Jaiprakash Associates - Mounting concerns :: Edelweiss, link

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Jaiprakash Associates’ (JPA) asset monetisation drive as well as its core operations are facing hurdles. The hydro power assets sale to Reliance Power, a critical component of the company’s debt reduction drive, is likely to be delayed. Also, the 1,320MW Nigrie thermal power plant (coal allocation case) and Noida real estate projects (Okhla bird sanctuary issue) are facing regulatory hurdles. Though high debt (INR704bn in FY14) has compelled JPA to sell quality assets, it surprisingly continues to invest in unrelated businesses. In light of the above issues, we reduce our TP to INR42.

Plagued by regulatory uncertainty

JPA’s asset monetisation drive as well as its core operations have been plagued with uncertainty. Its hydro power asset sale to Reliance Power for ~INR123bn is likely to be delayed due to regulatory issues pertaining to the 1,000MW Karcham Wangtoo project. In terms of operations, its 1,320MW Nigrie TPP, a key earnings driver, is facing uncertainty due to the pending SC judgment in the coal block allocation case. Also, the company’s real estate projects in Noida have come under a cloud post a ban on construction within 10km of the Okhla Bird Sanctuary.

Investments in unrelated businesses despite high debt a concern

The company’s consolidated net debt currently stands at INR704bn, higher by ~INR201bn since FY12. This has compelled the company to sell its quality assets-4.8MT Gujarat cement plant, 300acre Greater Noida land parcel and stop-start efforts to monetise 1,791MW hydro power assets. Moreover, it has earmarked additional assets for divestiture (500MW Bina TPP, Balaji cement plant and Bhilai cement JV) in order to pare debt. However, the company continues to invest in unrelated businesses-healthcare plans (to set up 2,000 beds across 4 cities), entry in fertilisers (INR9.1bn invested) and plans to set up semi-conductor plant in India.

Year to March	FY13	FY14	FY15E	FY16E
Revenue (INR mn)	188,164	198,344	199,458	226,246
EBITDA (INR mn)	66,099	63,756	69,465	78,401
Net profit (INR mn)	4,618	(8,248)	(1,879)	895
Diluted EPS (INR)	2.1	(3.7)	(0.8)	0.4
Diluted PE (x)	17.2	(9.6)	(42.2)	88.5
EV/ EBITDA (x)	10.3	12.5	9.1	8.2
ROE (%)	3.6	(10.3)	(1.6)	0.7

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