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JPA (JPRKF, Buy)
Bear Case: What can go wrong
In bear markets, equity funding for its new power projects may get tough so
we remove all future projects starting after FY15E that are not ordered yet.
Bear markets could delay capex, which will slow down cement volume
growth by 500bps to 23% in FY13 vs our estimates. Weak demand drive
cements ASP to fall, cut ASP by 5% in FY13 vs base case.
As Realty & capex slow down, we assumed 9% cut in E&C revenues and a
5% fall in FY13E revenue at JPA Noida realty, on delay in deliveries.
Interest rate to go up, assumed a 100bps higher interest rate in FY13E.
All of above could severely hit cash-flow as FY13E parent EPS could fall
58%YoY impacting debt repayment ability given JPA's leveraged parent
balance-sheet (net D/E 2x). This may also impact CB repayment in 2QFY13.
Base Case
In the base case, we expect parent EPS to grow at 84%YoY on low base.
We cut our SOTP value to factor in 15% cut in JP Power value to Rs55
(Rs65).
We expect the stock to trade at Rs115/share (lowered from Rs120). With
parent E&C at 6x FY13 EBITDA and parent cement US$78/tn of FY13E
capacity.
Risk-Reward: Favorable once dust settles
In the bear case, we expect the stock could trade at Rs55/share at 1.35x
P/BV of FY13E implying a 17% downside to CMP.
In the base case we, expect the stock to trade at Rs115/share at 2.6x P/BV
of FY13E implying a 70% upside to CMP.
Overall, the risk-reward appears favorable once leverage concerns subside
and market pays rational attention to cash-flows contained in its long-tail
assets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JPA (JPRKF, Buy)
Bear Case: What can go wrong
In bear markets, equity funding for its new power projects may get tough so
we remove all future projects starting after FY15E that are not ordered yet.
Bear markets could delay capex, which will slow down cement volume
growth by 500bps to 23% in FY13 vs our estimates. Weak demand drive
cements ASP to fall, cut ASP by 5% in FY13 vs base case.
As Realty & capex slow down, we assumed 9% cut in E&C revenues and a
5% fall in FY13E revenue at JPA Noida realty, on delay in deliveries.
Interest rate to go up, assumed a 100bps higher interest rate in FY13E.
All of above could severely hit cash-flow as FY13E parent EPS could fall
58%YoY impacting debt repayment ability given JPA's leveraged parent
balance-sheet (net D/E 2x). This may also impact CB repayment in 2QFY13.
Base Case
In the base case, we expect parent EPS to grow at 84%YoY on low base.
We cut our SOTP value to factor in 15% cut in JP Power value to Rs55
(Rs65).
We expect the stock to trade at Rs115/share (lowered from Rs120). With
parent E&C at 6x FY13 EBITDA and parent cement US$78/tn of FY13E
capacity.
Risk-Reward: Favorable once dust settles
In the bear case, we expect the stock could trade at Rs55/share at 1.35x
P/BV of FY13E implying a 17% downside to CMP.
In the base case we, expect the stock to trade at Rs115/share at 2.6x P/BV
of FY13E implying a 70% upside to CMP.
Overall, the risk-reward appears favorable once leverage concerns subside
and market pays rational attention to cash-flows contained in its long-tail
assets.
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