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Jaypee Infratech
Strong execution, Reiterate Buy
„3Q earnings ahead of estimate
Jaypee Infratech reported strong 3Q earnings of Rs3.8bn, 50% ahead of our
estimate on positive surprise from better execution and recognition of Rs1bn from
plots. We have increased our FY11 earnings by 20% to factor in better than
expected 3Q results. We reiterate our Buy rating with PO of Rs104, offering 44%
potential upside as the key triggers- commissioning of Yamuna Expressway and
launch of 2nd land parcel for sale is expected to play out over next 6-9months.
Yamuna Expressway on track
The execution at Yamuna expressway is well on track and management expects
to commission the expressway by end of 1QFY12, though we have currently
modeled toll revenues from Dec 2011.The total expenditure of Rs92bn till
3QFY11 reached 95% of the total estimated cost. We expect 3-5% increase in
total cost primarily due to higher payment for land acquisition. It has completed
over 55% of the final concrete layer of the expressway, up from 44% in 2Q.
Robust cash flow from Noida project
The cumulative cash flow from Noida project reached Rs41bn in 3Q (43% of the
sale value) as execution picked pace across the projects in 3Q. The average
realization in Noida project remained at Rs3300-3400/sq ft as JIL continues to
push volume to generate cash flow. Therefore net debt remained stable QoQ at
~Rs32bn as the cash flows from real estate funded expressway construction.
2nd parcel to help sustain sale volume
We expect Jaypee Infratech to slow monetization in its Noida parcel from FY12 by
increasing prices and gradually shift the affordable segment demand to its 2nd
parcel in Jaganpur (expected to be launched in 1QFY12). We are currently
building sales of 15mn sq ft in FY12 and 17mn sq ft in FY13.
Price objective basis & risk
Jaypee Infratech (XJAYF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs104 for
Jaypee Infratech is based on 15% discount to our NAV of Rs122. We expect JIL
to trade at a discount of 15% to DLF on a discount to NAV basis as JIL has a
concentrated land bank compared to DLF's diversified land bank. Also the
uncertainties due to new alignment of expressway warrant a higher discount to
NAV, in our view. Key assumptions underlying our NAV are WACC of 14.8%,
capitalization rate of 11% and inflation of 5% from FY12 on both selling price and
construction costs. On a P/E basis, at our PO of Rs104, the stock would trade at
11.5x FY11E earnings. Downside risks are lower than expected real estate sales
volume and delay in execution of expressway project.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaypee Infratech
Strong execution, Reiterate Buy
„3Q earnings ahead of estimate
Jaypee Infratech reported strong 3Q earnings of Rs3.8bn, 50% ahead of our
estimate on positive surprise from better execution and recognition of Rs1bn from
plots. We have increased our FY11 earnings by 20% to factor in better than
expected 3Q results. We reiterate our Buy rating with PO of Rs104, offering 44%
potential upside as the key triggers- commissioning of Yamuna Expressway and
launch of 2nd land parcel for sale is expected to play out over next 6-9months.
Yamuna Expressway on track
The execution at Yamuna expressway is well on track and management expects
to commission the expressway by end of 1QFY12, though we have currently
modeled toll revenues from Dec 2011.The total expenditure of Rs92bn till
3QFY11 reached 95% of the total estimated cost. We expect 3-5% increase in
total cost primarily due to higher payment for land acquisition. It has completed
over 55% of the final concrete layer of the expressway, up from 44% in 2Q.
Robust cash flow from Noida project
The cumulative cash flow from Noida project reached Rs41bn in 3Q (43% of the
sale value) as execution picked pace across the projects in 3Q. The average
realization in Noida project remained at Rs3300-3400/sq ft as JIL continues to
push volume to generate cash flow. Therefore net debt remained stable QoQ at
~Rs32bn as the cash flows from real estate funded expressway construction.
2nd parcel to help sustain sale volume
We expect Jaypee Infratech to slow monetization in its Noida parcel from FY12 by
increasing prices and gradually shift the affordable segment demand to its 2nd
parcel in Jaganpur (expected to be launched in 1QFY12). We are currently
building sales of 15mn sq ft in FY12 and 17mn sq ft in FY13.
Price objective basis & risk
Jaypee Infratech (XJAYF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs104 for
Jaypee Infratech is based on 15% discount to our NAV of Rs122. We expect JIL
to trade at a discount of 15% to DLF on a discount to NAV basis as JIL has a
concentrated land bank compared to DLF's diversified land bank. Also the
uncertainties due to new alignment of expressway warrant a higher discount to
NAV, in our view. Key assumptions underlying our NAV are WACC of 14.8%,
capitalization rate of 11% and inflation of 5% from FY12 on both selling price and
construction costs. On a P/E basis, at our PO of Rs104, the stock would trade at
11.5x FY11E earnings. Downside risks are lower than expected real estate sales
volume and delay in execution of expressway project.
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