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Jaiprakash Associates
Weakness in Top Line Led to Downside Surprise in F3Q11
Weak top line coupled with small margin dip led to
below-par results: Jaiprakash reported a weak F3Q11
top-line performance; total revenues declined 1% YoY to
Rs 30.7 bn, 21% below our estimate. The story on the
margin front was a little more mixed: cement and
construction margins ticked down (albeit off a high base),
but that was nearly made up by the uptick in real estate
margins and the increased share of the high profitability
real estate segment (revenue share moved up from 12%
in F3Q10 to 15% in F3Q11). Led by a 280 bps margin
compression, EBITDA for the company as a whole
declined 4% YoY, 11% below our estimates.
Construction business growth faltered as large
projects wound down: We expected the booking of
revenues in real estate construction for the Jaypee
Infratech to compensate for the slackening of work at
Karcham Wangtoo and Yamuna Expressway (as the
work comes to an end), but F3Q11 saw a timing impact.
We believe that the booking of the real estate
construction revenues is still a couple of quarters away
and is likely to result in very strong growth in F12e. In
F3Q11e, however, the winding down of the large
projects caused the division to register a dip of 23% YoY
in revenues coupled with a 360 bps YoY decrease in
margins (to 21.4% in F3Q11).
Margin weakness in cement division intensified with
pricing cuts: The division registered volume growth of
47% YoY, driven by the ramp-up of production from
capacity expansions in the last 3-4 quarters. However, a
10% decline in pricing sequentially coupled with
increased depreciation from the capacity led to a fall of
13.4% in EBIT margins (in line with the rest of its peers
focused on western and northern India) to 11.5%. The
rise in cement pricing in January 2011 will help the
numbers in F4Q11e, we expect strong margin growth
only from F12e as easier comps kick in (Exhibit 8), along
with the strengthening of the pricing recovery.
The real estate division has come of age and is likely to
remain a big driver for the next 4-6 quarters: With growth
of 23% YoY in revenues and 100% YoY in EBIT, real estate
was the division that supported the numbers in this quarter.
We expect the continuation of the trend, with the revenues
scheduled to pick up significantly in F12e (as delivery begins)
though margins will decline from the high levels in F3Q11 (led
mainly by more profitable plot sales).
Operating leverage hurt numbers below the line further:
With cement leading the growth and construction coming off,
the uptick in interest and depreciation costs (in line with
expectations) as cement capacity became operational drove
the PBT down 34% YoY%, around 25% below our forecasts.
Net profit (adjusted for one-time items) at Rs2.3 bn was down
26% YoY (via a decline in tax rates), we prefer using PBT as
the benchmark for comparison rather than net income.
Remains rated OW: Over the next two three years, we
expect Jaiprakash to emerge as a top-five player in India in
each of its main businesses: cement, construction, and power.
We believe the company has sustainable advantages in each
of its businesses
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Jaiprakash Associates
Weakness in Top Line Led to Downside Surprise in F3Q11
Weak top line coupled with small margin dip led to
below-par results: Jaiprakash reported a weak F3Q11
top-line performance; total revenues declined 1% YoY to
Rs 30.7 bn, 21% below our estimate. The story on the
margin front was a little more mixed: cement and
construction margins ticked down (albeit off a high base),
but that was nearly made up by the uptick in real estate
margins and the increased share of the high profitability
real estate segment (revenue share moved up from 12%
in F3Q10 to 15% in F3Q11). Led by a 280 bps margin
compression, EBITDA for the company as a whole
declined 4% YoY, 11% below our estimates.
Construction business growth faltered as large
projects wound down: We expected the booking of
revenues in real estate construction for the Jaypee
Infratech to compensate for the slackening of work at
Karcham Wangtoo and Yamuna Expressway (as the
work comes to an end), but F3Q11 saw a timing impact.
We believe that the booking of the real estate
construction revenues is still a couple of quarters away
and is likely to result in very strong growth in F12e. In
F3Q11e, however, the winding down of the large
projects caused the division to register a dip of 23% YoY
in revenues coupled with a 360 bps YoY decrease in
margins (to 21.4% in F3Q11).
Margin weakness in cement division intensified with
pricing cuts: The division registered volume growth of
47% YoY, driven by the ramp-up of production from
capacity expansions in the last 3-4 quarters. However, a
10% decline in pricing sequentially coupled with
increased depreciation from the capacity led to a fall of
13.4% in EBIT margins (in line with the rest of its peers
focused on western and northern India) to 11.5%. The
rise in cement pricing in January 2011 will help the
numbers in F4Q11e, we expect strong margin growth
only from F12e as easier comps kick in (Exhibit 8), along
with the strengthening of the pricing recovery.
The real estate division has come of age and is likely to
remain a big driver for the next 4-6 quarters: With growth
of 23% YoY in revenues and 100% YoY in EBIT, real estate
was the division that supported the numbers in this quarter.
We expect the continuation of the trend, with the revenues
scheduled to pick up significantly in F12e (as delivery begins)
though margins will decline from the high levels in F3Q11 (led
mainly by more profitable plot sales).
Operating leverage hurt numbers below the line further:
With cement leading the growth and construction coming off,
the uptick in interest and depreciation costs (in line with
expectations) as cement capacity became operational drove
the PBT down 34% YoY%, around 25% below our forecasts.
Net profit (adjusted for one-time items) at Rs2.3 bn was down
26% YoY (via a decline in tax rates), we prefer using PBT as
the benchmark for comparison rather than net income.
Remains rated OW: Over the next two three years, we
expect Jaiprakash to emerge as a top-five player in India in
each of its main businesses: cement, construction, and power.
We believe the company has sustainable advantages in each
of its businesses
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