Jaiprakash Associates: Asset Creation Thesis Still Intact ::Morgan Stanley Research,

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Jaiprakash Associates (JAIA.BO): Asset Creation Thesis Still Intact
What’s Priced in? What’s the Market Missing?
 The industrials sector (ex L&T) has underperformed significantly vs.
the broad market in the last 12 months. Even within the industrials
space, we believe that the market has been biased against asset
creators (such as JPA) with near-/medium-term requirements for
capital, preferring the constructors and equipment providers instead.
JPA’s stock price has fallen 34% in the last 12 months,
underperforming the market by nearly 40%, and taking the holding
company discount to 72% (based on the market value of the listed
power and real estate subsidiaries).
 We think that market concerns on the funding requirement have
been overdone. JPA has already commissioned the first unit of the
1000 MW Karcham hydro project. We believe that the company’s
being onstream to commission the entire plant by F2Q12 creates a
potential source to ease pressure on the JPVL and the consolidated
balance sheets. The securitization of the cash flows of the plant
could raise around Rs50bn, in our opinion, apart from the potential
stock issuance of Rs35bn in JPVL, almost entirely wiping out the
funding gap that exists on the balance sheet (based on announced
projects).
Near-Term Catalysts
 Any move from JPVL to securitize the cash flows from Karcham
would be a strong driver since it would force the market to the
realization that the funding gap in the group is close to bridged.
 We believe that cement prices are likely to recover after the
monsoon, which will present a strong growth driver for Jaiprakash’s
earnings numbers from F2Q12e. The cement division contributed to
26% of the EBIT in F2011