JP Associates :2QFY11 performance above estimates: Motilal Oswal

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 2QFY11 performance above estimates: In 2QFY11, Jaiprakash Associates posted net profit of Rs1.2b (down 0.5%
YoY). Reported profit was lower YoY due to a higher deferred tax liability charge of Rs1.2b (tax rate of 60%). 2QFY11
PBT was Rs2.9b, higher than our estimate of Rs2.4b. All businesses reported better than estimated performance in
2QFY11: (i) E&C revenues were up 71% YoY at Rs15.7b (50% higher than our estimates), (2) the cement division
posted higher profits, and (3) the real estate division posted higher revenue (85% above our estimates) and EBIT
(50% above our estimate).



 Volume/cost control boost cement division earnings: In 2QFY11 cement business revenues were Rs12b, up
43% YoY. Cement volumes grew 59% YoY to 3.4mt and realizations (Rs3,528/ton) declined 10% YoY. EBIDTA/ton for
the cement business was Rs958/ton (adjusted for internal consumption of 0.3mt) against Rs990/ton in 1QFY11 and
Rs1,364/ton in 2QFY10. EBITDA at most other cement companies declined ~Rs400/t QoQ, v/s a decline of just
~Rs50/t QoQ by JPA.
 E&C business performance robust: 2QFY11 E&C revenues were Rs15.7b, up 71% YoY and 9% QoQ. This was
despite heavy monsoons, which impacted construction activity. The management stated that there was accelerated
execution at the Karcham Wangtoo HEP and Yamuna Expressway (60% of revenue in 2QFY11). Real estate
construction for Jaypee Infratech and civil construction on 4GW of thermal power projects also contributed to increased
revenue. E&C margins were 20.9% (up 90bp YoY and 1,360bp QoQ), which was a positive surprise as margins in
1QFY11 were impacted by force majeure at Srisailam Irrigation project and the status quo continues. For FY11, the
management maintained its revenue guidance of Rs60b (up 7% YoY) and margins of 18% (down 300bp YoY).
 Upgrading estimates, Buy: We have upgraded our earnings estimate by ~20% for FY11-13 to factor in higher real
estate revenue and improved performance of the cement business. We now expect JPA to post net profit of Rs9.5b in
FY11 (Rs7.9b earlier), Rs14b in FY12 (v/s Rs11.6b earlier) and Rs18.1b in FY13 (v/s Rs15.5b earlier). JPA trades at
a PER of 27x FY11E and 18x FY12E. Maintain Buy with a target price of Rs134.