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Operating revenues behind estimates; real estate boosts profits
JPA reported Q3FY11 operating revenues of INR 29.5 bn, flat Y-o-Y and down
4% Q-o-Q, against our estimate of INR 32.7 bn. Revenues were below
estimates, primarily on account of EPC division witnessing slower execution in
YE, with revenues of INR 12.6 bn (our estimate: INR 16.6 bn) accounting for
most of the slippage. Despite lower revenues, JPA reported PBT of INR 3,580
mn, down 29% Y-o-Y and up 24% Q-o-Q, against our estimate of INR 3,266 mn.
Segmental analysis shows that JPA lagged in cement and EPC, which was made
by up by strong performance in the real estate segment (reported PBIT margin
of 69.1% against our estimate of 47%). The company has attributed higher
margins in real estate to plot sales / FAR sales; hence, it is unlikely to sustain.
Reported PAT of INR 2,335 mn (our estimate of INR 1,579 mn, due to higher
operating profits and lower deferred taxes. Reported tax rate was 35% for the
quarter against 52% estimated, due to sharply lower deferred tax booked.
Cement volumes continue to grow; real estate volumes slacken
JPA’s cement division reported net sales of 3.63 MT against ~3.1 MT in Q2FY11
and 2.1 MT in Q3FY11. The real estate division reported volumes at an estimated
0.81 msf (including plot / FAR sales). With these sales, total sales for 9MFY11
from Noida stands at 1.9 msf and 0.38 msf from Greater Noida.
Outlook and valuation: Operationalisation of key assets/order accretion
near-term trigger: ‘BUY’
We expect JPA to operationalise Karcham Wangtoo hydro-electric power project
(HEP) in Q4FY11E and the Yamuna Expressway in Q2FY12E. Besides, cement
capacity is expected to get augmented by 8.1 MTPA due to commissioning of
cement plants in Bokaro, Balaji and Gujarat over the next 6-9 months.
Operationalisation of these assets will enhance revenue visibility for the
company. For EPC, MOEF clearance for Lower Siang HEP will act as a key trigger
for EPC over the medium-to-longer term. We value JPA on SOTP basis, valuing
32.4 MT of cement capacity at USD 110/ton, EPC at FY12E EV/EBITDA of 6x, real
estate at INR 40 bn, and JPA’s stake in Jaypee Infratech and Jaiprakash Power
Ventures at INR 78 bn and INR 75 bn, respectively (post holdco discount of
20%). Accordingly, we revise our target price for JPA to INR 133/share. We
reiterate ‘BUY’ on the stock and rate it ‘Sector Performer’ on relative returns
Company Description
JPA began operations as a civil engineering company in 1979; it diversified into
hospitality and cement sectors in 1980 and 1983, respectively. Subsequently, the
company has successfully made entry in to road, real estate, and power segments.
Investment Theme
With its diversified asset classes (cement, construction, power, real estate, and road
projects), JPA is an opportunity to play the Indian infrastructure story:
• JPA has emerged as the third largest cement group in the country with its current
capacity of ~25 mtpa. The company is set to become a pan-India player with its
3.5mtpa Balaji expansion in Andhra Pradesh.
• 700 MW of operational hydro power capacity, another 6,120 MW under construction:
Assured RoEs of 20% plus for the two operational plants and another 1,500 MW
expected to be commissioned in 2011. Projects till FY15E have fuel linkages and
have achieved financial closure.
• Against acquisition cost of ~INR 80/sq ft, JPA has been able to sell Noida real estate
at various price points ranging from INR 2300/sq ft to INR 6400/sq ft.
Key Risks
• With huge expansions planned across segments, execution risk remains.
• Sharp cement price correction in FY11.
• JPA is exposed to the risk of political upheaval or any exigencies in Uttar Pradesh.
• Increase in working capital costs.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Operating revenues behind estimates; real estate boosts profits
JPA reported Q3FY11 operating revenues of INR 29.5 bn, flat Y-o-Y and down
4% Q-o-Q, against our estimate of INR 32.7 bn. Revenues were below
estimates, primarily on account of EPC division witnessing slower execution in
YE, with revenues of INR 12.6 bn (our estimate: INR 16.6 bn) accounting for
most of the slippage. Despite lower revenues, JPA reported PBT of INR 3,580
mn, down 29% Y-o-Y and up 24% Q-o-Q, against our estimate of INR 3,266 mn.
Segmental analysis shows that JPA lagged in cement and EPC, which was made
by up by strong performance in the real estate segment (reported PBIT margin
of 69.1% against our estimate of 47%). The company has attributed higher
margins in real estate to plot sales / FAR sales; hence, it is unlikely to sustain.
Reported PAT of INR 2,335 mn (our estimate of INR 1,579 mn, due to higher
operating profits and lower deferred taxes. Reported tax rate was 35% for the
quarter against 52% estimated, due to sharply lower deferred tax booked.
Cement volumes continue to grow; real estate volumes slacken
JPA’s cement division reported net sales of 3.63 MT against ~3.1 MT in Q2FY11
and 2.1 MT in Q3FY11. The real estate division reported volumes at an estimated
0.81 msf (including plot / FAR sales). With these sales, total sales for 9MFY11
from Noida stands at 1.9 msf and 0.38 msf from Greater Noida.
Outlook and valuation: Operationalisation of key assets/order accretion
near-term trigger: ‘BUY’
We expect JPA to operationalise Karcham Wangtoo hydro-electric power project
(HEP) in Q4FY11E and the Yamuna Expressway in Q2FY12E. Besides, cement
capacity is expected to get augmented by 8.1 MTPA due to commissioning of
cement plants in Bokaro, Balaji and Gujarat over the next 6-9 months.
Operationalisation of these assets will enhance revenue visibility for the
company. For EPC, MOEF clearance for Lower Siang HEP will act as a key trigger
for EPC over the medium-to-longer term. We value JPA on SOTP basis, valuing
32.4 MT of cement capacity at USD 110/ton, EPC at FY12E EV/EBITDA of 6x, real
estate at INR 40 bn, and JPA’s stake in Jaypee Infratech and Jaiprakash Power
Ventures at INR 78 bn and INR 75 bn, respectively (post holdco discount of
20%). Accordingly, we revise our target price for JPA to INR 133/share. We
reiterate ‘BUY’ on the stock and rate it ‘Sector Performer’ on relative returns
Company Description
JPA began operations as a civil engineering company in 1979; it diversified into
hospitality and cement sectors in 1980 and 1983, respectively. Subsequently, the
company has successfully made entry in to road, real estate, and power segments.
Investment Theme
With its diversified asset classes (cement, construction, power, real estate, and road
projects), JPA is an opportunity to play the Indian infrastructure story:
• JPA has emerged as the third largest cement group in the country with its current
capacity of ~25 mtpa. The company is set to become a pan-India player with its
3.5mtpa Balaji expansion in Andhra Pradesh.
• 700 MW of operational hydro power capacity, another 6,120 MW under construction:
Assured RoEs of 20% plus for the two operational plants and another 1,500 MW
expected to be commissioned in 2011. Projects till FY15E have fuel linkages and
have achieved financial closure.
• Against acquisition cost of ~INR 80/sq ft, JPA has been able to sell Noida real estate
at various price points ranging from INR 2300/sq ft to INR 6400/sq ft.
Key Risks
• With huge expansions planned across segments, execution risk remains.
• Sharp cement price correction in FY11.
• JPA is exposed to the risk of political upheaval or any exigencies in Uttar Pradesh.
• Increase in working capital costs.
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