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Multiple woes
Soft cement demand, adverse sentiment around UP real estate, heavy
capex needs of JPVL and rising interest rates remain overhangs for JPA.
There are no quick fixes; we are cutting FY12-14 consol EPS by 21-38%
to factor in lower cement profits, higher interest costs and cuts to JIT
EPS. This will delay deleveraging of the parent’s balance sheet but we still
expect a gradual rebound in cashflow to help drive a re-rating.
Meanwhile, at a ~55% discount to our SOTP, downside is limited. BUY.
1QFY12 largely inline; weaker cement, stronger E&C
JPA’s 1QFY12 recurring standalone EPS rose 2%YoY to Re0.5/sh – inline with
estimates. Cement was weaker than expected with Ebit down 32%YoY as
subdued volumes and poor operating rates weighed on performance; we
estimate Ebitda at Rs815/t. E&C was stronger while real estate was inline.
Ebit and Ebitda was up 13%YoY but core PBT fell 13% weighed down by the
expected 30%YoY rise in interest costs; higher tax rates (~40%) also hurt.
Net debt rises to ~Rs200bn; abysmal return ratios
Net debt rose Rs7.2bn QoQ to ~Rs200bn on the back of a Rs2.7bn QoQ rise
in investments and Rs10bn in capex (cement, merchant power) and changes
in working capital (likely real estate). Annualised core ROCE fell to an
abysmal 6.1% dragged down by cement where 1Q annualised RoCE was just
3.4%. Net debt to equity rose to 2.1x with net debt to t-12m Ebitda at 6.2x.
Weak macro; there are no quick fixes; we cut EPS by 21-38%
Soft cement demand, adverse sentiment around real estate, large capex of
JPVL and rising rates remain overhangs; high financial leverage accentuates
the impact of the weak macro. We are cutting FY12-14 consol EPS by 21-38%
to factor in lower cement Ebitda (volumes, profitability), real estate Ebitda
(slower execution) and pushback of some of 67%-sub JPVL’s power projects
(which impact JPA E&C) and higher interest (higher rates, debt on EPS cuts).
Delay in de-leveraging; downside limited; keep BUY with lower TP
The lower EPS trajectory (we model a net loss in 2QFY12 on lower cement
Ebit) will delay the deleveraging of the parent’s balance sheet to FY13; JPA
remains confident of a substantial cut in FY12. Nonetheless, we are
encouraged from the small negative FCFF in 1Q and expect positive FCFF
from FY13 to drive a re-rating. Meanwhile, at a 55% discount to our SOTP
and 1.2x PB (similar to the 2008-9 crisis), downside is limited. We have cut
our target to Rs90/sh to factor in lower earnings and cuts to JIT and JPVL fair
value but this still indicates a ~40% upside. A peaking of the rate cycle, a
gradual rebound in investment demand, resolution of the Noida imbroglio and
a stabilization of cashflows from Karcham are likely catalysts. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Multiple woes
Soft cement demand, adverse sentiment around UP real estate, heavy
capex needs of JPVL and rising interest rates remain overhangs for JPA.
There are no quick fixes; we are cutting FY12-14 consol EPS by 21-38%
to factor in lower cement profits, higher interest costs and cuts to JIT
EPS. This will delay deleveraging of the parent’s balance sheet but we still
expect a gradual rebound in cashflow to help drive a re-rating.
Meanwhile, at a ~55% discount to our SOTP, downside is limited. BUY.
1QFY12 largely inline; weaker cement, stronger E&C
JPA’s 1QFY12 recurring standalone EPS rose 2%YoY to Re0.5/sh – inline with
estimates. Cement was weaker than expected with Ebit down 32%YoY as
subdued volumes and poor operating rates weighed on performance; we
estimate Ebitda at Rs815/t. E&C was stronger while real estate was inline.
Ebit and Ebitda was up 13%YoY but core PBT fell 13% weighed down by the
expected 30%YoY rise in interest costs; higher tax rates (~40%) also hurt.
Net debt rises to ~Rs200bn; abysmal return ratios
Net debt rose Rs7.2bn QoQ to ~Rs200bn on the back of a Rs2.7bn QoQ rise
in investments and Rs10bn in capex (cement, merchant power) and changes
in working capital (likely real estate). Annualised core ROCE fell to an
abysmal 6.1% dragged down by cement where 1Q annualised RoCE was just
3.4%. Net debt to equity rose to 2.1x with net debt to t-12m Ebitda at 6.2x.
Weak macro; there are no quick fixes; we cut EPS by 21-38%
Soft cement demand, adverse sentiment around real estate, large capex of
JPVL and rising rates remain overhangs; high financial leverage accentuates
the impact of the weak macro. We are cutting FY12-14 consol EPS by 21-38%
to factor in lower cement Ebitda (volumes, profitability), real estate Ebitda
(slower execution) and pushback of some of 67%-sub JPVL’s power projects
(which impact JPA E&C) and higher interest (higher rates, debt on EPS cuts).
Delay in de-leveraging; downside limited; keep BUY with lower TP
The lower EPS trajectory (we model a net loss in 2QFY12 on lower cement
Ebit) will delay the deleveraging of the parent’s balance sheet to FY13; JPA
remains confident of a substantial cut in FY12. Nonetheless, we are
encouraged from the small negative FCFF in 1Q and expect positive FCFF
from FY13 to drive a re-rating. Meanwhile, at a 55% discount to our SOTP
and 1.2x PB (similar to the 2008-9 crisis), downside is limited. We have cut
our target to Rs90/sh to factor in lower earnings and cuts to JIT and JPVL fair
value but this still indicates a ~40% upside. A peaking of the rate cycle, a
gradual rebound in investment demand, resolution of the Noida imbroglio and
a stabilization of cashflows from Karcham are likely catalysts. Maintain BUY.
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