Monday, January 25, 2010


JP Associates (JAL) recorded a robust set of numbers for 3QFY2010. The Consolidated Top-line growth came in mainly on account of robust Construction & EPC (C&EPC) division sales. EBITDA margins also saw an improvement yoy, on account of C&EPC performance. The adjusted Bottom-line exhibited a robust growth, excluding extra-ordinary expenses. Owing to the strong quarterly numbers, the Jaypee Infratech IPO in the pipeline, and overall positive outlook, we have upgraded the stock from Neutral to Accumulate.

All cylinders firing: JAL registered a robust consolidated Top-line growth of 109.2% to Rs2,964cr, against our estimates of Rs2,370cr, mainly on account of the C&EPC division. Sales of the C&EPC segment of JAL posted a robust growth of 130.3% to Rs1,643cr, against our estimate of Rs1,105cr. The Top-line contribution from the Cement segment was mostly in line with estimates, whereas that from the Real Estate segment outperformed our estimates to Rs345.6cr. The EBITDA margin for the quarter came in at 29.9% (as against our estimate of 27.3%), which was a 630bp improvement yoy. The adjusted PAT grew by 86.8%, inspite of a higher tax outflow. However, the reported PAT de-grew by 38.9% yoy to Rs103cr, primarily on account of extraordinary expenses on account of employee compensation expenses (ESOPs) to the tune of Rs212cr.

Outlook and Valuation: JAL has done extremely well on all fronts and, given the robust outlook for the sector, we are expecting the good performance to continue. We have valued the stock on an SOTP basis. JAL’s Cement and Construction business (at 8x EV/EBITDA on an FY2012E basis) contribute Rs87.7/share and Rs65.3/share, respectively, to our target price We have valued JAL’s stake in Jaiprakash Power Ventures on a MCap basis, by assigning a 20% holding company discount, thereby contributing Rs48.6/share. We continue to value JAL’s Real Estate initiative at Rs33.7/share, on an NAV basis. JAL’s Hospitality Division has been valued at 8x its FY2012E PAT, at Rs0.7/share. The unsold treasury stock has been valued at CMP of Rs160, thereby contributing Rs16.5/share. The net debt for the Cement, Construction and Real Estate businesses, for FY2012E, has been deducted. Hence, we upgrade the stock from Neutral to Accumulate, with a Target Price of Rs194.

To read the full report: JAIPRAKASH ASSOCIATES