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Jaiprakash Associates -Rising anew
We initiate on Jaiprakash with a BUY as the completion of several cement
projects should dovetail with resilient real-estate sales to lift consolidated
earnings sixfold over FY10-14. A moderation in capex will allow the
conglomerate to turn free-cashflow positive from FY13 causing
standalone net gearing to fall gradually and return ratios to rise to double
digits. Jaiprakash’s deep discount to fair asset value and its own historical
valuations looks attractive. Our Rs130 price target suggests 57% upside.
Commendable project execution
Jaiprakash Associates (JPA) has been weighed down by heavy capex across its
businesses in the past five years. This is set to change helped by a 90% increase
in cement capacity over FY10-13 and resilient real-estate sales at JPA as well as
in 83%-subsidiary Jaypee Infratech (JIT). Key infrastructure projects like JIT’s
Yamuna Expressway toll road and 1,500MW of additional power-generation
capacity in 67%-subsidiary Jaiprakash Power (JPVL) will be onstream by 4QFY12.
Sixfold rise in consolidated profit over FY10-14
A trebling of cement production over FY10-14 will offset lower construction
revenue and rising depreciation and interest expenses, allowing standalone
profit to enjoy an 11% Cagr over this period. We expect consolidated profit to
rise sixfold however, on resilient earnings in JIT and as capacity of JPVL
expands from 700MW today to 7,480MW by March 2015 starting with the
1,000MW Karcham Wangtoo hydropower project from 1QFY12.
Standalone gearing has peaked; free cashflow to rise
A strong ramp-up in cement Ebitda will mesh with falling capex, allowing JPA to
turn FCF positive by FY13. Standalone net gearing should fall quickly thereafter
while return ratios will rise. With JPVL still executing projects, consolidated net
debt will double by FY14 but long-term offtake agreements, the commissioning
of the Karcham and Bina power projects and JPVL’s impending equity raising will
mitigate risks. Healthy customer inflows and strong FCF at JIT are also tailwinds.
Attractive valuations
Our sum-of-the-parts-based valuation indicates a March 2012 fair value of
Rs160. Our Rs130/share target price is based on a 20% conglomerate discount,
similar to the long-term averages of regional peers, and suggests 57% upside.
The completion of its cement projects, commissioning of Karcham, strong JIT
cashflow, JPVL’s equity raising and rising operating cashflow across businesses as
well as lower gearing are catalysts for a rerating. We initiate with a BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Associates -Rising anew
We initiate on Jaiprakash with a BUY as the completion of several cement
projects should dovetail with resilient real-estate sales to lift consolidated
earnings sixfold over FY10-14. A moderation in capex will allow the
conglomerate to turn free-cashflow positive from FY13 causing
standalone net gearing to fall gradually and return ratios to rise to double
digits. Jaiprakash’s deep discount to fair asset value and its own historical
valuations looks attractive. Our Rs130 price target suggests 57% upside.
Commendable project execution
Jaiprakash Associates (JPA) has been weighed down by heavy capex across its
businesses in the past five years. This is set to change helped by a 90% increase
in cement capacity over FY10-13 and resilient real-estate sales at JPA as well as
in 83%-subsidiary Jaypee Infratech (JIT). Key infrastructure projects like JIT’s
Yamuna Expressway toll road and 1,500MW of additional power-generation
capacity in 67%-subsidiary Jaiprakash Power (JPVL) will be onstream by 4QFY12.
Sixfold rise in consolidated profit over FY10-14
A trebling of cement production over FY10-14 will offset lower construction
revenue and rising depreciation and interest expenses, allowing standalone
profit to enjoy an 11% Cagr over this period. We expect consolidated profit to
rise sixfold however, on resilient earnings in JIT and as capacity of JPVL
expands from 700MW today to 7,480MW by March 2015 starting with the
1,000MW Karcham Wangtoo hydropower project from 1QFY12.
Standalone gearing has peaked; free cashflow to rise
A strong ramp-up in cement Ebitda will mesh with falling capex, allowing JPA to
turn FCF positive by FY13. Standalone net gearing should fall quickly thereafter
while return ratios will rise. With JPVL still executing projects, consolidated net
debt will double by FY14 but long-term offtake agreements, the commissioning
of the Karcham and Bina power projects and JPVL’s impending equity raising will
mitigate risks. Healthy customer inflows and strong FCF at JIT are also tailwinds.
Attractive valuations
Our sum-of-the-parts-based valuation indicates a March 2012 fair value of
Rs160. Our Rs130/share target price is based on a 20% conglomerate discount,
similar to the long-term averages of regional peers, and suggests 57% upside.
The completion of its cement projects, commissioning of Karcham, strong JIT
cashflow, JPVL’s equity raising and rising operating cashflow across businesses as
well as lower gearing are catalysts for a rerating. We initiate with a BUY.
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