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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The stock has been punished 60% since the peak, as a result of deteriorating
fundamentals across businesses and high leverage. While catalysts for an
outright OW still appear some time away, we think JPA could outperform its
listed subs and advocate a pair trade of Long JPA – Short JPVL.
JPA’s residual value1, at Rs35B, implying an EV/EBITDA of 10x FY12
earnings, is at its lowest since JPIN and JPVL became significant subs
(circa Mid-10). We attribute this dip to 1) leverage and balance sheet strain
due to cement expansion and at non-contributing subs such as Sports City,
2) weak visibility for construction segment, as captive real-estate
construction is rising and third-party hydropower sales are falling, 3) less
clarity on value-unlocking for unlisted businesses, 4) political uncertainty,
given impending elections mid-next-year in the home-state of UP, and 5)
high risk of dilution of JPA’s stake in power sub JPVL.
Potential catalysts for Long JPA – Short JPVL trade: The residual value
could expand if 1) cement strategic sale news flow gains traction, 2) cement
fundamentals improve, making the debt less burdensome, 3) construction
visibility improves, and 4) political clarity emerges. Risks to the trade: 1)
further upward pressure on the interest rate cycle; 2) line-up of more capex
plans beyond what is currently factored in; and 3) time factor of 8-10
months for political outcome at UP.
Recent events – some positives and negatives: (1) Management denied
news reports (e.g. Business Standard) of a part-strategic sale of cement.
Partial sale (at the right valuation) could de-leverage the business and aid
valuation. (2) Cement volumes have pleasantly surprised over the past two
months, prompting us to raise our assumption of these for the year. (3) On
the other hand, JPA’s annual balance sheet shows that leverage has risen.
PT reduced to Rs76: After cutting our standalone earnings estimates by
23% for FY12 (on weak real estate revenue recognition and construction),
we see a ray of hope for FY13, where we are upgrading estimates by 9% to
factor in higher cement volumes and bunched up real estate revenues. Our
new PT of Rs76 (down from Rs88) factors in the recent PT cut for JPIN by
our real estate team and assumes a 20% conglomerate discount.
click below for Sector update
R-Infra, Adani and Jaiprakash - A stark price-value mismatch ::JPMorgan
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The stock has been punished 60% since the peak, as a result of deteriorating
fundamentals across businesses and high leverage. While catalysts for an
outright OW still appear some time away, we think JPA could outperform its
listed subs and advocate a pair trade of Long JPA – Short JPVL.
JPA’s residual value1, at Rs35B, implying an EV/EBITDA of 10x FY12
earnings, is at its lowest since JPIN and JPVL became significant subs
(circa Mid-10). We attribute this dip to 1) leverage and balance sheet strain
due to cement expansion and at non-contributing subs such as Sports City,
2) weak visibility for construction segment, as captive real-estate
construction is rising and third-party hydropower sales are falling, 3) less
clarity on value-unlocking for unlisted businesses, 4) political uncertainty,
given impending elections mid-next-year in the home-state of UP, and 5)
high risk of dilution of JPA’s stake in power sub JPVL.
Potential catalysts for Long JPA – Short JPVL trade: The residual value
could expand if 1) cement strategic sale news flow gains traction, 2) cement
fundamentals improve, making the debt less burdensome, 3) construction
visibility improves, and 4) political clarity emerges. Risks to the trade: 1)
further upward pressure on the interest rate cycle; 2) line-up of more capex
plans beyond what is currently factored in; and 3) time factor of 8-10
months for political outcome at UP.
Recent events – some positives and negatives: (1) Management denied
news reports (e.g. Business Standard) of a part-strategic sale of cement.
Partial sale (at the right valuation) could de-leverage the business and aid
valuation. (2) Cement volumes have pleasantly surprised over the past two
months, prompting us to raise our assumption of these for the year. (3) On
the other hand, JPA’s annual balance sheet shows that leverage has risen.
PT reduced to Rs76: After cutting our standalone earnings estimates by
23% for FY12 (on weak real estate revenue recognition and construction),
we see a ray of hope for FY13, where we are upgrading estimates by 9% to
factor in higher cement volumes and bunched up real estate revenues. Our
new PT of Rs76 (down from Rs88) factors in the recent PT cut for JPIN by
our real estate team and assumes a 20% conglomerate discount.
click below for Sector update
R-Infra, Adani and Jaiprakash - A stark price-value mismatch ::JPMorgan
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