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Tiding over headwinds
JPA’s FY11 AR indicates standalone negative FCF of Rs44bn; we expect this to turn
positive from FY13 but gearing remains elevated. However, JPA should be able to
tide over this; standalone Ebitda is enough to service interest while at a consol
level JIT cashflow is comfortable and JPVL has enough cash to fund a year of
investments. This should also ease concerns around banks’ exposure to JPA,
India’s sixth largest borrower. Downside is limited at 1.2x PB; project completions,
pick-up in cement cashflow and a near-peak of the rate-cycle are catalysts. BUY.
Negative FCF. JPA’s FY11AR indicated that it generated an all time high Rs12bn in
OpCF. Nonetheless, FCF was negative Rs44bn due to Rs47bn in capex and Rs9bn in
investments. Cement capex was high at Rs30bn and power capex also rose to Rs10bn
with JPA executing the 360MW CPP projects at Churk and Sidhi. JPA also infused
Rs2.8bn in its cement subs and Rs6.4bn on Agra-Vikas, Ganga-Ex and JP-Sports.
Elevated gearing. With standalone debt at Rs217bn, gearing is high at 2.4x d/e and
7.5x d/ebitda. Higher debt also led to a 30% rise in gross interest expenses in FY11 to
Rs20bn; average costs were flat at ~10%. As with FY10, JPA capitalised 30% of costs.
We model another 30% rise in FY12 on rising rates (+125bps) and debt but JPA should
be able to tide over this; recent hikes in cement prices in North, Central and JPA’s
strong despatches in Jul-Aug make us more sanguine. We model Rs13bn in cement
Ebitda (17mt sales, Rs755/t) and Rs13bn from the other businesses (E&C, real estate).
Negative FCF in FY12. Nevertheless, with capex and investments continuing, FY12
will have negative FCF too. Sans any part or full divestments (as media reports
speculate), debt will rise by Rs21bn, therefore, to Rs238bn by Mar-12. Together with
the Rs20bn in repayments due annually, JPA will need to firm up ~Rs40bn of additional
lines in FY12. This should be possible, though, as it should be able to rollover or
enhance its balance sheet INR loan sanctions (now at Rs55bn). Further, it can also
raise debt from privately placed debentures and retail deposits; indeed these avenues
funded 65% of the rise in debt in the last two years and make up a third of debt now.
Concerns on debt servicing overdone. Even with rising debt, however, standalone
Ebitda is enough to service interest. Among the subs, JIT cashflow is comfortable and
JPVL has enough cash to fund a year of equity infusion in its SPVs. This should also
ease concerns around banks’ exposure to JPA, India’s sixth largest borrower. We detail
our assumptions on individual lender exposures in Fig-30 and our estimate of these in
Figs 31-34. ICICI (24% of consol debt of Rs444bn), Axis, PNB, IDBI and SBI appear to
have the highest exposures. ICICI, PNB and IDBI have the highest undrawn sanctions.
BUY. JPA’s muted near term earnings trajectory will delay deleveraging (management
is hopeful of a substantial cut in FY12, though) but downside is limited at 1.2x PB.
Meanwhile, a near-peak in the rate cycle, a rebound in cement demand, healthy real
estate collections and project completions (1000MW Karcham underway, 500MW Bina
by Mar-12, F1 in Oct-11, Yamuna-Ex in Mar-12) are catalysts to our Rs90/sh target.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tiding over headwinds
JPA’s FY11 AR indicates standalone negative FCF of Rs44bn; we expect this to turn
positive from FY13 but gearing remains elevated. However, JPA should be able to
tide over this; standalone Ebitda is enough to service interest while at a consol
level JIT cashflow is comfortable and JPVL has enough cash to fund a year of
investments. This should also ease concerns around banks’ exposure to JPA,
India’s sixth largest borrower. Downside is limited at 1.2x PB; project completions,
pick-up in cement cashflow and a near-peak of the rate-cycle are catalysts. BUY.
Negative FCF. JPA’s FY11AR indicated that it generated an all time high Rs12bn in
OpCF. Nonetheless, FCF was negative Rs44bn due to Rs47bn in capex and Rs9bn in
investments. Cement capex was high at Rs30bn and power capex also rose to Rs10bn
with JPA executing the 360MW CPP projects at Churk and Sidhi. JPA also infused
Rs2.8bn in its cement subs and Rs6.4bn on Agra-Vikas, Ganga-Ex and JP-Sports.
Elevated gearing. With standalone debt at Rs217bn, gearing is high at 2.4x d/e and
7.5x d/ebitda. Higher debt also led to a 30% rise in gross interest expenses in FY11 to
Rs20bn; average costs were flat at ~10%. As with FY10, JPA capitalised 30% of costs.
We model another 30% rise in FY12 on rising rates (+125bps) and debt but JPA should
be able to tide over this; recent hikes in cement prices in North, Central and JPA’s
strong despatches in Jul-Aug make us more sanguine. We model Rs13bn in cement
Ebitda (17mt sales, Rs755/t) and Rs13bn from the other businesses (E&C, real estate).
Negative FCF in FY12. Nevertheless, with capex and investments continuing, FY12
will have negative FCF too. Sans any part or full divestments (as media reports
speculate), debt will rise by Rs21bn, therefore, to Rs238bn by Mar-12. Together with
the Rs20bn in repayments due annually, JPA will need to firm up ~Rs40bn of additional
lines in FY12. This should be possible, though, as it should be able to rollover or
enhance its balance sheet INR loan sanctions (now at Rs55bn). Further, it can also
raise debt from privately placed debentures and retail deposits; indeed these avenues
funded 65% of the rise in debt in the last two years and make up a third of debt now.
Concerns on debt servicing overdone. Even with rising debt, however, standalone
Ebitda is enough to service interest. Among the subs, JIT cashflow is comfortable and
JPVL has enough cash to fund a year of equity infusion in its SPVs. This should also
ease concerns around banks’ exposure to JPA, India’s sixth largest borrower. We detail
our assumptions on individual lender exposures in Fig-30 and our estimate of these in
Figs 31-34. ICICI (24% of consol debt of Rs444bn), Axis, PNB, IDBI and SBI appear to
have the highest exposures. ICICI, PNB and IDBI have the highest undrawn sanctions.
BUY. JPA’s muted near term earnings trajectory will delay deleveraging (management
is hopeful of a substantial cut in FY12, though) but downside is limited at 1.2x PB.
Meanwhile, a near-peak in the rate cycle, a rebound in cement demand, healthy real
estate collections and project completions (1000MW Karcham underway, 500MW Bina
by Mar-12, F1 in Oct-11, Yamuna-Ex in Mar-12) are catalysts to our Rs90/sh target.
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