>JAIPRAKASH ASSOCIATES LIMITED (Morgan Stanley)

Quick Comment: Jaiprakash has repurchased and extinguished ZCCBs (Zero Coupon Convertible Bonds) with a face value of US$32 million. Given the significant discount that Indian CBs have been trading at, we believe the company paid between 46-53% of the face value of the bonds. Using the middle of the range, we estimate that the buyback cost Jaiprakash around

US$16 million.

Step in the Right Direction: We believe that the buyback was funded through a mix of internal accruals and ECB proceeds (raised in February 2009). Assuming the interest on the ECB (LIBOR + 500 bps), as the financing cost of the transaction, the total cost of the buyback, including the interest on the loan (over the duration of the ZCCB) for Jaiprakash would increase to US$19.5 mn vs. the potential payout of US$47.3 mn on the maturity of the bonds (Exhibit 2). We estimate the savings from this buyback at around US$27.8 mn over the life of the CBs (discounted value of US$22.2 mn).

Too Small to Affect Our View: The buyback translates into 7.9% of the CBs outstanding for the company (Exhibit 1) and only 2% of its F2009E debt. Hence, the buyback in itself is too small to impact the financials for the company. However, we believe that the buyback represents a move in the right direction in terms of creating value for shareholders; in our view, there could be further buybacks from the company.

Remains our Top Reward Play in the Sector: The stock currently trades at extremely depressed valuations with a F2010 P/E of 9.8x (without assigning any value for both the listed and unlisted power and the real estate subsidiaries) and remains the cheapest stock in our coverage.

To see full report: JP ASSOCIATES