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Jaiprakash Associates Ltd.----------------------------------------------- Maintain OUTPERFORM
Construction margins disappointed but 4Q11 results in line
Abhishek Bansal / Research Analyst / 91 22 6777 3968 / abhishek.bansal@credit-suisse.com
● JPA’s 4Q11 cement business performance was robust, mainly led
by an 11% QoQ increase in cement realisation, higher than the
industry average of 8.4%, as northern and western India
(accounting for most of JPA’s cement sales) saw higher price
increases during 4Q. This, coupled with ongoing cost optimisation,
led to cement EBIT of Rs2.2 bn being 25% higher than our
estimate.
● But construction margins of 12.3% (down 785 bp YoY) were weak
and were affected on account of JPA executing a high share of
low-margin real estate projects of Jaypee Infratech in Noida
during 4Q. Its construction EBIT declined 46% YoY and was 24%
below CS estimate.
● Overall, operating results were lower than our estimates. But, led
by lower-than-expected depreciation and interest costs, recurring
PAT of Rs2.9 bn (up 17% YoY) was in line with our estimate.
● We cut our FY12E-13E EPS by 4-13%, led by our expectation of
further increase in coal cost (to impact cement business), lower
construction margins and higher interest rates. We lower our
target price to Rs123 on our lower cement and construction
business valuation and the reduced value of its treasury shares.
We maintain our OUTPERFORM rating.
Cement surprises, construction margins weak
Cement prices for the industry in general increased 8.4% QoQ during
4Q11. Price increases in western and northern India, which account for
majority of JPA’s sales, were higher than the industry average. This
benefited JPA as underscored by its 11% QoQ increase in cement
realisation.
Figure 1: JPA – cement business performance summary
4QFY10 3QFY11 4QFY11 % QoQ % YoY
Sales (mn tonnes) 3.6 3.7 4.2 14% 16%
Net Sales (Rs mn) 12,334 12,374 15,685 27% 27%
Realisation (Rs / tonne) 3,407 3,363 3,734 11% 10%
Ebit/ tonne (Rs /tonne) 828 386 531 37% -36%
Source: Company data, Credit Suisse estimates
Higher cement realisation combined with ongoing cost optimisation at
its cement business led to cement operating margin of 14.2% vs our
expectation of 10.5%. This resulted in cement profit of Rs2.2 bn, 25%
ahead of our estimate. But, construction profit of Rs2.2 bn was down
46% YoY and 24% below our estimate. Despite stronger-thanexpected
construction sales, this was led by weak margins that fell to
12.3% (down 785 bp YoY), led by JPA executing a high share of lowmargin
real estate projects of Jaypee Infratech in Noida.
Figure 2: JPA – Key business segment performance summary
4Q FY10 4Q FY11 % YoY 4Q FY11E % difference
Revenues
Cement 12,334 15,685 27% 16,926 -7%
Construction 19,958 17,806 -11% 15,500 15%
Real Estate 1,244 5,968 380% 3,500 71%
EBIT
Cement 2,997 2,229 -26% 1,777 25%
Construction 4,015 2,185 -46% 2,868 -24%
Real Estate 388 2,855 635% 1,575 81%
EBIT Margin
Cement 24.3% 14.2% (1,009) 10.5% 371
Construction 20.1% 12.3% (785) 18.5% (623)
Real Estate 31.2% 47.8% 1,661 45.0% 284
Source: Company data, Credit Suisse estimates
Overall, operating results were lower than our estimates, mainly led by
weak construction margins. However, led by lower-than-expected
depreciation and interest costs, recurring PAT of Rs2.9b n (up 17% YoY)
was in line with our estimate. Reported PAT included prior period
adjustment of Rs3.4 mn and writeback of excess tax provided earlier of
Rs140.9 mn.
Figure 3: JPA – 4Q FY11 standalone results summary
(Rs mn) 4QFY10 4QFY11 % YoY 4QFY11E % difference
Sales 32,804 39,053 19 35,144 11
Operating expenses (24,915) (31,313) 26 (26,324) 19
EBITDA 7,889 7,740 (2) 8,820 (12)
EBITDA Margin (%) 24.0% 19.8% (423) 25.1% (528)
Depreciation (1,334) (1,507) 13 (1,750) (14)
EBIT 6,555 6,234 (5) 7,070 (12)
EBIT Margin (%) 20.0% 16.0% (402) 20.1% (415)
Net Interest expenses (2,209) (2,355) 7 (3,232) (27)
PBT 4,346 3,879 (11) 3,838 1
PBT Margin (%) 13.2% 9.9% (331) 10.9% (99)
Total Tax (1,890) (997) (47) (959) 4
Tax rate (%) 43.5% 25.7% (1,778) 25.0% 71
Recurring PAT 2,456 2,882 17 2,878 0
Recurring PAT margin (%) 7.5% 7.4% (11) 8.2% (81)
Exceptional Items (16) 138 (965) 0 N.A.
PAT 2,440 3,020 24 2,878 5
Source: Company data, Credit Suisse estimates
Cut FY12E-13E EPS by 4-13%; maintain OUTPERFORM
We cut our FY12-13 earnings estimate by 4-13%, mainly led by our
expectation of increase in coal cost (to impact cement business), lower
construction business margins and higher interest rates. Consequently,
we cut our price target to Rs123 (from Rs140) on our lower cement and
construction business valuation, and the reduced value of its treasury
shares. We maintain our OUTPERFORM rating for the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Associates Ltd.----------------------------------------------- Maintain OUTPERFORM
Construction margins disappointed but 4Q11 results in line
Abhishek Bansal / Research Analyst / 91 22 6777 3968 / abhishek.bansal@credit-suisse.com
● JPA’s 4Q11 cement business performance was robust, mainly led
by an 11% QoQ increase in cement realisation, higher than the
industry average of 8.4%, as northern and western India
(accounting for most of JPA’s cement sales) saw higher price
increases during 4Q. This, coupled with ongoing cost optimisation,
led to cement EBIT of Rs2.2 bn being 25% higher than our
estimate.
● But construction margins of 12.3% (down 785 bp YoY) were weak
and were affected on account of JPA executing a high share of
low-margin real estate projects of Jaypee Infratech in Noida
during 4Q. Its construction EBIT declined 46% YoY and was 24%
below CS estimate.
● Overall, operating results were lower than our estimates. But, led
by lower-than-expected depreciation and interest costs, recurring
PAT of Rs2.9 bn (up 17% YoY) was in line with our estimate.
● We cut our FY12E-13E EPS by 4-13%, led by our expectation of
further increase in coal cost (to impact cement business), lower
construction margins and higher interest rates. We lower our
target price to Rs123 on our lower cement and construction
business valuation and the reduced value of its treasury shares.
We maintain our OUTPERFORM rating.
Cement surprises, construction margins weak
Cement prices for the industry in general increased 8.4% QoQ during
4Q11. Price increases in western and northern India, which account for
majority of JPA’s sales, were higher than the industry average. This
benefited JPA as underscored by its 11% QoQ increase in cement
realisation.
Figure 1: JPA – cement business performance summary
4QFY10 3QFY11 4QFY11 % QoQ % YoY
Sales (mn tonnes) 3.6 3.7 4.2 14% 16%
Net Sales (Rs mn) 12,334 12,374 15,685 27% 27%
Realisation (Rs / tonne) 3,407 3,363 3,734 11% 10%
Ebit/ tonne (Rs /tonne) 828 386 531 37% -36%
Source: Company data, Credit Suisse estimates
Higher cement realisation combined with ongoing cost optimisation at
its cement business led to cement operating margin of 14.2% vs our
expectation of 10.5%. This resulted in cement profit of Rs2.2 bn, 25%
ahead of our estimate. But, construction profit of Rs2.2 bn was down
46% YoY and 24% below our estimate. Despite stronger-thanexpected
construction sales, this was led by weak margins that fell to
12.3% (down 785 bp YoY), led by JPA executing a high share of lowmargin
real estate projects of Jaypee Infratech in Noida.
Figure 2: JPA – Key business segment performance summary
4Q FY10 4Q FY11 % YoY 4Q FY11E % difference
Revenues
Cement 12,334 15,685 27% 16,926 -7%
Construction 19,958 17,806 -11% 15,500 15%
Real Estate 1,244 5,968 380% 3,500 71%
EBIT
Cement 2,997 2,229 -26% 1,777 25%
Construction 4,015 2,185 -46% 2,868 -24%
Real Estate 388 2,855 635% 1,575 81%
EBIT Margin
Cement 24.3% 14.2% (1,009) 10.5% 371
Construction 20.1% 12.3% (785) 18.5% (623)
Real Estate 31.2% 47.8% 1,661 45.0% 284
Source: Company data, Credit Suisse estimates
Overall, operating results were lower than our estimates, mainly led by
weak construction margins. However, led by lower-than-expected
depreciation and interest costs, recurring PAT of Rs2.9b n (up 17% YoY)
was in line with our estimate. Reported PAT included prior period
adjustment of Rs3.4 mn and writeback of excess tax provided earlier of
Rs140.9 mn.
Figure 3: JPA – 4Q FY11 standalone results summary
(Rs mn) 4QFY10 4QFY11 % YoY 4QFY11E % difference
Sales 32,804 39,053 19 35,144 11
Operating expenses (24,915) (31,313) 26 (26,324) 19
EBITDA 7,889 7,740 (2) 8,820 (12)
EBITDA Margin (%) 24.0% 19.8% (423) 25.1% (528)
Depreciation (1,334) (1,507) 13 (1,750) (14)
EBIT 6,555 6,234 (5) 7,070 (12)
EBIT Margin (%) 20.0% 16.0% (402) 20.1% (415)
Net Interest expenses (2,209) (2,355) 7 (3,232) (27)
PBT 4,346 3,879 (11) 3,838 1
PBT Margin (%) 13.2% 9.9% (331) 10.9% (99)
Total Tax (1,890) (997) (47) (959) 4
Tax rate (%) 43.5% 25.7% (1,778) 25.0% 71
Recurring PAT 2,456 2,882 17 2,878 0
Recurring PAT margin (%) 7.5% 7.4% (11) 8.2% (81)
Exceptional Items (16) 138 (965) 0 N.A.
PAT 2,440 3,020 24 2,878 5
Source: Company data, Credit Suisse estimates
Cut FY12E-13E EPS by 4-13%; maintain OUTPERFORM
We cut our FY12-13 earnings estimate by 4-13%, mainly led by our
expectation of increase in coal cost (to impact cement business), lower
construction business margins and higher interest rates. Consequently,
we cut our price target to Rs123 (from Rs140) on our lower cement and
construction business valuation, and the reduced value of its treasury
shares. We maintain our OUTPERFORM rating for the stock.
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