For 1QFY2014, Jaiprakash Associates (JAL) posted a mixed set of numbers with
decent performance on the revenue front while adjusted earnings were lower than
our estimate owing to lower-than-expected operating performance and high
interest cost. The decent performance on the revenue front was owing to cement
revenue surprise. However, lower-than-expected performance of the construction
segment and high input cost pressure led to a decline in the blended EBITDAM.
High interest cost dents profitability: On the top-line front, the company reported
a revenue of `3,315cr for 1QFY2014, registering a growth of 10.2% yoy, which is
slightly higher than our estimate. The real estate and construction segments
posted a growth of 175.2% and 2.9% yoy respectively; however, the cement
segment’s revenue declined by 1.5% yoy. The blended EBITDA margin declined
by 345bp yoy to 23.7% and was below our expectation of 26.2%. This was mainly
due to a subdued performance in the construction segment. The interest cost
stood at `590cr a jump of 26.8%/7.5% on a yoy/qoq basis and was higher than
our estimate of `560cr. On the bottom-line front, the company reported a PAT of
`335cr, a growth of 140.9% yoy, owing to an exceptional gain of ~`395cr which
accrued on account of sale of equity shares. Adjusting to this gain, the company
has reported a loss of `61cr in 1QFY2014 vs a profit of `138cr in 1QFY2013.
This is mainly due to a lower-than-expected operating performance and high
interest cost.
Outlook and valuation: Going forward, we believe deleveraging the balance sheet
through monetization of land parcel and stake sale in cement business would help
the company in reducing its huge debt, which continues to remain an overhang on
the stock. Hence closure of such a deal would be positive for the company. We
recommend a Buy rating on the stock with a SOTP target price of `53.
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decent performance on the revenue front while adjusted earnings were lower than
our estimate owing to lower-than-expected operating performance and high
interest cost. The decent performance on the revenue front was owing to cement
revenue surprise. However, lower-than-expected performance of the construction
segment and high input cost pressure led to a decline in the blended EBITDAM.
High interest cost dents profitability: On the top-line front, the company reported
a revenue of `3,315cr for 1QFY2014, registering a growth of 10.2% yoy, which is
slightly higher than our estimate. The real estate and construction segments
posted a growth of 175.2% and 2.9% yoy respectively; however, the cement
segment’s revenue declined by 1.5% yoy. The blended EBITDA margin declined
by 345bp yoy to 23.7% and was below our expectation of 26.2%. This was mainly
due to a subdued performance in the construction segment. The interest cost
stood at `590cr a jump of 26.8%/7.5% on a yoy/qoq basis and was higher than
our estimate of `560cr. On the bottom-line front, the company reported a PAT of
`335cr, a growth of 140.9% yoy, owing to an exceptional gain of ~`395cr which
accrued on account of sale of equity shares. Adjusting to this gain, the company
has reported a loss of `61cr in 1QFY2014 vs a profit of `138cr in 1QFY2013.
This is mainly due to a lower-than-expected operating performance and high
interest cost.
Outlook and valuation: Going forward, we believe deleveraging the balance sheet
through monetization of land parcel and stake sale in cement business would help
the company in reducing its huge debt, which continues to remain an overhang on
the stock. Hence closure of such a deal would be positive for the company. We
recommend a Buy rating on the stock with a SOTP target price of `53.
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