1 Initiating coverage on JAIPRAKASH ASSOCIATES LTD. Industry Diversified Mr. Saurabh Naliwal Jaiprakash Associates Ltd. (O) 91-120-4609000 Stock Metrics Bloomberg code JPA IN Reuters code JAIA.BO BSE Group A BSE Code 532532 NSE Code JPASSOCIAT Face value ` 2/- ISIN No. INE455F01025 Market Data Market Cap. (Rs.Cr.) 25210 52week High/Low 180/109.70 SENSEX 17992 Nifty 5409 Average Volume 2697734 Shareholding Pattern 45% 36% 12% 7% Promoters Institutional Investors Public Others Research Analyst: Divya Kant [email protected]022-40751515 Ext: 582 Denil Savla [email protected]022-40751515 Ext: 581 Date: 30th July, 2010 Jaiprakash Associates Ltd. JAL is the engineering and construction arm of the Jaypee group focused on development of river valley and hydro electric projects on turnkey basis for more than four decades. The company is currently executing various projects in hydropower, irrigation & other infrastructure fields. JAL is known for its execution of projects. Currently JAL’s Order book stands at ` 10600/- Crs. JAL is also constructing a BOT road project Yamuna Expressway. Valuation: We initiate the report on Jaiprakash Associates Ltd. (JAL) with a ‘BUY’ on it. We have evaluated the company on SOTP basis. We expect a potential upside of 34% to a price of ` 162/-. The current market price of the company is ` 118.7/-. We expect the company to do well as many of its projects are on the verge of completion within in the time frame of next two years. Key Financials ` Crs Year ended March FY09 FY10 FY11E FY12E Net Sales 5,765 10,316 12,748 14,200 EBITDA 2143 2891 4319 4080 PAT 898 1920 2572 2234 EBITDA Margins (%) 37.17 28.03 33.88 28.73 PBT Margins (%) 21.71 25.14 26.84 22.73 PAT Margins (%) 15.57 18.61 20.17 15.73 EPS 7.58 9.04 12.10 10.51 Current Price ` 118.7/- Target price ` 162/- Potential upside 34% Time frame 18 months
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Initiating coverage onJAIPRAKASH ASSOCIATES LTD.
Industry DiversifiedMr. Saurabh NaliwalJaiprakash Associates Ltd.(O) 91-120-4609000
Stock MetricsBloomberg code JPA INReuters code JAIA.BOBSE Group ABSE Code 532532NSE Code JPASSOCIATFace value ` 2/-ISIN No. INE455F01025
Jaiprakash Associates Ltd.JAL is the engineering and construction arm of the Jaypeegroup focused on development of river valley and hydroelectric projects on turnkey basis for more than four decades.The company is currently executing various projects inhydropower, irrigation & other infrastructure fields. JAL isknown for its execution of projects. Currently JAL’s Orderbook stands at ` 10600/- Crs. JAL is also constructing aBOT road project Yamuna Expressway.
Valuation:We initiate the report on Jaiprakash Associates Ltd. (JAL)with a ‘BUY’ on it. We have evaluated the company on SOTPbasis. We expect a potential upside of 34% to a price of `162/-. The current market price of the company is ` 118.7/-.We expect the company to do well as many of its projects areon the verge of completion within in the time frame of nexttwo years.
PAT 898 1920 2572 2234EBITDAMargins (%) 37.17 28.03 33.88 28.73
PBT Margins (%) 21.71 25.14 26.84 22.73
PAT Margins (%) 15.57 18.61 20.17 15.73
EPS 7.58 9.04 12.10 10.51
Current Price` 118.7/-
Target price` 162/-
Potential upside34%
Time frame18 months
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Table of Contents Page No.
Investment Rationales …… 3-5
Power Business...... 6
Hospitality sector…... 7
Risk and Concerns 9
Valuation: Cement 10
Valuation :Construction 11
Valuation: Power ……. 12
Valuation: Real estate & YEP 14
Valuation: Hotel & Other business 15
Price Derivation 16
Profit & Loss statement …… 18
Balance sheet statement …… 19
Cash flow statement …… 20
Ratio analysis…… 20
Quarterly statement…. 21
Peer set analysis…. 22
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Cement sales to rise on the back ofstrong demand…..
JAL to buy Duncan’s Kanpur fertilizerplant with 50% stake in JV with ISGTraders a part of Duncan group…..
Construction sector boosts themargins…..
Investment Rationales
Cement sector to boost growthRevenues from cement sector are expected to gain fromstrong demand in the northern and central markets.However, its ability to manage operational costs, especially inthe construction division, would lead increase in margins. Forthe quarter ended in June, 2010 the shipment have reported65% rise to 1.33MT. As company is eager to complete itsambitious BOT road project of Yamuna Expressway, theinternal demand is expected to increase.
JAL to venture into fertilizers bizJaypee group is looking to expand in fertilizer business injoint venture with Duncan industries. The fertilizer factorysits on a 250-acre plot on outskirts of Kanpur. The revivaland rehabilitation of the said unit will be done through a jointventure (JV) company of Jaypee Fertilizers & Industries andISG Traders, a part of Duncan Industries Ltd. The unit has acapacity to generate `1700 crore - `1800 crore in annualrevenue, and deliver profit before tax of around ` 175 crore.The deal, however, needs the approval of the Board forIndustrial and Financial Reconstruction.
Managing operational cost to increase marginsYear ended March 2010; sales and other operating incomejumped ~74% to ` 10,316 crore while net profit surged by ~90 per cent to ` 1,920 crore. The company has benefitedfrom its strong market position in UP and Madhya Pradesh.Construction business accounted for ~52% of total revenuein the FY10 this is a clear sign of execution in projects suchas the Yamuna Expressway. However there has been pressureon operational cost. Increase in higher input cost canpressurize the margins going further. But on comparing toindustry margins/growth JP Associates still remains to beattractive.
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JAL is aggressively aiming atcompletion of its projects ….
Jaypee Infratech IPO:Yamuna Expressway
Map of ExpresswaySource: YEA
Aggressive ExpansionThe company is in expansion mode. Company is aiming atthe capacity of 33 MTPA by FY13. Recently company hassetup plant in Gujarat and a plant is under construction inAssam. The implementation of on going group projects isprogressing satisfactorily and on completion Jaypee groupwill be the 3rd largest cement producing group. Companyplans to invest around ` 10,000 crore in the next three years.Apart from this company is also venturing into thermalpower projects and its first thermal plant BINA-I, is on theverge of completion. Company is also expecting its Hydropower plant Karcham Wangtoo to be completed in FY12E.JAL is also keen on completion of its BOT road projectYamuna expressway.
Jaypee Infratech IPOJaypee group came with an IPO of Jaypee Infratech.Company and shifted its most ambitious project to this i.e.Yamuna Expressway a 165Km six lane expresswayconnecting Noida to Agra along river Yamuna. On this BOTproject company will have a right to earn toll revenue fromtraffic for 36 years.
Further, company will develop 5 townships in 6175 acres ofland that will be acquired by YEA (Yamuna ExpresswayAuthority) and this land will be leased for a period of 90years. The development plan is for residential (50%),commercial (33%), and Institutional (17%) purposes.
The development of expressway along with development ofreal estate projects will benefit each other. Earnings from realestate will subsidize the development of expressway and giveadditional traffic during and after full development. Betterinfrastructure including connectivity will increase themarketability and price for realty projects along theexpressway.
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The project is one of its kinds. JAL willdevelop expressway along with realestate.
JAL has rights for 90 years to lease outland in 5 new townships to bedeveloped along side YamunaExpressway
Jaypee greens to set up luxurioustownship in Noida
The cost for the project is estimated to be ~` 9739.2 Croreand as on 28th Feb.2010 company has already deployed`.6250 Crore.
The funding of the project has been done in the followingpattern:
Funding Pattern Rs. Cr
IPO 1500
DEBT 6000
Contributions from Promoters 1250Contribution from Real EstateDevelopments 989.29Total 9739.29
The five townships will be of 1235 acre each. JIL had takenpossession of approximately 3,897 acres end March 2010 andremaining is being done through YEA. The land has beenacquired at a low cost from YEA as compared to its realestate competitors making the profit margins look good inthis segment going forward. The five locations are:
One in Noida
Two in Gautam Budh Nagar
One in Aligarh
One in Agra
Three locations are profitably planned in the high yield NCRregion. 5 townships will mean ~400 million sq ft. And pricefor the same to be ~` 2500 Sq. Ft.
JAL has been developing luxurious township in Noida andGreater Noida spread over 450 acres. Jaypee Greens is a realestate arm of JAL integrating homes with a golf course,landscaped emerald spaces, resort living and commercialdevelopments. So far JAL has sold ~3.18 million sq ft. at anaverage realization of around ` 5412 per Sq Ft. Totalamounting to ` 1721 Crore for which company has collected~` 1192 Crore. The sales volume is expected to increase to1.5 million Sq Ft. in FY12 from ~0.5 in FY 10.
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The power sectorJAL has been an established player in thissegment. It is the only integrated solutionprovider for hydropower projects in thecountry with the track record of strongproject implementation in differentcapacities and participation in project thathave added over 8840 MW ofhydroelectricity to the national gridbetween 2002- 2009.
Company’s ambitious; a 1000MW hydropower project at KARCHAMWANGTOO (HP) is scheduled to becompleted in of FY12E. Company claimsthat after completion of this project itwould be able to alter the scale of
operations and cash flows of JPVL (Jaiprakash power ventureLtd.) substantially.
Company claims that it will be able to sell almost 20% of itspower generated on a merchant basis.
Bina Thermal Plant (5x250) is expected to be completed intwo phases of which (2x250) to be commercialized towardsthe end of FY11 and second phase to be completed inQ4FY14.
A 1,320MW thermal project, located at Nigire (MP), is alsohoused in the company. Few projects require financial closureor various licenses, whereas, few are underway but companyhopes to accomplish the projects on time.
Project wise breakup
Project Fuel Location Capacity(MW) Status
BASPA-II Hydro HP 300 Operational
Vishnuprayag Hydro UK 400 Operational
Karcham Wangtoo Hydro HP 1000 FY11E
Bina Phase I Thermal MP 500 FY11E
Nigrie Thermal MP 1320 FY13E
Bara Phase I( Unit 1) Thermal UP 660 FY13E
Kannur Thermal Kerla 240 FY13EBara Phase I (Unit
2&F66) Theramal UP 1320 FY14E
Karchana Phase I Thermal UP 1320 FY14E
Bina Phase II Thermal MP 750 FY14E
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We expect strong pickup in hotelbusiness mainly because of CommonWealth Games.
JAL is into IT sector with JILIT
Hospitality SectorJAL owns four five star deluxe hotels in North India. Thehotel business suffered post 26/11; along with that thepercentage of tourists declined due to slowdown in economy.This division’s profitability was adversely impacted due tolower average room rates (ARR’s).
The condition is expected to improve in FY11 mainlybecause of economic revival and Common wealth gamesbeing held in New Delhi.
The four Hotels are:
Hotel Siddharth ( Delhi)
Hotel Vasant Continental ( Delhi)
Hotel Jaypee Palace ( Agra)
Jaypee Residency Manor (Mussoorie)
Company faces competition in this segment from other majorplayers like ITC, Hotel Leela Ventures and others. The othermajor competition is from the unorganized market in thissector. Company is also planning a Spa- hotel in Noida.
Other business venturesJAL has ventured into IT sector with JILIT (JIL InformationTechnology Ltd.). It specializes into various businesssegments such as:
Software Development and Consultancy Networking and Communication Content Development Learning Solutions Multimedia Services
It operates the private network of VSAT’s in Northern Indiathat connects the Group’s various project sites, cementlocations and Hydropower stations. This facilitates seamlessconnectivity for video conferencing of remote locations anddata connectivity for the ERP solutions of the E&C, Cementand Hydropower divisions and Educational institutions.
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JAL is developing racing circuit with itsJPSK Sports Pvt. Ltd…
Segment Revenue
JLIT aims at providing education solutions to schools inIndia and abroad. They intend to provide education withimproved content.
JAL is coming up with F1 racing Circuit
JAL ventured into sports with JPSK Sports Pvt. Ltd. to set upF1 racing circuit which has been designed by well knownGerman architect Herman Tike, who has earlier designedworld-class racing circuits in Malaysia, Bahrain, China,Turkey, Indonesia, the UAE, South Africa, South Korea andthe US. This racing circuit is being developed in outskirts ofDelhi.
Company also intends to establish Cricket stadium along withhockey arena and a sports training academy.
JAL may face problems arising due tocertain risk and concerns especially onthe funding part of the projects
Risk & Concerns
JAL has high debt to equity ratio which is still a causeof concern. JAL has many projects underway fundingthe projects is still to be seen.
Although economy has picked up after recession butany unexpected change in economic environmentcould adversely affect the business.
Increased competition in engineering andconstruction may put pressure on business activities.JAL is heavily dependent on the EPC projects. Anydelay arising from external factors could affect thedivision’s growth trajectory, going forward.
Fluctuation in commodity prices could adverselyimpact the business.
JAL is aggressive in capacity addition and hasprojects lined up which not only need huge fundsbut also faster execution skills. The ability tocomplete the projects on time and with the availableresources is to be seen.
Projects such as power are long gestation projectsand are dependent on several factors such requisitelicenses, approvals, permit, natural disasters, labordisputes and adverse weather conditions. Thecompany may be unable to complete the projects intime. This, in turn, will escalate the cost of theprojects.
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JAL is aggressively increasing thecapacity but managing the cost ofoperations is to be seen
We have valued JAL on EV/Ton basis;in line with other leading players
Valuation
Cement
JAL for last two years has been aggressively increasing thecapacity and this trend is expected to be continued in future.JAL is ambitious and expects to achieve 33MTPA by the endFY13, but we expect the capacity to increase to 30MTPA.
Cement is an important commodity and is directly related toinfrastructure sector. The demand and supply mismatch seencan be worrisome for the company. JAL’s cement realizationhas been range bound for the last two years and as companyis intentionally increasing its capacity the realizations areexpected to fall. But as the demand is expected to increase innorth and central India we expect the realization to beeffected marginally.
We have valued JAL cement division’s EV/ Ton multiple at~$110 (at a discount of ~25% to the leading player) andarrive at a value of `.39/-
JAL’s order book stands at~ ` 10600 Crore excluding GangaExpressway which itself amounts for around ` 30000 crore.~94% of the orders are in house. The execution of theprojects has to be seen in future.
JAL’s construction division is expected to post revenue atCAGR of ~20% between FY09- FY12E. Along with this theconstruction margins are continuously maintained between13-15% throughout and we expect margins to be maintained.The margins for JAL command better than other mid capplayers. But, the execution and management of resources hasto be kept under a check.
We have valued this division on EV/ EBITDA basis,assigning a multiple of ~7 (discounted in line with othermajor industrial players). But as we expect revenues to grow,we expect the division to perform. We expect the division tocontribute per share ` 44/-
Construction
EV/EBITDA 7
EV(`) 16280
Net equity value 9280
Price per Share 44
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Power Division
JAL owns 76.2% subsidiary named JPVL (Jaiprakash Power
Ventures Ltd.) through which it is thriving hard to make it
big. Currently JAL has a portfolio of 13470 MW. Out of this,
700MW is operational and another 1500MW is expected
around FY12E. Along with this JPVL is diversifying into
other fuel mix with its first thermal plant named BINA-I;
which is expected to be completed in FY12E. Further there
are many projects like Karcham Wangtoo, Nigrie, Bara-I and
Bara-II and Karchana-I. These projects are expected to be
completed till FY15. The other projects with JPVL that are
under planning or at various stages of clearances sum up the
Add: Capital work in progress 4219 5081 4800 3020 1900
Investments 3220 4473 5400 6839 6200
Total current Assets 5964 9161 10950 12050 13200
Total Current Liability 3657 5036 4836 6925 6606
Net current Assets 2307 4125 6114 5125 6594
Total Assets 13463 20494 24210 25280 26490
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Cash Flow Statement (Standalone) ` Crs
Particular FY08 FY09 FY10E FY11E FY12E
Opening balance 1429 1815 2884 3059 3176
Net profit before taxes 843 1252 2594 3421 3228
Changes in Working Capital 18 -862 -660 -720 -710
Cash generated from operations [A] 1012 523 225 130 80
Net cash from investing activities[B] -4257 -3713 -3772 -3822 -3872
Cash generated from financing activities[C] 3631 4259 3722 3809 3839
Net Changes in Cash (A+B+C) 386 1070 175 117 47
Cash at the end of the year 1815 2884 3059 3176 3222
Ratios (Standalone)
Ratios FY09 FY10 FY11E FY12E
Earnings Per Share (Rs) 7.6 9.0 12.1 10.5
Book Value (Rs) 31.5 37.3 42.1 47.7
PE Ratio 15.65 13.13 9.81 11.29
EBITDA (%) 37.17 28.03 33.88 28.73
PBTM (%) 21.71 25.14 26.84 22.73
PATM (%) 15.57 18.61 20.17 15.73
Total Debt/Equity 2.13 2.06 1.82 1.62
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Quarterly Results Y-o-Y (Standalone) ` Crs
Particulars Jun-10 Jun-09 Var% Mar-10 Mar-09 Var%
Gross Sales 3,174 2,067 54 3,345 2,085 60
Net Sales 3,174 2,067 54 3,345 2,085 60
Other operating income 40 50 -19 1 67 -98
EBITDA 3,214 2,117 52 3,347 2,152 56
Total Expenditure 2,532 1,525 66 2,491 1,380 81
Other Income 3 0 0 12 43 -72
Operating Profit 686 591 16 867 815 6
Interest 328 222 48 299 168 78
Exceptional Items 512 273 88 -2 0 0
PBDT 870 643 35 566 647 -12
Depreciation 150 102 48 133 102 30
PBT 720 541 33 433 544 -20
Tax 204 50 309 189 159 19
Profit After Tax 516 491 5 244 385 -37
Margins Y-o-Y
Particulars Jun-10 Jun-09 Var% Mar-10 Mar-09 Var%
EBIDTAM% 21.33 27.94 -23.7 25.91 37.88 -31.6
PBDTM% 27.07 30.36 -10.8 16.92 30.06 -43.7
PBTM% 22.4 25.56 -12.4 12.94 25.3 -48.9
PATM% 16.05 23.2 -30.8 7.29 17.91 -59.3
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Peer Comparison ` Crs
Particulars Gammon India IVRCL JAL Patel Eng.
Net Sales 4488 5492 10316 2352
Profit after tax 145 211 1920 132
EPS(Rs) 15.30 16.93 9.04 29.22
M Cap / Sales 0.14 0.33 1.73 0.54
Total Debt/Equity 0.61 0.72 2.06 1.29
ROCE% 9.53 9.29 8.01 17.54
PE 3.79 7.18 14.22 4.6
Peer Comparison
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Gammon India
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IVRCL JAL Patel Eng.
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Net Sales Profit after tax
Compared to peers JAL has performed well and is expected to do so in future.
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For any queries please feel free to contact our Institutional Research Team
Disclaimer
This Document has been prepared by Inventure Growth & Securities Ltd. The information, analysis and estimates contained herein are based onInventure’s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of itsemployees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not beresponsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only