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Jaiprakash Associates: Emerging giant; maintain Buy
Volume growth
Jaiprakash Industries is likely to emerge as
the third largest cement group in India, with
total capacity of ~33m tons (~36m tons
capacity under control). In the next round of
capacity additions, it is targeting production
of 50m tons.
We estimate volume growth of 24.2% CAGR
over FY11-13, driven by ramp-up in new
capacities.
Volume growth would be driven by the
recently commissioned ~11m-ton capacities
(over FY10-12).
Market mix
We expect Jaiprakash to diversify its cement
operations to become a pan-India play, with
a strong foothold in North and Central India.
Incremental volumes would be well diversified,
as its operations in new regions scale up.
We expect the company's 4QFY11
realization to improve by Rs20/bag QoQ.
Cost and profitability
Jaiprakash is highly dependent on domestic
coal for its energy requirement; ~90% of its
current requirement is being met by
domestic coal (45-50% linkage). We
estimate Rs3-4/bag increase in cost due to
increase in domestic coal prices by Coal
India.
However, benefit of fiscal incentives (at UP
and HP plant) coupled with benefit of higher
operating leverage would offset cost push.
We estimate EBITDA/ton to improve by
Rs400 QoQ in 4QFY11 to Rs1,123 and by
Rs40 in FY11 to Rs1,018.
Valuation and view
The stock trades at 16.7x FY12E and 13.8x
FY13E earnings.
Our SOTP based target price is Rs108,
comprising the cement business at Rs84/
share (8x FY12E EV/EBIDTA), E&C division
at Rs31/share (6x FY12E EV/EBIT), power
business at Rs27/share (DCF), real estate
at Rs33/share (NAV) and net debt of
Rs67/share.
We maintain Buy, with an SOTP-based
target price of Rs108
Jaiprakash Associates: Emerging giant; maintain Buy
Volume growth to pick up: We estimate
volume growth of 24.2% CAGR over FY11-
13, driven by ramp-up in new capacities.?
Volume growth would be driven by recently
commissioned ~11m-ton capacities (over FY10-
12).
Incremental market mix to be welldiversified:
Incremental volumes for
Jaiprakash would be well diversified, as its
operations in new regions scale-up. Currently,
its market mix is concentrated in North and
Central India.
High dependence on domestic coal: The
company is highly dependent (~90%) on
domestic coal for its energy requirement. We
estimate Rs3-4/bag increase in cost due to
increase in domestic coal prices by Coal India.
Fiscal incentives to insulate superior
profitability: Jaiprakash enjoys fiscal
incentives at its Uttar Pradesh (~4m-ton
capacity) and Himachal Pradesh (~5m-ton
capacity) plants. Fiscal incentives are in the
form of excise duty exemption, sales tax
exemption/deferral, transport subsidy (HP plant
only) and income tax exemption (HP plant only).
We estimate Rs150-200/ton of savings on
blended basis due to these fiscal incentives
Jaiprakash Associates: Levers present for re-rating
Captive coal block to increase competitive
advantage: Jaiprakash has been allotted a coal
block in Mandla in Madhya Pradesh, with
estimated reserves of 180m tons. The mine will
start operations in 2011/2012 and be used to meet
coal requirement for a 7m-ton cement plant in
Rewa, Madhya Pradesh and a 5m-ton plant in
Baga, Himachal Pradesh and other captive
plants. The management estimates that the
captive mine will lead to savings of Rs1,000-
1,200/ton, as we estimate the cost of coal (from
captive mines) at Rs1,600/ton and coal
procurement cost is Rs2,800/ton.
Cement capacity target of 50mtpa: In the
next round of capacity additions, Jaiprakash is
targeting production of 50m tons. The business
has already witnessed significant ramp-up in
capacity from 7m tons in FY08 to 22.8m tons in
March 2010. Jaiprakash has achieved the
fastest rollout of greenfield capacity addition in
the sector and targets 34m tons of capacity by
FY12. We understand that a large part of the
planned cement capacity addition from 34m tons
to 50m tons will be brownfield, entailing
competitive capital cost
Jaiprakash Associates: RE/EPC business provides strong growth opportunity
In-house project portfolio provides strong
EPC business visibility: The Jaiprakash group
is working on 695msf of RE development and
13GW of power project development, which
provides strong revenue visibility on the EPC
division. Construction division order book stands
at Rs580b, including ~Rs300b of real estate,
~Rs250b of Arunachal Pradesh hydro power
projects, etc.
RE pre-sales strong, driving a pick-up in
near-term earnings growth: The group is
working on initial RE development at Noida
(through Jaypee Infratech and standalone
business) and Greater Noida (standalone entity).
During 9MFY11, real estate bookings were
13.6msf, comprising of 3.8msf for the standalone
entity and 9.8msf in Jaypee Infratech. As at
December 2010, cumulative pre-bookings for
the Jaiprakash group stand at Rs158b (including
Rs15b in 3QFY11), and customer advances
received stand at Rs76b (including Rs13b in
3QFY11). Cumulative customer advances
received are 48% of the cumulative bookings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Associates: Emerging giant; maintain Buy
Volume growth
Jaiprakash Industries is likely to emerge as
the third largest cement group in India, with
total capacity of ~33m tons (~36m tons
capacity under control). In the next round of
capacity additions, it is targeting production
of 50m tons.
We estimate volume growth of 24.2% CAGR
over FY11-13, driven by ramp-up in new
capacities.
Volume growth would be driven by the
recently commissioned ~11m-ton capacities
(over FY10-12).
Market mix
We expect Jaiprakash to diversify its cement
operations to become a pan-India play, with
a strong foothold in North and Central India.
Incremental volumes would be well diversified,
as its operations in new regions scale up.
We expect the company's 4QFY11
realization to improve by Rs20/bag QoQ.
Cost and profitability
Jaiprakash is highly dependent on domestic
coal for its energy requirement; ~90% of its
current requirement is being met by
domestic coal (45-50% linkage). We
estimate Rs3-4/bag increase in cost due to
increase in domestic coal prices by Coal
India.
However, benefit of fiscal incentives (at UP
and HP plant) coupled with benefit of higher
operating leverage would offset cost push.
We estimate EBITDA/ton to improve by
Rs400 QoQ in 4QFY11 to Rs1,123 and by
Rs40 in FY11 to Rs1,018.
Valuation and view
The stock trades at 16.7x FY12E and 13.8x
FY13E earnings.
Our SOTP based target price is Rs108,
comprising the cement business at Rs84/
share (8x FY12E EV/EBIDTA), E&C division
at Rs31/share (6x FY12E EV/EBIT), power
business at Rs27/share (DCF), real estate
at Rs33/share (NAV) and net debt of
Rs67/share.
We maintain Buy, with an SOTP-based
target price of Rs108
Jaiprakash Associates: Emerging giant; maintain Buy
Volume growth to pick up: We estimate
volume growth of 24.2% CAGR over FY11-
13, driven by ramp-up in new capacities.?
Volume growth would be driven by recently
commissioned ~11m-ton capacities (over FY10-
12).
Incremental market mix to be welldiversified:
Incremental volumes for
Jaiprakash would be well diversified, as its
operations in new regions scale-up. Currently,
its market mix is concentrated in North and
Central India.
High dependence on domestic coal: The
company is highly dependent (~90%) on
domestic coal for its energy requirement. We
estimate Rs3-4/bag increase in cost due to
increase in domestic coal prices by Coal India.
Fiscal incentives to insulate superior
profitability: Jaiprakash enjoys fiscal
incentives at its Uttar Pradesh (~4m-ton
capacity) and Himachal Pradesh (~5m-ton
capacity) plants. Fiscal incentives are in the
form of excise duty exemption, sales tax
exemption/deferral, transport subsidy (HP plant
only) and income tax exemption (HP plant only).
We estimate Rs150-200/ton of savings on
blended basis due to these fiscal incentives
Jaiprakash Associates: Levers present for re-rating
Captive coal block to increase competitive
advantage: Jaiprakash has been allotted a coal
block in Mandla in Madhya Pradesh, with
estimated reserves of 180m tons. The mine will
start operations in 2011/2012 and be used to meet
coal requirement for a 7m-ton cement plant in
Rewa, Madhya Pradesh and a 5m-ton plant in
Baga, Himachal Pradesh and other captive
plants. The management estimates that the
captive mine will lead to savings of Rs1,000-
1,200/ton, as we estimate the cost of coal (from
captive mines) at Rs1,600/ton and coal
procurement cost is Rs2,800/ton.
Cement capacity target of 50mtpa: In the
next round of capacity additions, Jaiprakash is
targeting production of 50m tons. The business
has already witnessed significant ramp-up in
capacity from 7m tons in FY08 to 22.8m tons in
March 2010. Jaiprakash has achieved the
fastest rollout of greenfield capacity addition in
the sector and targets 34m tons of capacity by
FY12. We understand that a large part of the
planned cement capacity addition from 34m tons
to 50m tons will be brownfield, entailing
competitive capital cost
Jaiprakash Associates: RE/EPC business provides strong growth opportunity
In-house project portfolio provides strong
EPC business visibility: The Jaiprakash group
is working on 695msf of RE development and
13GW of power project development, which
provides strong revenue visibility on the EPC
division. Construction division order book stands
at Rs580b, including ~Rs300b of real estate,
~Rs250b of Arunachal Pradesh hydro power
projects, etc.
RE pre-sales strong, driving a pick-up in
near-term earnings growth: The group is
working on initial RE development at Noida
(through Jaypee Infratech and standalone
business) and Greater Noida (standalone entity).
During 9MFY11, real estate bookings were
13.6msf, comprising of 3.8msf for the standalone
entity and 9.8msf in Jaypee Infratech. As at
December 2010, cumulative pre-bookings for
the Jaiprakash group stand at Rs158b (including
Rs15b in 3QFY11), and customer advances
received stand at Rs76b (including Rs13b in
3QFY11). Cumulative customer advances
received are 48% of the cumulative bookings
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