4QFY12 EBITDA/PAT above estimates: During 4QFY12, Jaiprakash Associates reported standalone revenues of
INR41b (up 4% YoY), EBITDA of INR10b (up 32 % YoY), and net profit stood of INR2.8b (down 3.3% YoY). Reported
EBIDTA/PAT is better than our estimate of INR32b and INR6.8b, respectively. Operating performance is driven
by higher EPC / RE division, while performance of Cement division was muted. Interest cost for the quarter
was higher at INR5.8b (vs INR4.5b QoQ), which negated gain on operational front. Lower Tax/PBT ratio (9%)
however arrested PAT de-growth (PBT down 19% YoY).
Cement business performance muted: Cement division sales for 4QFY12 stood at 4.25m tons (flat QoQ)
pertaining to JAL (Gujarat cement plant divested in Jaypee Cement - 100% subsidiary). Realisation / EBIDTA
for the division was up by INR25/ton and INR82/ton QoQ. EBIT for the division however stood flat at INR2.1b
owing to higher depreciation.
E&C business performance driven by higher margin: EPC division performance was driven by superior margin
(EBIT margin at 24%, while revenue down 1% YoY) due to completion of Yamuna Expressway, Karcham Wangtoo
project, etc. Real estate division revenues picked up after 3-quarters of lull performance, which along with
higher EBIT margin (45% for 4Q) led to higher positive contribution QoQ.
Focus on deleverage (consolidated FY12 net DER at 3.8x): For JPA group, the earnings/cashflows will be driven
by commissioning of projects across its cement (10m tons), power (1.5GW), infrastructure (toll road project,
INR133b cost) and real estate (traction in launches, bookings) business. JPA group plans to focus on
consolidation and de-leveraging (consolidated net DER of 3.8x as at March 2012) and is exploring various
options.
Downgrading FY13/14E estimates, maintain Buy: We marginally downgrade (2-4%) our earnings for JPA to
factor in higher interest cost, which is partially set-off due to strong cement realisation, EPC/RE business
traction. We now expect JPA to report standalone net profit of INR8.2b in FY13E (down 20% YoY) and INR11.1b
in FY14E (up 37% YoY). Maintain Buy with TP of INR103/sh.
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4QFY12 results above estimate, higher interest set-off operating
performance
JPA reported standalone net profit of INR2.8b (down 3.3% YoY), above our estimate
of INR2.4b. JPA 4QFY12 revenues stood at INR41b (up 4% YoY), while EBITDA stood
at INR10b (up 32% YoY). Operating performance is driven largely by higher EPC
division performance (led by margin, but lower revenues) and RE division (both
higher bookings and margin). Performance of Cement division was muted.
Interest cost for JPA stood at INR5.8b vs INR4.5b QoQ led by commissioning of
Cement capacity. However, depreciation has come off QoQ to INR1.6b (INR2b
QoQ). This led to lower PBT at INR3.1b (down 19% YoY), while lower tax/PBT ratio
(9% for 4Q) arrested PAT de-growth (down 3.3% YoY).
For FY12, standalone revenues stood at INR129b (flat YoY), EBIDTA of INR34.4b (up
19% YoY) and PAT of INR10.2b (up 38% YoY). Deviation in PAT is led by gain of
INR2.3b of EBIDTA, INR1.6b on depreciation and lower tax of INR750m.
Cement Business: volume flat YoY; realisation/EBIDTA improve marginally
QoQ
During 4QFY12, cement business revenues stood at INR17b, up 8% YoY; led by flat
volumes but 6% YoY growth in realization. Volumes stood at 4.25m tons (vs 4.2m
tons in 4QFY11 and 4.25m ton in 3QFY12), while realizations stood at INR3,969/ton
(vs INR3,734/ton in 3QFY11 and INR3,994/ton for 3QFY12). Cement division sales
for 4QFY12 were muted owing to transfer of Gujarat cement plant in Jaypee Cement
- 100% subsidiary.
Realisation / EBIDTA for the division was up by INR25/ton and INR82/ton QoQ.
EBIDTA for the quarter thus stood at INR893/ton, higher than INR811/ton in 3QFY12
and compares with INR852/ton in 4QFY11. JPA reported INR61/ton of savings in
cost on QoQ basis for the division.
Higher depreciation on capacity commissioning led to flat EBIT for the division at
INR2.1b, vs INR2.2b in 4QFY11.
JPA's installed capacity has now increased to 33.3m tons, with the commissioning
Balaji project (5m tons) on in March, 2012. JP Super Dalla (1.10mtpa) and Churk
(1.50mtpa) projects are expected by 1QFY13E, taking the group's total capacity to
35.9m tons. This compares with cement capacity of 26.2m tons by March 2011 and
up 4x since FY08 capacity of 9m tons
Project commissioning to drive earnings/cashflows, focus on de-leverage
JPA is set to witness increase in earnings/cashflows owing to commissioning of
projects across its cement (10m tons), power (1.5GW), infrastructure (toll road
project, INR133b cost) and real estate (traction in launches) business. This, would
drive earnings , cashflows for the group. On standalone business, we expect EBIDTA
CAGR of 12% over FY12-14E, led by improvement in cement business performance.
JPA plans to consolidate operations and de-leverage using cashflows from its
cement division, possible stake sale in Jaypee Cements, divestment of stake in
Jaypee Infratech (83.1%), etc to lower consolidated net DER of 3.8x as at March
2012. Also, it plans to utilise RE deposits from RE bookings/launches in Jaypee
Infratech to prepay INR70b debt taken for construction of Yamuna Expressway
(YE) road project over next 5 years. Thus, the group's commitment would remain
to equity commitment for power projects, which will be met through fund raising
in JPVL itself. For FY13E, JPVL's equity commitment is expected at ~INR15-16b,
where it plans to raise money through various instruments like QIP/FCCB/FPO/
Preference shares, etc (board approved fund raising of INR35b) or Sale of treasury
stock (344m shares).
However, the group's endeavour to diversify in other "non-core" business on
continuous basis perplexes us. In FY12, JPA has invested ~INR9.5b to take over the
ailing fertilizer plan at Kanpur with rated capacity of 0.7mtpa. Earlier, JPA had also
diversified into development of F1 circuit, while it had announced plans to enter
into milk procurement business as well (for which job opening advertisement are
already listed!). In our view, constant diversification, allocation of capital into
"non-core/new" area remains a risk.
Valuations and view
We marginally downgrade (2-4%) our earnings for JPA to factor in higher interest
cost, which is partially set-off due to strong cement realisation, EPC/RE business
traction. We now expect JPA to report standalone net profit of INR8.2b in FY13E
(down 20% YoY) and INR11.1b in FY14E (up 37% YoY). Buy with TP of INR103/sh.
Company description
Jaiprakash Associates (JPA) is diversified infrastructure
player with presence in Cement, Power, Roads, Real
Estate and Hospitality. The company is set to become
third largest cement player by FY11 with target capacity
of 33.5m tons, is amongst the top 10 private sector power
project developer currently in terms of project under
development/ pipeline (13GW) and has access to ~3.7bsf
of land bank in and around NOIDA.
Key investment arguments
JPA plans to ramp-up cement capacity to ~35m ton
by FY13E, up from 13.5m ton in FY09.
Of the 13GW of power projects under development,
700MW is operational while equipment award have
been placed for 3.8GW, indicating good progress. It
has also begun the commissioning of 1GW of
Karcham Wangtoo hydro project, beginning July 2011.
JPA is an EPC contractor for the Real Estate project
development at NOIDA, own power projects
(~13GW), etc. This provides good revenue visibility
for E&C division
EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY13 4.6 4.1 12.4
FY14 5.3 5.4 -1.3
Key investment risks
Downturn in cement business and lumpy nature of
earnings
Recent developments
JPA has announced restructuring of the cement
business with transfer of cement plants in Gujarat
(4.8m tons) and Andhra Pradesh (5.0m tons) to
Jaypee Cement (100% subsidiary). Jaypee Cements
is also implementing capacity addition of 3m tons in
Karnataka (under initial stages of construction).
Local farmers have raised agitation against the ongoing
Yamuna Expressway project and proposed
township by UP state government.
Valuations and view
We now expect JPA to report standalone net profit
of INR8.2b in FY13E (down 20% YoY) and INR11.1b in
FY14E (up 37% YoY). Buy with TP of INR103/sh.
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