We believe Jaiprakash Associates (JPA) offers 78% upside from the current level driven by robust 99% surge in EBITDA, led by cement and power, and supported by real estate. At near-trough EV/EBITDA of 8x, the EV is expected to rise 19%. With debt largely stable, we expect the equity values to appreciate. We highlight that the company’s EV/EBITDA multiples have contracted with rise in net debt/EBITDA and execution concerns. However, with commencement of projects and reduction of net debt/EBITDA, re-rating can potentially provide additional upsides. Our sensitivity analysis depicts a downside of 15% while higher cement margin and volume offers 125% upside, indicating favourable risk-reward. Ergo, we upgrade to ‘BUY’.
��
-->
Robust EBITDA drives 78% upside potential
We believe JPA offers 78% upside from the current level driven by strong spurt in EBITDA. Without taking into account any re-rating of multiples, we expect EV to rise 19%, while debt is expected to remain stable, leading to enhancement of equity values.
Power and cement to fuel EBITDA surge
We forecast JPA’s EBITDA to post 26% CAGR over FY12-15E, up 99%. EBITDA expansion will be led by higher utilisation and margins in cement and its new power assets.
Debt stable as adequate cash flow to tide over capex, interest costs
We expect JPA’s net debt to remain largely stable at INR540–550bn FY14 onwards (INR 503bn in FY12) despite capex of INR176bn and interest payments of INR157bn as operational cash flow of INR290bn will adequately cover the above obligations.
Outlook and valuations: Growth arsenal; upgrade to ‘BUY’
At constant EV/EBITDA multiples, we estimate JPA’s fair value / TP at INR147/ share. Sensitivity analysis indicates valuation range of INR70-186, favourable risk–reward. Hence, we upgrade to ‘BUY/ Sector Outperformer’ from ‘HOLD/Sector Performer’.
Regards,
No comments:
Post a Comment