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Jaiprakash Associates (JPA IN) Summary

Core Content

Jaiprakash Associates (JPA IN) is a diversified infrastructure company based in India, operating in the industrials sector. The company has a current share price of INR82, with a target price of INR104, representing a 27% increase. Its market capitalization is USD3.1B, and the average daily turnover is USD3M. Maybank has maintained its BUY recommendation, indicating confidence in the company's future performance.

Main Points

• Asset Sales: JPA is on track to complete the sale of the Gujarat cement plant (INR38b) by June, the Bokaro cement plant (INR9b) by September, and two hydro power plants (INR97b) by November. These sales are expected to reduce its debt by 20% to INR464b and save INR15b in annual interest costs.
• Additional Asset Sales: The company is considering selling three more assets, including the Balaji/Bhilai cement plants (INR43b) and Bara powerplant (INR38b), which could further reduce debt to INR350b by FY16. These sales are expected to result in interest cost savings of INR25b, which will offset the EBITDA loss of INR20b.
• New EBITDA: Newly commissioned cement and power plants are expected to stabilize next year, resulting in a 30% rise in EBITDA by FY17.
• Valuation: The new target price of INR104 is based on a SOTP (Sum-of-the-Parts) valuation, which values each business segment at enterprise value. This results in a P/BV (Price-to-Book Value) of 2.4x, which is still below historical levels.
• Business Segments:
  • Cement business: Valued at INR8,400 per ton, with a capacity of 26.4m tons after asset sales.
  • Power business: Valued at INR85 per MW, with a capacity of 4,200MW after selling 1,300MW.
  • Real estate: Valued at 8x EV/EBITDA, with a land bank of 468m sqft.
  • Other businesses: Valued at 7x EV/EBITDA.
  • Yamuna Expressway: Valued at 15x EV/EBITDA, with toll collection rights for 35 years.
  • Treasury shares: Valued at INR6.8b, with a 25% discount to the current market price.

Key Information

• Financial Highlights:
  • Revenue is expected to grow from INR188,163.9m in FY13A to INR220,963.1m in FY17E.
  • EBITDA is projected to rise from INR52,009.2m in FY13A to INR75,330.1m in FY17E.
  • Core net profit is expected to increase significantly, from a negative INR10,750.6m in FY15E to INR23,369.8m in FY17E.
  • Core EPS is projected to grow from INR(5) in FY15E to INR11 in FY17E, indicating strong earnings visibility.
• Debt Reduction: JPA has made progress in reducing its net debt/equity from 477.9% in FY13A to 367.8% in FY17E, as a result of asset sales.
• Valuation Metrics:
  • P/BV (Price-to-Book Value) is currently 1.8x, significantly below the historical average of 3.5x.
  • EV/EBITDA (Enterprise Value to EBITDA) is expected to decline from 15x in FY13A to 8.7x in FY17E.
  • ROAE (Return on Average Equity) is expected to rise from 3.8% in FY13A to 22.0% in FY17E, indicating improved profitability.

Summary of Valuation

Strategic Overview

JPA's strategy focuses on reducing debt through asset sales and improving profitability. The company has a significant land bank and toll collection rights for the Yamuna Expressway, which provide long-term revenue streams. Despite the recent rally in the stock price, the company is still undervalued based on historical metrics, making it an attractive investment opportunity.

Key Metrics

Conclusion

Jaiprakash Associates (JPA IN) is a diversified infrastructure company with a strong asset sale program and significant potential for debt reduction and profitability improvement. The company's SOTP-based target price of INR104 implies a P/BV of 2.4x, which is still below historical levels, suggesting undervaluation. With the sale of key assets and the stabilization of new projects, JPA is well-positioned for future growth.