The JayPee group is a diversified infrastructure conglomerate and has a formidable presence in Engineering & Construction along with interests in the power, cement and hospitality. The infrastructure conglomerate has also expanded into real estate & expressways.
Equity Share Capital - 280 Cr
No. of equity shares – 140,18,11,564
Promoter holding – 50.09%
Institutions – 33.94%
General Public – 9.97%
Market Cap – Rs. 5272 Cr
Book Value – Rs. 33
Reserves – Rs. 3,657.07 Cr
EPS (Rs) – Rs. 6.4
52 week high/low – Rs. 255.60/Rs. 47.05
CMP – Rs. 221
Equity Share Capital - 280 Cr
No. of equity shares – 140,18,11,564
Promoter holding – 50.09%
Institutions – 33.94%
General Public – 9.97%
Market Cap – Rs. 5272 Cr
Book Value – Rs. 33
Reserves – Rs. 3,657.07 Cr
EPS (Rs) – Rs. 6.4
52 week high/low – Rs. 255.60/Rs. 47.05
CMP – Rs. 221
Diversified Conglomerate:
Jaiprakash Associates’s transformation from being primarily a civil contractor and regional cement player to one of the largest infrastructure asset plays in India over the last five years has been creditable.
It is well on track to become:
i) India’s 3rd largest cement group with a national footprint;
ii) India’s 3rd largest civil contractor;
iii) India’s 5th largest private sector power producer;
iv) India’s 6th largest real estate developer.
Jaiprakash Associates is well set to be among the top five players in power, cement and real estate in India. Doubling of cement capacity in three years, launch of 13m sq ft residential projects in two years and expeditious award of thermal power projects to established E&C players lend credibility to the group’s ambitious expansion plans. Treasury stocks in the parent company and consolidation of all power assets under the listed subsidiary (Jaiprakash Hydropower Limited, or JHPL) provide funding flexibility. More than doubling of cement volumes over FY09-11 and peak construction at captive projects should yield 44% earnings CAGR over FY09-11, similar to growth rates achieved over FY05-09.
Cost advantage provides visibility for land bank monetization:
Since November 2008, the company has successfully launched 9.6m sq ft residential projects in the Noida-Greater Noida region, when offerings from competitors have almost dried up. Owing to Rs800-Rs1000 psf land cost advantage, the company can out-price competition in any external environment, as reflected in 52-62% cut in prices in recent launches, as compared to the initial launch in November 2007.
Large contiguous land bank at its disposal should enable monetization at much higher prices once the network effect of a large township kicks in, in 5-6 years. NAV of Noida project at Rs6120 Cr translates into value of Rs4.9 Cr/acre.
Awards for 1.8GW on L&T and BHEL lend credibility to power expansion:
Awards for Bara and Karchana projects totaling 3.3GW over the next six months would provide further visibility. Value of the power business is at Rs. 15,300 Cr, implying 10% discount to current market price of JHPL. Our power valuations derive comfort from undemanding assumptions of merchant tariffs at Rs3 per unit. The key risk to our power valuation emanates from potential delays in commissioning of captive coal mines for Nigrie thermal power project.
Conducive capital markets to support achieving growth ambitions:
As per our estimates, the power subsidiary would require Rs4600 Cr over FY09-12 to fund equity commitment in ongoing projects. The parent has investment requirements of Rs3400 Cr over FY09-12. The parent balance sheet had cash balances of Rs2900 Cr as at end-FY09 and raised another Rs500 Cr through treasury share sales. Standalone debt-equity stands at 2.0x and consolidated debt-equity at 2.9x. Hence, scope for further debt financing is limited and the group needs to raise fresh equity in the near future.
Jaiprakash Associates’s transformation from being primarily a civil contractor and regional cement player to one of the largest infrastructure asset plays in India over the last five years has been creditable.
It is well on track to become:
i) India’s 3rd largest cement group with a national footprint;
ii) India’s 3rd largest civil contractor;
iii) India’s 5th largest private sector power producer;
iv) India’s 6th largest real estate developer.
Jaiprakash Associates is well set to be among the top five players in power, cement and real estate in India. Doubling of cement capacity in three years, launch of 13m sq ft residential projects in two years and expeditious award of thermal power projects to established E&C players lend credibility to the group’s ambitious expansion plans. Treasury stocks in the parent company and consolidation of all power assets under the listed subsidiary (Jaiprakash Hydropower Limited, or JHPL) provide funding flexibility. More than doubling of cement volumes over FY09-11 and peak construction at captive projects should yield 44% earnings CAGR over FY09-11, similar to growth rates achieved over FY05-09.
Cost advantage provides visibility for land bank monetization:
Since November 2008, the company has successfully launched 9.6m sq ft residential projects in the Noida-Greater Noida region, when offerings from competitors have almost dried up. Owing to Rs800-Rs1000 psf land cost advantage, the company can out-price competition in any external environment, as reflected in 52-62% cut in prices in recent launches, as compared to the initial launch in November 2007.
Large contiguous land bank at its disposal should enable monetization at much higher prices once the network effect of a large township kicks in, in 5-6 years. NAV of Noida project at Rs6120 Cr translates into value of Rs4.9 Cr/acre.
Awards for 1.8GW on L&T and BHEL lend credibility to power expansion:
Awards for Bara and Karchana projects totaling 3.3GW over the next six months would provide further visibility. Value of the power business is at Rs. 15,300 Cr, implying 10% discount to current market price of JHPL. Our power valuations derive comfort from undemanding assumptions of merchant tariffs at Rs3 per unit. The key risk to our power valuation emanates from potential delays in commissioning of captive coal mines for Nigrie thermal power project.
Conducive capital markets to support achieving growth ambitions:
As per our estimates, the power subsidiary would require Rs4600 Cr over FY09-12 to fund equity commitment in ongoing projects. The parent has investment requirements of Rs3400 Cr over FY09-12. The parent balance sheet had cash balances of Rs2900 Cr as at end-FY09 and raised another Rs500 Cr through treasury share sales. Standalone debt-equity stands at 2.0x and consolidated debt-equity at 2.9x. Hence, scope for further debt financing is limited and the group needs to raise fresh equity in the near future.
Jaiprakash Associates’s transformation from being primarily a civil contractor and regional cement player to one of the largest infrastructure asset plays in India over the last five years has been creditable.
Cement capacity FY12ii
Holcim (ACC+Ambuja) - 54 m tonnes
AV Birla (Grasim + UT) - 54 m tonnes
Jaiprakash - 30 m tonnes
Power FY12ii capacity; Civil Contracts FY11 Revenues
Punj - Rs146bn
Tata Power - 7.4 GW / L&T - Rs468bn
Adani Power - 5.3 GW
Jaiprakash - 1.7 GW / Jaiprakash - Rs67bn
Source: Companies, IIFL Research
• As compared to 7.0mtpa operational cement capacity as at end-FY07, the commissioned capacity stands at 14.5mtpa currently. This rapid scale-up provides comfort in the company’s execution capabilities. The company plans to ramp up cement capacity to 30mtpa by FY12. We estimate that JPA has already committed 2/3rd of the investment required for the stated expansion.
• JPA has successfully launched 9.6m sq ft residential projects since November 2008, when competitor offerings have almost dried up, by cutting prices by 52-62%. Altering its real estate price points to reflect market realities underline agility in decision making.
• Kick-starting the Bina power project within a year after failed attempts by previous owners spanning a decade further solidifies its execution credentials. Placing orders on BHEL for equipment rather than relying on Chinese players reflects the company’s overriding concerns on long-term sustainability of its assets. Expeditious award of 1,320MW Nigrie power project to L&T and plans to award projects totaling 3.3GW in the next six months has improved visibility of scale-up in the power business.
Financial summary:
The total income for Q1FY10 was at Rs 2116.86 Cr as compared to Rs 1194.68 Cr in Q1FY09; an increase of 77%. EBIDTA for Q1FY10 stood at Rs 591.49 Cr; registering an increase of 66% as compared to Rs 355.57 Cr in the corresponding previous period. Net profit for the Q1FY10 improved to Rs 491.18 Cr as against Rs 125.21 Cr in Q1FY09, an increase of 292%. The earnings per share (EPS) for Q1FY10 stood at Rs 3.50 per share. PAT margin improved to 23.7% as against 10.80%.
Segmental Division Results Highlights – Q1FY10
Turnover from Cement Division (including cement products) at Rs 905 Cr ( Rs 577 Cr) registering growth of 57%, constituting 43% of the revenue.
Turnover from Engineering Division (including Wind Power) at Rs 1084 Cr (Rs 506Cr) registering a growth of 114%, constituting 51% of the revenue.
Turnover from Real Estate at Rs 95 Cr (Rs 75 Cr) registering a growth of 26%, constituting 4% of the revenue. While revenue from hotel business constituted 2% of total revenue.
For FY08-09, the Company’s revenues were Rs. 6,148Cr (Rs. 4274 Cr) The PAT amounted to Rs. 897 Cr (Rs. 609 Cr) registering an increase of 47.29% over the previous year showing EPS of Rs. 6.4 (Rs. 4.3).
Estimated earnings:
FY10E –
Revenues – 9,760.8 Cr
PAT – 1419.5 Cr
EPS – Rs. 10.1
FY11E –
Revenues - 12,921.4 Cr
PAT – 1877.2 Cr
EPS – Rs. 13.4
FY12E –
Revenues – 13482.7 Cr
PAT – 2066.2 Cr
EPS – Rs. 14.47
Cement capacity FY12ii
Holcim (ACC+Ambuja) - 54 m tonnes
AV Birla (Grasim + UT) - 54 m tonnes
Jaiprakash - 30 m tonnes
Power FY12ii capacity; Civil Contracts FY11 Revenues
Punj - Rs146bn
Tata Power - 7.4 GW / L&T - Rs468bn
Adani Power - 5.3 GW
Jaiprakash - 1.7 GW / Jaiprakash - Rs67bn
Source: Companies, IIFL Research
• As compared to 7.0mtpa operational cement capacity as at end-FY07, the commissioned capacity stands at 14.5mtpa currently. This rapid scale-up provides comfort in the company’s execution capabilities. The company plans to ramp up cement capacity to 30mtpa by FY12. We estimate that JPA has already committed 2/3rd of the investment required for the stated expansion.
• JPA has successfully launched 9.6m sq ft residential projects since November 2008, when competitor offerings have almost dried up, by cutting prices by 52-62%. Altering its real estate price points to reflect market realities underline agility in decision making.
• Kick-starting the Bina power project within a year after failed attempts by previous owners spanning a decade further solidifies its execution credentials. Placing orders on BHEL for equipment rather than relying on Chinese players reflects the company’s overriding concerns on long-term sustainability of its assets. Expeditious award of 1,320MW Nigrie power project to L&T and plans to award projects totaling 3.3GW in the next six months has improved visibility of scale-up in the power business.
Financial summary:
The total income for Q1FY10 was at Rs 2116.86 Cr as compared to Rs 1194.68 Cr in Q1FY09; an increase of 77%. EBIDTA for Q1FY10 stood at Rs 591.49 Cr; registering an increase of 66% as compared to Rs 355.57 Cr in the corresponding previous period. Net profit for the Q1FY10 improved to Rs 491.18 Cr as against Rs 125.21 Cr in Q1FY09, an increase of 292%. The earnings per share (EPS) for Q1FY10 stood at Rs 3.50 per share. PAT margin improved to 23.7% as against 10.80%.
Segmental Division Results Highlights – Q1FY10
Turnover from Cement Division (including cement products) at Rs 905 Cr ( Rs 577 Cr) registering growth of 57%, constituting 43% of the revenue.
Turnover from Engineering Division (including Wind Power) at Rs 1084 Cr (Rs 506Cr) registering a growth of 114%, constituting 51% of the revenue.
Turnover from Real Estate at Rs 95 Cr (Rs 75 Cr) registering a growth of 26%, constituting 4% of the revenue. While revenue from hotel business constituted 2% of total revenue.
For FY08-09, the Company’s revenues were Rs. 6,148Cr (Rs. 4274 Cr) The PAT amounted to Rs. 897 Cr (Rs. 609 Cr) registering an increase of 47.29% over the previous year showing EPS of Rs. 6.4 (Rs. 4.3).
Estimated earnings:
FY10E –
Revenues – 9,760.8 Cr
PAT – 1419.5 Cr
EPS – Rs. 10.1
FY11E –
Revenues - 12,921.4 Cr
PAT – 1877.2 Cr
EPS – Rs. 13.4
FY12E –
Revenues – 13482.7 Cr
PAT – 2066.2 Cr
EPS – Rs. 14.47
Profile of key projects:
Yamuna Expressway – real estate holds the key. The 165km-long six-lane expressway was awarded to JPA’s 100% owned subsidiary Jaypee Infratech and is being developed on BOT basis.
The expressway, located on the east of river Yamuna, will connect New Delhi and Agra via Noida, Ghaziabad, Meerut, Aligarh and Mathura. On completion, it will compete with the existing NH-2. This is the largest greenfield expressway project taken up by any private developer under public private partnership. The company expects to make the expressway motorable before the Common Wealth Games in October 2010. The management indicates that the construction work is on schedule. Till date, out of the total project cost of Rs 8,020 Cr, the company has spent Rs4050 Cr including the amount spent on acquisition of 3,991 acres of land for the expressway.
Ganga Expressway – The Ganga Expressway project envisages a 1,047km access-controlled eight-laned expressway along the Ganga River. This expressway will connect Greater Noida to Balia. The total estimated cost of the projects is Rs30,000 Cr.
This expressway project was tendered by the Uttar Pradesh government with the developers bidding for the size of land parcel required for commercial development. Jaiprakash Associates won the project in January 2008 by bidding for 30,000 acres of land along the expressway. The company intends to develop approximately 3.3bn sq ft built-up space on this land.
Valuation:
At current price of Rs. 220, it is quoting at P/E of 34 on FY08-09 basis which looks expensive against industry P/E of 22. Price/BV is 6.43. Also M-Cap/Sales ratio is around 5. However, project execution capability of management is very good & the company has large order book in its hand, so, one should buy this stock for the long term horizon. So, investment in staggered fashion & booking profits at every higher level would be highly recommended.
It’s a great stock that will show tremendous growth in future.
Yamuna Expressway – real estate holds the key. The 165km-long six-lane expressway was awarded to JPA’s 100% owned subsidiary Jaypee Infratech and is being developed on BOT basis.
The expressway, located on the east of river Yamuna, will connect New Delhi and Agra via Noida, Ghaziabad, Meerut, Aligarh and Mathura. On completion, it will compete with the existing NH-2. This is the largest greenfield expressway project taken up by any private developer under public private partnership. The company expects to make the expressway motorable before the Common Wealth Games in October 2010. The management indicates that the construction work is on schedule. Till date, out of the total project cost of Rs 8,020 Cr, the company has spent Rs4050 Cr including the amount spent on acquisition of 3,991 acres of land for the expressway.
Ganga Expressway – The Ganga Expressway project envisages a 1,047km access-controlled eight-laned expressway along the Ganga River. This expressway will connect Greater Noida to Balia. The total estimated cost of the projects is Rs30,000 Cr.
This expressway project was tendered by the Uttar Pradesh government with the developers bidding for the size of land parcel required for commercial development. Jaiprakash Associates won the project in January 2008 by bidding for 30,000 acres of land along the expressway. The company intends to develop approximately 3.3bn sq ft built-up space on this land.
Valuation:
At current price of Rs. 220, it is quoting at P/E of 34 on FY08-09 basis which looks expensive against industry P/E of 22. Price/BV is 6.43. Also M-Cap/Sales ratio is around 5. However, project execution capability of management is very good & the company has large order book in its hand, so, one should buy this stock for the long term horizon. So, investment in staggered fashion & booking profits at every higher level would be highly recommended.
It’s a great stock that will show tremendous growth in future.
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