Sunday, February 19, 2012

>JAIPRAKASH ASSOCIATES: JPA looking to divest stake in Gujarat & AP cement plants

■ Revenue at Rs 32.6bn +12.6% yoy marginally lower led by Real estate JPA’s Q3FY12 Revenue at Rs 32.6bn +12.6%yoy v/s exp. Rs33.6bn. Cement vertical – Performance in line (Rs 16.9bn + 37% yoy led by +17% volume growth, +17% realization growth to Rs 4,065/ton), Construction vertical – Performance marginally lower (Rs 12.4bn v/s exp. Rs 12.7bn. Real estate vertical – Performance disappoints – Rs 3.1bn v/s exp. Rs 4bn.

■ Cement biz stabilizing – Volumes+17.2% to 4.25mt, Real.+17% to 4065/ton With sharp price hike witnessed in 3Q in JPA’s key markets, the cement business saw sharp improvement with the division reporting EBITDA/t of Rs743/ton v/s Rs 201/ton witnessed in Q2FY12. With the company commissioning its Balaji Cement Plant at AP the installed cement capacity has reached ~ 30 mtpa (27.5 mtpa in standalone & 2.2
mtpa in JV with SAIL). We expect these capacities to see gradual ramp up and expect overall FY13E dispatches growth of 22.7% yoy to 21.5 MT (Ex Balaji growth of ~15%).

 Maintain Hold – TP Rs 89 - Upsides appeared capped in the short term JPA’s Q3FY12 profit beat is driven by E&C vertical led by one time milestone payment. We believe adjusting for the one off milestone payment in Q3FY12, the sustainable margins of this segment will be close to 18% & we model in the same for FY13E. JPA plans to divest stake in its Gujarat & AP cement plants (target capacity of ~ 10 mtpa) to de-leverage its stretched balance sheet (FY12 E standalone D:E of 2.2X) & hence the divestment remain key trigger. However we believe the sharp run up over the last month (+43%) partially factors in the positive of divestment & hence valuations at 8.2x FY13E EBITDA, leaves very little upside. Maintain a Hold rating with a target price of Rs 89.