>JAIPRAKASH ASSOCIATES (ICICI SECURITIES)

■ Key takeaways from our management meet with Jaiprakash Associates (JPA) are: i) strong volume growth in cement besides low-cost production and better market mix, ii) robust ~Rs400bn EPC orderbook, predominantly in house, iii) execution of 13.5GW power portfolio proceeding as per plans – merger of unlisted power holding company into listed subsidiary and iv) robust 11.5mn sqft sale of real estate YTDFY10 & soft launch of Jaypee Greens Sport City spread over 2,500 acres. We believe market concerns on funding can be alleviated via: i) annual operating cashflow of Rs10-12bn, ii) sale of treasury shares, currently valued at Rs27bn, iii) securitisation of its power portfolio worth Rs27.5bn and iv) fund raising initiatives of ~Rs40bn in both power and real estate. We expect consolidated revenue, EBITDA and PAT CAGR to be 37%, 40% and 38% in FY09- 12E. We maintain BUY with sum-of-the-parts (SOTP) target price of Rs171/share.

■ Cement volumes strong. YTDFY10 cement despatches rose 32% YoY to 6.3mnte and crossed 1mnte/month in November ’09. JPA recently commissioned 1.2mnte plant in Gujarat and expects to add 3.5mnte capacity at Baga/Bagheri in North India by February-March ’10. We factor in 36% volume growth to 10.4mnte in FY10E.

■ Robust EPC order pipeline. The Yamuna Expressway and Karcham Wangtoo are progressing well, likely to be completed by March ’11 & May ’11 respectively. JPA recently bagged Rs11bn contract for developing the inner ring road at Agra. Besides current EPC contracts of Rs400bn, predominantly in house, we estimate additional Rs200bn EPC contracts from in-house power portfolio and real estate construction.

■ Significant option value exists in power and real estate. With 700MW operational assets and 2,820MW projects under implementation (1,000MW transmission rights), JPA is likely to have ~8.8GW power portfolio by December ’15. The merger of its unlisted power holding company into its listed subsidiary would unlock value, in our view. Besides, JPA sold ~12mnsqft YTDFY10, aggregating upfront collections of ~Rs7.5bn. Also, JPA recently soft launched Jaypee Green Sports City, spread over 2,500 acres. JPA intends to raise Rs25bn via IPO for its real estate and Rs15bn via FPO/QIP during February-March ’10, which would further unlock value.

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