Sunday, June 7, 2009


Yamuna Expressway construction site visit

Yamuna Expressway (formerly Taj Expressway) is one of the largest infrastructure projects under execution in India (cost Rs89b). The project would connect Noida to Agra, and also act as a check dam for Yamuna waters over a stretch of 165km. Post initial delays, execution is now progressing at an accelerated pace and is targeted for substantial completion by October 2010. The project is being executed by Jaypee Infratech, 97% subsidiary of Jaiprakash Associates (JPA).

We present below key takeaways from our visit to the construction site.

Earthwork completed on ~60%+ of project length, target to make road “motorable” by October 2010: For YE project construction, land for entire expressway over 165km is in possession. The construction work has been divided into 3 packages comprising (i) Earthwork, (ii) Interchanges, under passes, culverts, bridges, etc, and (iii) Concreting. Currently, earthwork and construction of interchanges / structures have commenced, and concrete work will commence post monsoons (from October 2009). To date, 60%+ of the earthwork has been completed and 80%+ is expected to be completed by monsoons.

Project achieved financial closure, incremental funding to be met through RE monetization: Total cost for YE project stands at Rs89.2b, including Rs11b towards cost of balance land acquisition for real estate (RE) development (5,175 acres). The project has achieved financial closure and is to be funded as: equity Rs12b, debt Rs30b (sanctioned by ICICI Bank), and Rs40b RE monetization at Noida, while balance is toward soft costs. Till date, total capex on YE project stands at Rs35b, and is financed through equity Rs10b, debt Rs20b and RE customer advances Rs5b. We understand that financing is comfortable, given: (i) RE pre-sales of 5.3msf at Noida (Rs27b) and target sales of 8- 10msf in FY10-11 (Rs30-40b), (ii) part of the project capex (~Rs20b+) towards interchanges, structures, etc could be spent post October 2010 with improvement in traffic, providing extra time period.

Valuation and view: We expect JPA to report PAT of Rs9.9b in FY10E (up 16% YoY) and
Rs9b in FY11E (down 9% YoY). Using SOTP, we arrive at price target of Rs224/share, of
which YE project is valued at Rs95/share (net off negative value for BOT projects). The stock
trades at a P/E of 21.1x FY10E and 22.7x FY11E. Maintain Buy. About Yamuna Expressway project: YE project will connect Noida to Agra through 165km 6-lane expressway built on BOT basis, with concession of 36 years, excluding 6 years for construction. The project also entails RE
development at five locations of 1,250 acres each (total 6,250 acres).