>JAIPRAKASH ASSOCIATES LIMITED (MORGAN STANLEY)

Updating Price Target; Remains Top Reward Play

■ Investment conclusion: Over the next two to three years, we expect Jaiprakash to emerge as a top-5 player in India in each of its main businesses: cement, construction, power, and real estate. We believe the company has sustainable advantages in each of its businesses, and it remains the top pick in our coverage.

■ What's new: We update our price target to account for the uptick in valuations of the company’s peers in the cement and construction businesses. Our price target moves up 33% to Rs221, implying an upside potential of 27%. As one of the biggest beneficiaries of the improvement in the macro scenario, the run-up in Jaiprakash stock over the last few days, on the back of the positive surprise in the central elections, is more than justified, in our opinion. We raise our F2010e and F2011e EPS by 11% and 10% respectively, to account for the upside surprise in F2009 earnings, as well as an uptick in pricing assumptions for the cement sector.

■ Where we differ: We believe the market continues to lay a disproportionate emphasis on potential problems in funding. The courts have approved the intra-group mergers announced in March 2009, paving the way for the treasury stock (14.5% of equity) to become available in the next four weeks, giving the company significant flexibility to raise funds. In addition, while we
conservatively price the stock at or below peer valuations despite having a superior model in every business segment, we believe the market is allocating a large discount to peer multiples, which is unjustified, in our view.

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