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Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs105
Current market price: Rs77
New orders in bag, execution a key challenge
The company has bagged orders worth Rs913 crore in Bhutan for construction of 720MW hydroelectric projects. The expected margin in the newly awarded projects is around 20-21%, which we believe is positive for the engineering, procurement and construction (EPC) division of the company. Further, the company has successfully completed two mega projects, namely the Karcham Wangtoo project and the Yamuna Expressway project, and will start generating revenue in the near term. Further, the cement division has posted a robust 40% volume growth for February 2012 due to an improvement in the cement demand and capacity addition. With the increase in the price of cement in the past couple of months, the realisation and EBITDA per tonne of cement in Q4FY2012 are expected to improve on a sequential basis.
Valuation: We continue to like JAL due to its diversified business model and aggressive expansion plan. However, the cost pressure in the cement division and the fluctuating profitability in the construction division will be the key risks. In terms of valuation, we continue to value the stock using the sum-of-the parts (SOTP) valuation method and arrive at a value of Rs105 per share. We maintain our Buy recommendation on the stock with a price target of Rs105. At the current market price, the stock is trading at PE of 25.1x FY2012 and 18.5x FY2013 earnings estimates.
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