JP Associates

Company Update
December 24, 2014
Jaiprakash Associates (JAIASS)
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Hold
| 28
12 months
9%
Monetises two cement plants in MP…
What’s changed?
Target
EPS FY15E
EPS FY16E
Rating
Changed from | 32 to | 28
Unchanged
Unchanged
Unchanged
Quarterly performance
(| crore)
Revenue
EBITDA
EBITDA (%)
PAT
Q2FY15
2,691.2
711.7
26.4
(106.5)
Q2FY14 YoY (%)
(15.3)
3,176.1
763.7
(6.8)
24.0 240 bps
67.7 (257.4)
Q1FY15 QoQ (%)
(11.2)
3,030.4
755.0
(5.7)
24.9 153 bps
(80.6)
32.2
Key financials
(| Crore)
Net Sales
EBITDA
Net Profit
EPS (|)
FY13
13,208.7
3,175.5
501.3
2.3
FY14
12,973.2
3,107.6
413.9
1.9
FY15E
11,596.2
2,741.3
(473.3)
(1.9)
FY16E
15,112.4
3,560.8
125.6
0.5
FY14
13.7
14.9
10.8
0.5
3.0
5.9
FY15E
NM
NM
10.4
0.4
NM
4.6
FY16E
47.6
54.0
8.8
0.4
0.8
6.5
Valuation summary
(x)
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
FY13
11.3
12.3
9.2
0.5
3.8
6.9
Stock data
Particular
Market Capitalization (| crore)
Total Standalone Debt (| crore)
Cash (| crore)
EV (| crore)
52 week H/L (|)
Equity capital (| crore)
Face value (|)
Amount
6,214.8
28,000.0
879.8
33,335.0
90 / 23
486.5
2
Price performance
(%)
JP Associates
Ashoka Buildcon
Sadbhav Engg.
1M
(25.4)
2.1
2.9
3M
(32.2)
(1.0)
9.5
6M
(66.9)
(4.4)
30.1
| 26
12M
(56.8)
136.8
185.6
Research Analyst
Deepak Purswani, CFA
deepak,[email protected]
Nikunj Gala
[email protected]
ICICI Securities Ltd | Retail Equity Research
Jaiprakash Associates (JAL) has signed an MoU to sell two cement plants
in Madhya Pradesh to UltraTech Cement. The deal includes two
integrated units with 5.2 million tonnes per annum (MTPA) clinker
capacity and 4.9 MTPA grinding capacity along with 180 MW captive
thermal power plants (CPP) at an EV of | 5400 crore. While the deal
implies EV/tonne of US$135/tonne on expanded capacity (please refer
details below), the deal is likely to help JAL reduce its standalone debt of
~| 28,000 crore and consolidated debt of | 70,400 crore. Nonetheless, we
wait to see a debt reduction and improvement in operation performance
post asset monetisation. Hence, we maintain our HOLD recommendation
on the stock with an SOTP based target price of | 28/share.
Another cement asset sale as part of JAL’s strategy…
JAL has announced that its board has approved the MoU to sell two
cement plants in Madhya Pradesh to UltraTech Cement, a deal that will
help JAL reduce its standalone debt of ~| 28,000 crore and consolidated
debt of ~| 70,400 crore. The assets include (a) integrated cement plant
with clinker capacity of 2.1 MTPA and grinding capacity of 2.6 MTPA and
25 MW CPP at Bela, Madhya Pradesh. and (b) integrated cement plant
with clinker capacity of 3.1 MTPA and grinding capacity of 2.3 MTPA and
155 MW CPP at Sidhi, MP.
Deal done at EV of | 5400 crore…
The MoU between JAL and UltraTech has been done at an EV of | 5400
crore, which implies apparent EV/tonne of ~US$180/tonne on total
grinding capacity of 4.9 MTPA. However, we highlight that the deal
includes surplus clinker (~1.7 MTPA) and captive power capacity (~135
MW), which means grinding capacity can be expanded by ~2.4 MTPA to
7.3 MTPA at minimal capex. Hence, on expanded capacity, EV/tonne
works out to ~US$135/tonne, which is below its replacement cost of
US$150/tonne.
Asset monetisation spree…
JAL has been looking to pare assets as part of the strategy to de-leverage
the balance sheet. While JAL remains the third-largest cement
manufacturer in India with cement capacity of ~20 MTPA, it has cut its
size by more than a third since last year. The Jaypee Group had been
selling other assets also and recently signed a deal to sell two of the three
hydroelectric projects of Jaiprakash Power Ventures (JPVL) in Himachal
Pradesh to Sajjan Jindal-led JSW Energy at an EV of about | 9,700 crore.
Credit rating downgrade to increase pain further…
On the basis of a review of the operational and financial performance of
JAL for FY14 and H1FY15, CARE has downgraded the rating for both long
term and short term bank facilities. Now, a bank rating downgrade would
further increase their cost of debt. In turn, this would put more stress on
their cash flows.
Hold till clarity emerges…
It has been seen in the past that due to regulatory concerns JAL’s asset
monetisation and consequent debt reduction plans have been delayed.
Hence, we would like to wait further till the planned asset monetisation
fructifies into debt reduction and improvement in earnings. Hence, we
recommend HOLD on the stock with a revised SOTP based target price of
| 28/share (refer exhibit 1 for more details on valuation).
Outlook and valuation
At the CMP, the stock is trading at 0.4x FY14 P/BV. It has been seen in the
past that due to regulatory concerns JAL’s asset monetisation and
consequent debt reduction plan have been delayed. Hence, we would like
to wait further till the planned assets monetisation fructifies into debt
reduction and improvement in earnings. Recent regulatory uncertainties
pertain to power plants & real estate projects may adversely affect the
company’s asset monetisation drive. This, in turn, is affecting the
company’s plans to reduce its consolidated debt of ~| 70,400 crore,
which has remained the major concern for the investors for long. Hence,
we recommend HOLD on the stock with a revised SOTP based target
price of | 28/share. We value JAL’s cement business at | 58/share (19.7
MTPA- JAL’s economic interest at US$110/tonne), construction business
at | 30/share (5x FY16E EV/EBITDA), power & real estate at | 7/share and
| 14/share, respectively. We highlight that the reduction in our target price
has been largely on account of a decline in share prices of Jaiprakash
Power and Jaypee Infratech.
Exhibit 1: Valuation summary
Business
Cement Division
Construction Division
Power Division
JPVL
Real Estate Division
Yamuna Expressway
Jaypee Greens - Noida & Greater Noida
Hotel Division
Jaypee Sports International Ltd
Himalayan Expressway
Wind Power
Treasury shares
Total Enterprise Value
Less: Net debt
Target
Value (| cr)
14184
7338
1676
1676
Per share
58
30
7
7
3473
899
2573
371
697
143
245
348
28622
21596
7026
14
4
11
2
3
1
1
1
118
89
28
Comment
Value 20.3 MTPA (Economic interest - 19.7 MTPA ) capacity at US$110/tonne
5x FY16E EV/EBITDA
At 20% discount to CMP
At 80% discount to CMP
Valued at 0.5x of its NAV
5x FY16E EV/EBITDA
1x P/BV
1x P/BV
1x P/BV
18.9 crore valued at 30% discount to CMP
Less:Net debt after adjusting for Gujarat, Panipat & Bokaro sales procees
Source: Company, ICICIdirect.com Research
Exhibit 2: Valuation
FY13
FY14
FY15E
FY16E
Sales
(| cr)
13208.7
12973.2
11596.2
15112.4
Growth
(%)
3.7
-1.8
-10.6
30.3
EPS
(|)
2.3
1.9
-1.9
0.5
Growth
(%)
-51.8
NM
NM
NM
PE
(x)
12.6
NM
NM
47.6
P/B
(x)
0.5
0.5
0.4
0.4
RoNW
(%)
3.8
3.0
-3.3
0.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
RoCE
(%)
6.9
5.9
4.6
6.5
Company snapshot
200
180
160
140
120
100
80
60
Target Price 27
40
20
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Sep-14
Sep-14
Sep-14
Event
Jaypee Infra sells 1.3 crore shares of JAL for | 62.4 crore through open market sale route
Media reports indicate that CEA is likely to issue show cause notice to one of its power subsidiary for alleged violations with respect to techno-economic clearance
Reliance Power's talks to acquire three hydro power assets from JP's subsidiary called off following lack of clarity over capacity of the Karcham Wangtoo project
Sep-14
Oct-14
One of JAL's subsidiary strikes a deal with JSW Energy to sell three of its operating plants with an aggregate capacity of 1,891 MW
JAL once again comes under the radar of competition watchdog, CCI, for allegedly imposing unfair conditions on buyers of one of its projects in Noida, the
Kensington Park at Jaypee Greens, which is part of the company’s township Wish Town
According to media reports, UltraTech looks to acquire three cement plants of Jaypee Group in Reva, Madhya Pradesh and pegs the valuation at around | 5,5006,000 crore
Media reports indicate JAL is in advanced talks to sell its 2.1 million tonne Bhilai Cement unit to rival Shree Cement for an enterprise value of ~ | 1,800 crore as it
looks to trim debt by disposing off assets
Around eight companies show interest in the 960 MW Jangi-Thopan-Powari hydropower project proposed in Kinnaur district of Himachal Pradesh. Among those are
the Jaypee Group, which is already trying to sell its two hydropower projects in Kinnaur district
JSW Energy has acquired two of JP Power venture's operating hydro power plants, namely, the 300-MW Bapsa-II hydroelctric plant and the 1091-MW Karcham
Wangtoo plant in Himachal Pradesh with a combined capacity of 1391 MW for | 9700 crore
JP Associates sold two cement units and associated power plants in MP for |5400 crore. The deal includes sale of Bela plant (2.1 mn tonne clinker capacity, 2.6 MT
grinding unit & captive power plant of 25 MW) & Sidhi Unit (3.1 mn tonne clinker capacity, 2.3 MT grinding unit & captive power plant of 155 MW)
Oct-14
Oct-14
Nov-14
Nov-14
Dec-14
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Shareholding Pattern
Rank
1
2
3
4
5
6
7
8
9
10
(in %)
Promoter
FII
DII
Others
Name
Latest Filing Date % O/S Position (m) Change (m)
Jaypee Group
30-Sep-14 28.4
691.8
-37.8
Platinum Investment Management Ltd.
30-Sep-14
4.9
119.4
26.4
30-Sep-14
4.5
108.9
0.0
LIC Nomura Mutual Fund Asset Management Company Ltd
HSBC Global Asset Management (Hong Kong) Limited
30-Sep-14
2.8
69.0
4.0
JEL Trust
30-Sep-14
2.8
67.9
0.0
JCL Trust
30-Sep-14
2.0
49.7
0.0
JHL Trust
30-Sep-14
1.9
45.1
0.0
Dimensional Fund Advisors, L.P.
30-Nov-14
1.7
40.5
0.0
The Vanguard Group, Inc.
30-Nov-14
1.2
29.2
0.5
GACL Trust
30-Sep-14
1.1
26.7
0.0
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
45.12 45.12 45.08 45.07 39.56
24.86 27.41 28.91 30.94 28.72
10.08
9.91
8.55
7.93
7.53
19.94 17.56 17.46 16.06 24.19
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Platinum Investment Management Ltd.
GMO LLC
Jupiter Asset Management Ltd.
HSBC Global Asset Management (Hong Kong) Limited
Jain (Vishali)
ICICI Securities Ltd | Retail Equity Research
Value
11.28m
3.24m
2.00m
1.69m
1.03m
Shares
26.41m
7.58m
4.68m
3.97m
2.40m
Sells
Investor name
Jaypee Group
T. Rowe Price International (UK) Ltd.
BlackRock Institutional Trust Company, N.A.
Deutsche Asset & Wealth Management Investment GmbH
Lyxor Asset Management
Value
-16.16m
-10.45m
-8.30m
-7.57m
-2.85m
Shares
-37.84m
-19.43m
-16.33m
-11.60m
-6.15m
Page 3
Financial summary
Profit and loss statement
(| Crore)
Net Sales
Growth (%)
Op.Expenditure
EBITDA
Growth (%)
Other income
Depreciation
EBIT
Interest
PBT
Tax
Extraordinary item
Rep. PAT before MI
MI
Rep. PAT after MI
Adjustment
Adj. Net Profit
Growth (%)
Reported EPS (|)
| Crore
FY13
13,208.7
3.7
10,033.2
3,175.5
-4.6
FY14E
12,973.2
-1.8
9,865.5
3,107.6
-2.1
FY15E
11,596.2
-10.6
8,854.9
2,741.3
-11.8
FY16E
15,112.4
30.3
11,551.5
3,560.8
29.9
303.4
726.1
2,752.8
2,011.4
741.4
249.5
9.3
501.3
0.0
501.3
9.3
492.0
-51.8
2.3
354.3
773.6
2,688.4
2,752.1
-63.7
-73.7
403.9
413.9
0.0
413.9
403.9
10.0
-98.0
1.9
300.4
818.9
2,222.8
3,049.7
-826.9
-353.7
0.0
-473.3
0.0
-473.3
0.0
-473.3
NM
-1.9
330.4
897.4
2,993.8
2,747.7
246.1
120.5
0.0
125.6
0.0
125.6
0.0
125.6
NM
0.5
Source: Company, ICICIdirect.com Research
| Crore
(| Crore)
Liabilities
Equity capital
Reserves & Surplus
Shareholder's fund
443.8
12,888.5
13,332.3
443.8
13,302.4
13,746.2
486.5
14,287.4
14,773.9
486.5
14,413.0
14,899.5
Secured & unsecured debt
Deferred Tax Liablity
24,343.3
1,372.7
28,163.3
1,372.7
27,163.3
1,372.7
25,163.3
1,372.7
Sources of funds
Assets
Gross Block
less: Acc. Depreciation
Net Block
Capital WIP
Net Fixed Assets
39,048.3
43,282.2
43,309.9
41,435.5
17191.2
4033.5
13157.7
5800.8
18958.5
18685.2
4827.4
13857.9
6030.1
19888.0
20685.2
5644.8
15040.5
5030.1
20070.6
22685.2
6542.2
16143.1
4030.1
20173.2
8891.3
10441.3
11441.3
12441.3
1969.5
2435.1
1302.7
5299.5
7136.8
18143.5
6945.0
11198.5
39,048.3
2013.4
2423.8
879.8
5779.8
7195.0
18291.7
5383.5
12908.2
43,282.2
1747.2
2085.8
4591.2
4973.7
4073.7
17471.6
5717.6
11754.1
43,310.7
2387.5
3206.3
-168.6
7645.9
4323.0
17394.2
8617.1
8777.1
41,436.3
Inventories
Trade Receivables
Cash
Loans & Advances
Other current assets
Total current assets
Current Liab. & Prov.
Net Current Asset
Application of funds
(| Crore)
Net Profit before tax
Depreciation & Amortisation
Others
Direct tax paid
CF before change in WC
Inc/Dec in Trade Recv.
Inc/Dec in Inventories
Inc/Dec in Loans & Adv
Inc/Dec in other current assets
Inc/Dec in cur liabilities
CF from operations
Purchase of Fixed Assets
(Inc)/Dec in investments
CF from investing
Inc/(Dec) in Debt & interest expenses
Inc/(Dec) in Net worth
CF from Financing
Net Inc/Dec in cash & eq.
Opening cash balance
Closing cash balance
| Crore
FY13
741.4
726.1
5.0
-120.5
1,352.1
431.3
-278.0
-990.3
1,409.6
787.4
2,712.1
-4,234.9
-2,008.8
-6,243.7
3,304.6
517.5
3,822.1
290.4
1,022.2
1,302.7
FY14E
331.5
773.6
2,399.8
73.7
3,578.5
11.3
-43.9
-480.3
-58.1
-1,561.5
1,446.0
-1,723.3
-1,195.8
-2,919.1
1,067.9
-15.8
1,052.2
-420.9
1,302.7
879.8
FY15E
-826.9
818.9
2,751.3
353.7
3,097.0
338.0
266.2
806.1
3,121.3
334.0
7,962.6
-1,000.0
-699.6
-1,699.6
-4,049.7
1,500.2
-2,549.5
3,713.5
879.8
4,591.2
FY16E
246.1
897.4
2,420.3
-120.5
3,443.4
-1,120.6
-640.3
-2,672.2
-249.3
2,899.5
1,660.5
-1,000.0
-669.6
-1,669.6
-4,747.7
0.0
-4,747.7
-4,756.8
4,591.2
-168.6
FY13
FY14E
FY15E
FY16E
2.0
5.0
54.8
54.3
5.4
0.0
3.2
56.5
53.3
3.6
-1.9
1.4
60.7
47.7
18.9
0.5
4.2
61.3
62.1
-0.7
24.0
5.6
3.7
273.5
73.2
313.8
24.0
-0.5
0.1
338.4
68.4
294.5
23.6
-7.1
-4.1
225.5
71.0
292.7
23.6
1.6
0.8
216.1
63.9
270.4
3.8
6.9
7.7
3.0
5.9
6.7
-3.3
4.6
5.5
0.8
6.5
7.7
11.3
9.2
2.2
0.5
13.7
10.8
2.6
0.5
NM
10.4
2.5
0.4
47.6
8.8
2.1
0.4
7.7
1.7
2.6
2.4
9.1
2.0
3.4
3.2
9.9
1.5
3.1
2.3
7.1
1.7
2.0
2.0
Source: Company, ICICIdirect.com Research
Balance sheet
Investment
Cash flow statement
FY13
FY14E
FY15E
Source: Company, ICICIdirect.com Research
Key ratios
FY16E
Per share data (|)
EPS (recurring)
Cash EPS
BV
Revenue per share
Cash Per Share
Operating Ratios (%)
EBITDA Margin
PBT / Net Sales
PAT Margin
Working Capital (ex cash) days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Price to Book Value
Solvency Ratios (x)
Debt/EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Source: Company, ICICIdirect.com Research
.
ICICI Securities Ltd | Retail Equity Research
Page 4
ICICIdirect.com coverage universe (Infrastructure)
Sector / Company
JP Associates (JAIASS)
IRB Infra (IRBINF)
Ashoka Buildcon (ASHBUI)
EPS (|)
CMP
M Cap
(|) TP(|) Rating
(| Cr) FY14 FY15E FY16E
26
28 Hold
6,214 1.9 -1.9
0.5
248 269 Hold
8,243 13.8 17.8 20.8
139 167
Buy
2,196 6.2
7.6
6.5
P/E (x)
EV/EBITDA (x)
P/B (x)
RoE (%)
FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E
13.7
NM 47.6 10.8 10.4
8.8 0.5
0.4
0.4
3.0
NM
0.8
18.7 14.5 12.4 10.4
7.5
6.3 2.4
2.1
1.9 12.9 14.8 15.2
20.7 16.9 19.7 12.7 12.5
7.5 1.6
1.5
1.4
7.7
8.8
7.1
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 5
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ICICI Securities Ltd | Retail Equity Research
Page 6
ANALYST CERTIFICATION
We, Deepak Purswani, MBA (Finance), CFA; Nikunj Gala, MBA (Capital Markets), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
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and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
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ICICI Securities Ltd | Retail Equity Research
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