>JAIPRAKASH ASSOCIATES: Well placed to benefit from infrastructure creation

■ Jaiprakash Associates, has underperformed the broader market by around 39%
in the past one year on account of some overhangs in terms of a potential sale
of its treasury stock, a delay in the execution of its Yamuna Expressway project
due to farmers’ protests and its plan to enter into the non-related fertiliser
business.

■ With regards the farmers’ protests against the Yamuna Expressway project in
Uttar Pradesh for a justifiable compensation for land to be surrendered by
them, the government has decided to go back to the drawing board to create
an expressway authority and decide the funding pattern for the projects. Due
to the farmers’ protests, the work of the company suffered for about 20 days
at a particular stretch on the expressway. We believe the issue is negative for
the company as it may lead to a delay in the execution time of the project or
could lead to an increase in the cost of the project. On the real estate front,
the company could sell about 5.1 million square feet (sq ft; as on August 31). At
the moment the company is constructing almost 20 million sq ft and hopes to
start deliveries next year from June 2011.

■ Further, the company is also looking to make a foray in the business of
manufacturing and marketing of fertilisers, either on its own or through a special
purpose vehicle (SPV). As per media reports, JP Associates is looking to acquire
a controlling stake of nearly 74% in the fertiliser division of Duncans Industries.
The fertiliser division of Duncans Industries is proposed to be hived off into a
separate entity. Duncans Industries’ fertiliser unit is located at Panki in Uttar
Pradesh and is non-operational at present. We believe the company’s likely
foray into the fertiliser business is also an overhang on the stock as it is not
related to its present business model.

■ The re-rating triggers for the stock will be an improving outlook for the real
estate companies, better than expected execution of its expressway and power
projects, and a better than expected performance of its cement division, which
contributes around 40% of its overall revenue.

To read the full report: JAIPRAKASH ASSOCIATES