>Jaiprakash Associates (ICICI DIRECT)

Quarterly numbers below expectation…
Jaiprakash Associates’ (JAL) results were sharply below our expectation due to lower other income of Rs 11.9 crore in Q4FY10 (vs. Rs 42.9 crore in Q4FY09), higher interest expenses and taxes. However, the operating performance came largely in line with our expectation. We have now incorporated these changes into our estimates and have revised our earning estimates. In terms of valuation, we are now valuing the JAL cement business at close to its replacement cost (US$102 per tonne). Also, we have valued JAL’s stake in Yamuna Expressway at a 20% discount to the CMP in our SOTP valuation. Hence, we are revising our price target to Rs 160 per share and upgrading it to STRONG BUY.

■ Q4FY10 results below our expectation
JAL’s revenues grew 58.8% YoY to Rs 3345.2 crore, above our expectation, driven by the construction division (up 80.2% YoY to Rs 1974.1 crore) and cement division (grew 70.2% YoY to Rs 724.8 crore). However, the adjusted net income declined by 39% YoY to Rs 244 crore, below our expectation due to lower other income on account of adjustment of VAT in the cement division and higher interest expenses and tax rate.

■ Consolidated numbers remained muted in FY10
JAL’s consolidated revenues grew 36% YoY to Rs 6526.6 crore in FY10 and remained below standalone revenues of Rs 10,088 crore on higher inter segment revenues. In terms of adjusted net profit, it declined 27.4% YoY to Rs 372.7 crore due to a sharp rise in interest expenses to Rs 1286 crore in FY10 from Rs 706.2 crore in FY09.

■ Monetises Rs 590 crore on Jaypee Infratech IPO
With the completion of the Jaypee Infratech IPO, JAL has successfully monetised Rs 591 crore through an offer for sale of six crore equity shares. However, we have now revised our valuation
for JAL’s stake in Yamuna Expressway at a 20% discount to CMP.

Valuation
At the CMP, the stock is trading at 21.7x FY12 earning estimates and 2.7x P/BV. We are upgrading the stock to STRONG BUY and revising our SOTP based price target to Rs 160.

To read the full report: JAIPRAKASH ASSOCIATES