>JAIPRAKASH ASSOCIATES: Proxy for infrastructure play… (ICICI DIRECT)

Jaiprakash Associates (JAL) is a leading infrastructure conglomerate in India. The company has set aggressive expansion plans across its business. With aggressive capacity addition plans in the cement division, we expect JAL’s market share across India to increase from 4.1% in FY09 to 7.6% in FY12E. In the power division, JAL is set to add 10,350 MW taking its total capacity to 11,050 MW by FY16E. In the construction division, the strong order book of Rs 10,608 crore
(excluding Ganga Expressway) and in-house EPC opportunities from power projects provides strong revenue visibility over the next couple of years. Additionally, monetisation of the real estate development from the development for Yamuna Expressway bodes well for JAL. Hence,
we are initiating coverage on JAL with BUY rating and a price target of Rs 180 based on the SOTP valuation methodology.

■ Cement division – market share to almost double by FY12E
JAL is a leading cement player with a strong presence (~30% market share) in the central region. We expect its cement capacity to almost double to 26.8 MTPA during FY09-12E. Consequently, we expect the volume of JAL’s cement division to grow at a CAGR of 35.2% to 18.9 MTPA in FY12 against industry average of 10.4% during the same period leading to expansion in market share to 7.6% in FY12 from 4.1% in FY09.

■ Power division capacity to grow exponentially
JAL through its subsidiary JPVL (merged entity) has installed capacity of 700 MW as at the end of December 2009. The company has an ambitious growth plan and is targeting capacity of 13,470 MW. Out of these, ~1,500 MW is expected by FY12E and 10,350 MW is expected by FY16E.

■ Construction division – huge opportunities from in-house project
JAL has a strong order book of Rs 10,608 crore, 2.0x FY10E construction division revenues. Furthermore, we expect significant in-house order inflow opportunities from the power division (~Rs 12,000 crore). Hence, we expect revenues of the construction division to grow at a CAGR of 34.7% during FY09-FY12E.

■ Yamuna Expressway – Monetising on land bank
JAL is monetising very well on the Noida land parcel, which was received along with 165 km development of the Yamuna Expressway road project. Till date, the company has sold 19.9 million sq ft at an average realisation of Rs 3,480 psf and collected Rs 1,991 crore from its customers.

Valuations
At the CMP, the stock is trading at 23.3x FY12 earning estimates and 3.3x FY12 P/BV. We value the stock at Rs 180 per share based on the SOTP methodology. We are initiating coverage on JAL with BUY recommendation.

To read the full report: JP ASSOCIATES