infra in FY11.
Buy JPA on assets trading at 56% discount to NAV, which could be un-locked by
improving visibility of cash flows and option value in its power / realty assets.

Realty margin surprise; Sales disappoint – Cement and E&C
JPA 3Q11 EBITDA +17%YoY on +284bps higher margin led by realty and E&C.
While sales disappoint at Rs28.9bn +5%YoY on 5%YoY fall in cement ASP and
E&C sales -16%YoY offset by strong realty +23%YoY. Cement sales +31%YoY
but EBIT fell 40%YoY on 5% fall in ASP and start-up costs of 4.4mtpa (21% of
capacity) added in 4QFY10. 3Q11 cement nos. mixed - volume +37%YoY;
capacity +27%; realization/tn -5%; EBITDA/tn fell 29% on start-up costs.
Cement capacity +64% by FY13; Captive orders to pick up E&C
JPA to ramp-up cement capacity to 37mtpa +64% by FY13E vs 22.8mtpa in FY10.
Growth in top-line of E&C led by a) start of civil works at 2.7GW Lower Siang HEP
from 1QFY12, order value of which will be bigger then Karcham Wangtoo &
Yamuna Expressway put-together, b) build >500mn sqft of realty along Yamuna
Expressway & c) US$1bn civil works at thermal plants of JP power over FY11-13E
Buy value assets 56% discount & 18% EPS CAGR in FY11-13E
JPA is one of the best asset plays (56% disc to NAV), in our view. Triggers a) timely start
of projects (esp. Karcham), BTG order for 2GW Bara Ph 2, b) monetization of realty,
c) bottom-out of cement prices in 2HFY12 and d) approval for Gr. NOIDA airport.