Wednesday, March 28, 2012

JAIPRAKASH ASSOCIATES LIMITED: Scale-up hydro E&C with 2nd win of FY12

■ Won Rs9bn external E&C order in Bhutan improve visibility; Buy
JPA won Rs9bn (3-5% of E&C sales) construction contracts for 720MW Mangdechhu HEP in Bhutan. This is the 2nd external hydro E&C contract win for JPA in 9 months. Bhutan orders improve visibility of construction revenue by 10-16% and could compensate for the delay in start of construction at its own, Lower Siang HEP. Catalysts for JPA: 1) start of - Karcham HEP 1H12 and Yamuna Exp in 1QFY13 and 2) peaking of capex at parent and JP Infra in FY11/12 leading to deleveraging from FY13E. Buy JPA on assets trading at 31% discount to NAV, which could be un-locked by improving visibility of cash flows or divestment (Cement). Weak cement markets and leveraged balance sheet are the risks.

■ Won 2nd external hydro E&C order of FY12; More to follow
JPA won two E&C contracts for 720MW Mangdechhu HEP from Mangdechhu Hydroelectric Project Authority, Bhutan. The first contract is of Rs6bn includes construction of diversion and intake structure & tunnels package. The second contract is of Rs3bn for surge shaft, pressure shafts, Main access tunnel to power house bottom etc… In July’11, JPA won Rs21bn construction contracts for 990MW Punatsangchhu II Hydro-electric project in Bhutan beating L&T and HCC. These project wins should boost JPA’s RoCE given that both these projects would absorb the stock of equipments JPA owns and were getting free after completion on Karcham HEP in 2QFY12. Govt. of India is aiding to develop 10GW of hydropower by 2020 in Bhutan, of which JPA has already won 1.7GW and the rest are likely
order by 2015. This creates significant growth opportunity for JPA.

 Buy value assets 31% discount & 10% EPS CAGR in FY11-13E
We view JPA as one of the best asset plays (31% disc to NAV). Triggers: a) start of projects (esp. Karcham), BTG order for 2GW Bara Ph 2, b) monetization of realty, c) bottom-out of cement prices in FY13 and d) approval for Gr. NOIDA airport.