“JP Associates, APAT of Rs2.8bn sharply ahead v/s exp. Rs2bn on the back of higher construction & real estate revenues as well as margins. Higher revenues coupled with robust 23.9% construction EBIT margin led to an 19%yoy increase in total EBITDA at Rs9.8bn. Construction revenues at Rs17.7bn although flat yoy were higher v/s est. of Rs13.5bn. Real estate revenues at Rs5.6bn although down 6% yoy were higher v/s estimates of Rs4.6bn. With the completion of Yamuna Expressway & Karcham Wangtoo project, we believe the construction revenues are expected to fall 5% in FY13E to Rs 54.4bn. Interest expense jumped 43%yoy to Rs5.8bn owing to inclusion of Bank charges. Effective tax rate @ 9.1% for Q4 came in lower than v/s exp. giving boost to the quarter.”
“Cement plants in west & south India were de-merged into a 100% subsidiary with effect from 1 April 2011 and adjustments were effected in Q4FY12. Hence cement number are not comparable. Like to like (Ex JCCL) cement revenues at Rs 16.9bn growth of 22.4% qoq led by 2.8% qoq jump in realization to Rs 4016/ton. Volumes increased 19% qoq to 4.2MT. However Cement EBIT improved just 3.4% qoq to Rs 2.13bn, led by higher freight as well as higher depreciation. EBIT/t witnessed decline of Rs76/t to Rs507/t. JPA has report Q3FY12 numbers Ex JCCL. Ex JCCL, JPA Q3FY11 EBIT/t stands at Rs583/t as v/s earlier reported EBIT/t of Rs399. This implies JCCL made EBIT loss Rs359mn. JPA set to commence first leg of de-leveraging. (parent debt - Rs210bn (Parent + JCCL)) JPA looks to divest full or partial stake in it’s recently hived-off cement subsidiary JCCL which has capacity of 10 mtpa (5mtpa in Gujarat and 5 mtpa in South). The company is first contemplating a complete sale of its Gujarat Cement Plant. JPA is in advance talks with strategic buyers. Gujarat plant has been operational for over two years and it dispatched 2.95mn in FY12 (utilization of 58%). Hence there is high possibility that the plant will likely find a buyer first and valuations could be upwards of USD 130/t. At EV of USD140-150/t we estimate that the deal could result in cash inflow of Rs21-23 bn (net of Tax). This coupled with ~Rs12 bn transfer of debt on Gujarat Plant would mean debt reduction of Rs32-34 bn from JPA's B/S, which is a good 15% of JPA current debt.”
“Divestment of cement subsidiary will remain critical to the de-leveraging of the parent balance sheet. We value JPA’s cement business at USD 110/t & maintained our FY13E estimates of capacity addition to 33.4 MT(inclusive of JV capacity). We have reduced the construction multiple to 5x EBITDA for FY13E from 6x based on the fact that two major orders i.e. Karcham Wangtoo and Yamuna Expressway witnessed completion in FY12. With limited addition of large ticket orders the construction vertical is likely to witness 5% decline in revenues for FY13E. We believe the stock price has already factored partial upsides from the probable divestment of JCCL. We believe the stock at 9.4x FY13E EBIDTA is fairly valued, hence maintain HOLD with a Target price of Rs 75. Fair value leaves little upsides. The Correction in Target price also led from the fact that the listed subsidiaries have corrected on the bourses which is leading to a reduction in overall fair value of the listed subsidiaries. We have also incorporated 20% holding company discount for the listed subsidiaries,” says Emkay Global Financial Services research report.
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