Jaiprakash Associates Initiating Coverage
REDUCE Risky Association Jaiprakash Associates (JAL) is one of the largest Infrastructure conglomerates in India Price Rs139 with a presence in varied sectors like Cement, Real Estate, Power and Construction and Target Price Rs112 EPC (C&EPC). JAL targets to become one of the Top-3 cement companies, be one of the largest Real Estate developers in India, have a Power portfolio of 5,945MW, and have Investment Period 12 months 1,212km of Expressways with tolling rights. Our estimates suggest that JAL would require Rs50,000cr of funding (particularly for the Yamuna and Ganga Expressway projects), which Stock Info we believe would be a herculean task to achieve. Further, achieving financial closure for all Sector Infrastructure its power projects would also be difficult. Moreover, considering the poor demand outlook for the Real Estate Sector and the challenges emerging in the Cement Sector in terms of an Market Cap (Rs cr) 16,437 oversupply situation getting created, we believe the going may be tough for the Beta 1.5 company. This makes us apprehensive of the returns from JAL's expansion plans and thus Initiate Coverage on the stock with a Reduce rating and SOTP Target Price of 52 Week High / Low 297/47 Rs112/share, implying a downside of 20% from current levels. Avg Daily Volume 5,149,225 Major Segments face strong Headwinds: JAL has interests in the Cement and Real Face Value (Rs) 2 Estate Sectors. We believe that JAL will have to tackle the strong headwinds that these Sectors are facing as demand continues to dwindle and credit availability remains weak. BSE Sensex 11,403 Capacity Expansion+ Stretched Balance Sheet+ Slowing Demand = Ominous Signs: Nifty 3,474 JAL has been in businesses (C&EPC+Cement+Power), which generated consistent cash flows. However, in recent times, it has ventured into Sectors (Real Estate + BOT), which are cash guzzlers and stretched its Balance Sheet. JAL has substantially BSE Code 532532 expanded in the Cement Sector, which we expect will face an excess supply scenario and NSE Code JPASSOCIAT affect JAL's overall profitability. Increased capacity, stretched Balance Sheet and the Reuters Code JAIA.BO ongoing slowdown are some of the challenges that JAL would have to combat going ahead. Street factoring in projects with long gestation: JAL is in projects with long Bloomberg Code JPA@IN gestation periods with no near-term Revenue visibility and which are expected to impact Cash flows of its other divisions. We see street factoring in the substantial pipeline Shareholding Pattern (%) of projects beyond FY2011. We have however, been conservative and factored in only projects that have achieved financial closure/are under construction. Thus, we believe current Promoters 45.3 valuations factor in all the positives. However, any under deliverance by JAL could weigh MF / Banks / Indian FIs 16.4 heavily on the stock price going ahead. FII / NRIs / OCBs 24.9 Key Financials
Indian Public / Others 12.4 Y/E March (Rs cr) FY2008 FY2009 FY2010E FY2011E Net Sales 4,274 6,016 8,773 11,258 Abs. 3 m 1yr 3yr % chg 19.4 40.8 45.8 28.3
Sensex (%) 23.5 (34.4) (3.8) Net Profit 609.9 881.6 1,145.8 1,262.9 % chg 46.9 44.5 30.0 10.2 JAL (%) 99.6 (47.8) 23.2 FDEPS (Rs) 5.1 7.4 9.6 10.6 Shailesh Kanani EBITDA Margin (%) 32.4 30.8 30.6 28.6
Tel: 022 - 4040 3800 Ext: 321 P/E (x) 27.0 18.7 14.4 13.1 E-mail: [email protected] RoE (%) 16.3 17.2 18.5 17.4 RoCE (%) 10.6 10.6 13.8 13.1 Aniruddha Mate P/BV (x) 3.6 2.9 2.5 2.1
Tel: 022 - 4040 3800 Ext: 335 EV/Sales (x) 5.4 4.0 3.0 2.6 E-mail: [email protected] EV/EBITDA (x) 16.6 12.8 9.9 8.9 Source: Company, Angel Research; Price as on April 29, 2009
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Infrastructure
Business Overview
JAL is a diversified JAL, the flagship company of Jaypee Group, was set up in 1958 by Jai Prakash Gaur, who infrastructure conglomerate started as a small-time construction contractor in Kota (Rajasthan). Later, the company also with interests in Construction forayed into the Cement business by setting up a 1mtpa capacity cement plant at Rewa in and EPC, Cement and Real Madhya Pradesh. Currently, the Jaypee Group is the third largest cement producer in the Estate country with an installed capacity of 18mtpa. In the Central region, the Jaypee Group leads with 26% market share followed by ACC 14%, Grasim 12%, Century Textiles 12% and Birla Corporation 8%. Whereas others account for the balance 28% of the market share.
Leveraging on its construction skills, JAL also forayed into the Power and Real Estate Sector. In fact, JAL is one of the largest private independent Hydro Power producers in India with an attributable capacity of 514MW (installed and operational capacity of 700MW). Thus, JAL is a diversified infrastructure conglomerate with interests in Construction and EPC, Cement and Real Estate, which contributed 51.5%, 39.7% and 7.3% of its FY2009E Revenues.
Exhibit 1: Corporate Structure
Jaiprakash Associates Ltd (JAL)
Construction Real Estate Cement Power (US$2.3bn) & Hospitality
100% 63% Jaiprakash Hydro Power Ltd Jaypee Green Jaypee Cement (Baspa -II-300 MW) (part of JAL)
98% Jaypee Infratech Ltd 74% Bhilai Jaypee Cement Ltd Jaypee Power Grid Ltd 74% (Yamuna Expressway) (JV with SAIL) (Transmission) 70% 72% Jaypee Hotels Ltd 100% MP Jaypee Minerals Ltd Gujarat Anjan Cement Ltd 100% Jaypee Ganga 100% Jaypee Karcham Hydro Co. Ltd Infrastructure Corp. Ltd 100% Gujarat Jaypee Cement (1,000 MW) Infra Ltd 81% 100% Himalayan Expressway Ltd Jaypee Power Ventures Ltd
74% Bokaro Jaypee Cement Ltd 100% Vishnuprayag (J V with SAIL) (400 MW)
89% Lower Siang (2,000 MW) Cement 89% Hirong (500 MW) Hydro Power
100% Nigrie Thermal Power Plant Thermal Power (1,320MW) Real Estate & Hospitality 74% Kynshi - II (450 MW)
74% Umngot (270 MW)
Source: Company, Angel Research
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Infrastructure
Construction and EPC (C&EPC)
C&EPC has been JAL's forte Construction and EPC has been JAL's forte and it has to its credit a four-decade long expertise and it has to its credit a in the construction of river valley and hydro power projects on a turnkey basis. The company four-decade long expertise in has the distinction of simultaneously executing 13 hydro power projects spread across six the construction of river states and in neighbouring Bhutan. The company has a total Order book of Rs11,000cr, of which valley and hydro power 72% is accounted by captive orders, while the balance is accounted by external orders. projects on a turnkey basis Cement- Central Play
The states of MP and UP The states of MP and UP (Central India) account for 15.5% of the all-India installed cement account for 15.5% of the capacity of 175.7mtpa. JAL is a prominent player in Central India with a cement capacity of all-India installed cement 13.5mtpa. JAL plans to further augment its capacity in this region by 10.4mtpa, which is capacity of 175.7mtpa. expected to go on-stream by FY2010. JAL has a strategically located clinker capacity in Uttar Pradesh (UP, limestone hub) and grinding capacity in Madhya Pradesh (MP, one of the largest cement markets) on account of which its transportation costs are lower.
We believe major demand drivers for the Cement Sector in this region going ahead are immense with infrastructure developments including the Harsi Main Canal project in Gwalior, SEZs coming up in Noida and the 1,047km Ganga Expressway (to be developed by JAL) which are expected to boost cement consumption in this region. However, we expect cement capacity to get cluttered particularly in this region over the next couple of years.
Power: Hydro and Thermal Power Plants
JAL is the market leader in In view of the vast latent hydro power potential of India, JAL ventured into private hydro power private hydro power plants generation on a build-own-operate (BOO) basis. JAL is the market leader in private hydro power with an installed and plants with an installed and operational capacity of 700MW (Baspa II and Vishnuprayag hydro operational capacity of power plants). JAL had the distinction of participating in 54% of new hydro power projects under 700MW the Tenth Five-year Plan.
JAL's Power Portfolio
Projects Operational/ Under Construction
z Baspa-II is a 300MW operational project under JAL's subsidiary, Jaiprakash Hydro-Power (JHPL). z Vishnuprayag is a 400MW operational project under JAL's subsidiary, Jaiprakash Power Ventures (JPVL). z Karcham Wangtoo is a 1,000MW under construction project under JAL's subsidiary, Jaypee Karcham Hydro Corp (JKHCL). Projects yet to achieve financial closure z Arunachal Pradesh projects of 2,500MW (Lower Siang 2,000MW and 500MW Hirong) expected to be commissioned by 2015. z Meghalaya 720MW (270MW Umngot and 450MW Kynshi) expected to be commissioned by 2016.
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Infrastructure
JAL has also ventured into thermal power generation and has plans to set up a thermal power plant of 1,320MW (2X660MW) at Nigrie in MP by 2012. We believe that the company's initiative of foraying into thermal power generation is sound as it has access to the rich coal resources of MP. JAL has entered into a joint venture (JV) with the Madhya Pradesh State Mining Corporation (MPSMCL) to undertake coal production and sale of coal from two coal blocks - Amelia - North (around 2.5mt annual supply) and Dongri Tal - II (around 2.6mt annual coal supply) to ensure coal linkages for the plant.
Real Estate
JAL plans to develop nearly Subsidiary, Jaypee Greens, was incorporated in 2002 with the objective of introducing the 400mn sq.ft along the Yamuna concept of golf-centric Real Estate development models in India. However, Jaypee Greens was Expressway and approx. merged with JAL in FY2006, which saw the transfer of nearly 450 acres of land under the aegis 3.3bn sq.ft along the Ganga of Jaypee Greens to JAL. JAL plans to develop nearly 400mn sq.ft along the Yamuna Expressway Expressway and approximately 3.3bn sq.ft along the Ganga Expressway. For this purpose, two SPVs were floated, viz. Jaypee Infratech and Jaypee Ganga Infrastructure Corporation respectively.
Hospitality
JAL’s Subsidiary, Jaypee JAL’s Subsidiary, Jaypee Hotels owns and operates four Five-star hotels with two of the hotels Hotels owns and operates four in New Delhi and one each in Agra and Mussoorie. The company's existing room capacity is Five-star hotels with two of the 643. It is currently also in the process of setting up another state-of-the-art resort and SPA of hotels in New Delhi and one 250 rooms at greater Noida. each in Agra and Mussoorie
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Infrastructure
Investment Concerns
Major Segments face strong Headwinds
We believe that the JAL has major interests (>45% of FY2009 revenues) in the Cement and Real Estate Sectors. company would have to tackle We believe that the company would have to tackle the various strong headwinds that these the various strong headwinds Sectors are facing as demand continues to dwindle and credit availability remains weak. that each of these Sectors are Moreover, we believe that the situation is unlikely to improve in the near-to-medium term. facing as demand is drying Cement- Too Fast Too Much and credit availability continues to be weak JAL has guided aggressive ramp up in its cement capacity to 25mtpa by FY2010E at a proposed capex of around Rs8,500cr over FY2005-10E. We have not factored in the same in our estimates as we believe that there might be delays on account of liquidity crunch, slowing demand and normal delays of setting up cement plants. We estimate JAL to ramp up capacity to 19.4mtpa by FY2010E from 13.5mtpa in FY2009.
Exhibit 2: Cement Expansion Timeline Plant State Capacity Company Angel Capex CPP additions Estimates Research (Rs cr) (MW) (mtpa) Estimates Up to FY2010E… Dalla UP 2.5 Operational Operational - 27 Chunar UP 0.5 Operational Operational - 38 Panipat Haryana 1.5 Operational Operational - - Jaypee Sidhi MP 2.0 Operational Operational - 35 Wanakbori - I Gujarat 1.2 Jul-09 Sep-09 20 600 Kutch-I Gujarat 1.2 Apr-09 Jun-09 35 Bagga - I HP 1.5 Jun-09 Dec-09 - 1,560 Bagheri HP 2.0 Sep-09 Mar-10 30 Total (A) 12.4 …Beyond FY2010E Bhilai MP 2.2 Dec-09 Sep-10 600 - Gujarat Jaypee Gujarat 2.4 Oct-10 Apr-11 700 - Wanakbori - II Gujarat 1.2 Dec-09 Sep-10 - 1,000 Kutch-II Gujarat 2.8 Mar-10 Apr-11 35 Roorkee Uttarakhand 1.0 Oct-09 Apr-10 - - Bagga - II HP 2.0 Mar-10 Apr-11 700 - Chamba HP 2.0 Dec-09 Jun-10 - - Bokaro Jharkhand 2.1 Mar-11 Aug-11 405 - Total (B) 15.7 Total (A+B) 28.1 Source: Company, Angel Research
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Infrastructure
Post the proposed capacity Exhibit 3: Capacity Expansion schedule (Angel Research estimates) expansions, we expect JAL to 30.0 register a CAGR of 27.1% and 25.0 32.8% in its Cement Sales and 5.8 Volumes over FY2009-11E, 20.0 5.9 respectively mtpa 15.0
4.5 10.0 19.4 2.0 13.5 5.0 9.0 7.0
- FY2008 FY2009 FY2010E FY2011E
Existing Capacity Capacity Additions Source: Company, Angel Research
Our house view is that the Post the proposed capacity expansions, we expect JAL to register a CAGR of 27.1% and Cement industry would face a 32.8% in its Cement Sales and Volumes over FY2009-11E, respectively. We believe that JAL's demand-supply mismatch internal projects, viz. the prestigious Yamuna Expressway project, the proposed Ganga over the next two years Expressway and its internal Real Estate projects would aid its volume growth, but not in a leading to falling capacity significant way. JAL has also been constantly augmenting its captive power capacity and is utilisation and correction in expected to continue to do so (from 89MW to 309MW over FY2008-11E) in line with its cement cement prices capacity to ensure uninterrupted supply of power and register higher Margins.
Our house view is that the Cement industry would face a demand-supply mismatch over the next two years leading to falling capacity utilisation and correction in cement prices (refer Annexure). Hence, in line with this we expect JAL's proposed huge capacity expansions to result in capacity utilisation levels declining from 70.3% in FY2009 to 66.3% in FY2011E. We also estimate realisations to decline by 4-5% during the mentioned period. In this backdrop we have assigned 7x EV/EBITDA multiple to JAL’s cement segment and valued it at Rs7,863cr (Rs66.2/share) at an implied EV/Ton of US $85.
Exhibit 4: Cement Segment - Revenue Model Particulars FY2008 FY2009 FY2010E FY2011E Installed Capacity (mtpa) 9.0 13.5 19.4 25.2 Capacity Utilised (%) 75.3 70.3 67.8 66.3 Production Capacity 6.9 9.7 15.8 23.2 Sales Quantity (mtpa) 6.2 8.7 12.1 15.4 (% Growth) 0.8 40.0 38.7 27.1 Net Sales 1,985.2 2,389.0 3,195.5 3,856.6 (% Growth) 7.8 20.3 33.8 20.7 Net Realisation per tonne (Rs) 3,058.0 2,744.7 2,616.1 2,485.3 (% Growth) 2.5 (10.2) (4.7) (5.0) Source: Company, Angel Research
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Infrastructure
Cement - Problem of Plenty
Top-line of cement India’s per capita consumption of cement is one of the lowest in the World. In this backdrop the companies is a function of recent attention that the Infrastructure Sector has garnered has resulted in the positive overall economic growth and whip-effect being felt in sectors like Cement, Steel, etc. However, this attention has not come to demand-supply dynamics, fore all of a sudden and is an effect of pronounced negligence towards physical infrastructure. whereas operating level Therefore, Top-line of cement companies is a function of overall economic growth (elasticity profitability is more a function factor of 1.2-1.5x) and demand-supply dynamics, whereas operating level profitability is more a of the raw material prices function of the raw material prices (read coal). Though overall outlook for the Indian economy, as a whole, continues to be robust in the medium to long term, the demand-supply dynamics would play a critical role in the near term. In case of cement for instance, even if the per capita consumption at 148kgs is low compared to the World average of around 370kgs, the sudden bunching up of cement capacities would lead to excessive supplies exerting downward pressure on realisations. Further, although coal (a primary raw material) prices are on a downturn, the Rupee depreciation vis-à-vis the US Dollar nullifies any effects as almost 60% of the coal used is imported. Thus, in such conditions it becomes all the more important to understand the demand-supply function (refer Annexure).
For JAL, of its total scheduled In case of performance of JAL's Cement Segment, it is indicative of the Central Region cement capacity expansions, the dynamics in India as JAL has a sizeable market share there. As of 2007-08, Jaypee Group had Central and Western regions a marketshare of 26% (Source: Cris-Infac, Cement Outlook.) The cement capacity in Central each would account for 31% India is expected to increase at a CAGR of 10% over the next five years. This cement capacity (8.7MTPA) of expansions addition should be looked at against the backdrop of cement consumption, which has risen at a CAGR of 5.2% over the last five years. This highlights the excess cement capacity that is coming up in Central India. For JAL, of its total scheduled capacity expansions, the Central and Western regions each would account for 31% (8.7MTPA) of expansions. The balance would be accounted for by the regions of Jharkhand and Himachal Pradesh. This huge difference between the rate of growth of capacity expansion and consumption only highlights the drop in capacity utilisation and hence in the realisations per tonne. Thus, substantial bunching up of capacities in the near term and declining capacity utilisations have been factored in by us valuing its Cement Segment at lower than the Replacement Costs.
We estimate JAL to become a We estimate JAL to become a pan-India player going ahead and to be on par with the other pan-India player going ahead cement players in the country like ACC, Ambuja owing to which it would deserve the same and to be on par with the other multiple that these players command. Hence, we have assigned similar multiple for JAL's cement players in the country Cement Division considering that it is achieving pan-India presence. Further, in spite of the like ACC, Ambuja owing to strong medium-to-long-term outlook for Infrastructure Sector and in turn for cement, in line with which it would deserve the our house view we remain cautious on cement in the near-to-medium-term and have valued same multiple that these JAL's Cement business at an EV/EBITDA of 7.0x on FY2010 basis at an implied EV/Ton of US players command $85 which is at Discount to Replacement costs.
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Infrastructure
Exhibit 5: Peer Comparison
30.0 27.4 25.8 25.0 22.4 22.5 23.1 19.4 20.0 18.5 18.2 15.6
mtpa 15.0
10.0 9.0
5.0
- ACC* Ambuja* Grasim^ Ultratech Jaiprakash Associates FY2008 FY2010E
Source: Company, Angel Research; Note: *Y/E Dec, ^Consolidated
Real Estate - Bottom not yet
The Real Estate Segment is JAL's Real Estate business portfolio comprises two key projects: 1) Jaypee Greens and 2) The vying to be one of the major Yamuna Expressway Project (erstwhile Taj Expressway). We believe that JAL's expertise in contributors to JAL's overall infrastructure projects will help it to excel in its Real Estate Business. In fact, the Real Estate Revenue pie owing to its Segment is vying to be one of the major contributors to JAL's overall Revenue pie owing to its substantial pipeline of projects substantial pipeline of projects. However, we believe that on account of the ongoing slowdown in the economy, which has resulted in tight liquidity conditions in turn impacting the Real Estate Sector, it would be a herculean task for the company to achieve the same.
Currently, we are negative on the Real Estate Sector as we believe that there has been a complete shift in the business dynamics which would affect the growth going ahead. We see that Indian developers' business models will get more capital-intensive over the medium term, as end-users remain cautious and risk averse, forcing developers to fund increasing proportion of the project life cycle through internal funds. This would put brakes to the growth and expansion plans. Furthermore we believe that for the sector to do well, the macro environment needs to improve. For instance, Interest rates in 2002-03 were in the range of 7-8% and were lower than the current rates of 8-9%. Confidence level of end users has also taken a hit due to the uncertain job market scenario. Moreover, the IT/ITES Sector, which played a pivotal role in the earlier Real Estate boom, is facing a major slowdown.
We see that Indian developers' Historically property-market downturns in Asia generally last two-to-three years on an average, business models will get more and we see no reason why this downturn should be any different. Indian Real Estate market has capital-intensive over the faced a downturn for mere 12-15months and we expect a soft market to remain for at least medium term, as end-users another 4-6 quarters. remain cautious and risk In perspective, we believe that the current price correction is inadequate to revive the Real averse Estate market, and that it has just begun and would likely see further correction over the next few months. We also believe that a time correction will take place thereafter, before a revival is seen in the Realty Sector.
We have conservatively valued JAL's Real Estate business on NAV basis and ascribed an NAV of Rs7,794.1cr. It should be noted that we have applied a 40% discount to arrive at the NAV of
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Infrastructure
Rs1,078.9cr (Rs9.1/share) and Rs6,715.2cr (Rs56.5/share) for Jaypee Greens and Real Estate component of Yamuna Expressway Project (98% held by JAL), respectively. This discount to NAV is in line with most of the listed companies, which are trading in the range of 30-40% to their respective NAVs mainly on account of the prevailing weak macro-economic environment. Then we have deducted the negative NPV of Rs2,502.5cr of the Taj Expressway Project and the cost of land of Rs749.7cr. Thus, the Real Estate Segment contributes Rs4,541.8cr (Rs38.2/ share) to our Target Price.
Exhibit 6: Real Estate Valuation Particulars Rs cr Valuation 7,794.1 Jaypee Greens 1,078.9 Yamuna Expressway (Real Estate) 6,715.2 Less: Yamuna Expressway BOT (2,502.5) Less: Land cost to be paid (749.7) NAV (Rs) 4,541.8 Total no. of shares (cr) 118.8 NAV/share (Rs) 38.2 Source: Company, Angel Research
Jaypee Greens
The Residential Segment of Jaypee Greens is developing India's first-ever "golf-centric" Real Estate project in Greater Noida. NCR has witnessed a gradual The company would be developing 8mn sq.ft. of premium real estate spread over 450acres. The shift from being an project is integrating exclusive homes with a golf course, landscaped parks and emerald greens. investor- driven market to that The 18-hole Greg Norman signature championship golf course, which is also India's longest driven by end users course at 7,347 yards, 88 bunkers and 14 water bodies, makes it one of the premium and one of its kind projects in India. The project also offers 60-acres of nature reserves with theme parks. A 200-room Boutique Spa Hotel in collaboration with SIX SENSES is also expected to be started by FY2011.
We have factored in the total saleable area of the project of 8mn sq.ft., to be developed and sold over FY2008-14E in our estimates. We have taken the selling price at Rs5,873/sq.ft for FY2009-11 and a 5% increase in realisations thereon. We have not factored in any dip in the prices as the company has been able to launch and sell the project at decent realisations since its launch. Notably, the company has already achieved sales of 2.75mn sq.ft. at an average realisation of Rs5,873/sq.ft.
However, the Residential segment of NCR has witnessed a gradual shift from being an investor- driven market to that driven by end users. In line with this, the capital values registered a dip towards the latter half of 2008 by 7-18%. Hence, we have conservatively valued the project and applied a 40% discount to arrive at the NAV of Rs1,078.9cr (Rs9.1/share).
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The Yamuna Expressway - BOT Project - A Wealth Destroyer
√ Project description: The Yamuna Expressway (erstwhile Taj Expressway) is a UP government project initiated in 2001 under the Taj Expressway Industrial Development Authority (TEIDA). The Yamuna Expressway will be a 165km long 6 lane Expressway (extendable to 8 lanes) connecting Noida to Agra undertaken by Jaypee Infratech, a SPV floated by JAL. The Yamuna Expressway is a BOT (Toll) project entailing a cost of approximately Rs6,000cr with a concession period of 36 years. The company has also secured rights for development of 25mn sq meters of land along the Expressway at five places on a land bank totaling 6,250acres.
√ Project status: Management has stated that 20% of the total work is complete and that the project would be fully operational prior to the commencement of the Commonwealth Games. We have accordingly estimated completion of the project by September 2010.
√ Key Takeaways: The Expressway would provide direct access to the Taj Economic Zone, International airport and an aviation hub proposed along the Expressway, which is expected to result in smooth traffic growth going ahead.
Exhibit 7: Project Details Length (km) 165 Concession Period (years) 36 Expected Date of Completion Sep-2010 Project Costs (Rs cr) 6,000 Equity Component (Rs cr) 1,800 Debt Component (Rs cr) 4,200 Company's Stake (%) 98 Company's Equity Commitment (Rs cr) 1,764 Company's Debt Commitment (Rs cr) 4,116 Source: Company, Angel Research
Exhibit 8: BOT Model Snapshot (Rs cr) FY2008 FY2009E FY2010E* FY2011E… FY2042E FY2043E* Total Income - - 43.2 95.2 1,572.6 858.7 EBITDA - - 31.6 83.0 1,517.6 800.9 PAT (68.3) (409.5) (605.2) (602.6) 1,335.9 710.0 FCFE Calculation PAT (68.3) (409.5) (605.2) (602.6) 1,335.9 710.0 Add: Depreciation - - 90.8 181.7 181.7 90.8 Less : Capex (1,500.0) (3,000.0) (1,500.0) - - - Cash Flow to Debt & Equity (1,568.3) (3,409.5) (2,014.4) (421.0) 1,517.6 800.9 Less: Debt Raised/(Paid) 1,050.0 2,100.0 1,050.0 - - - Cash flow to Equity (518.3) (1,309.5) (964.4) (421.0) 1,517.6 800.9 Discounting rate (%) 16.0 NPV of CFE (2,553.6) JAL's stake(%) 98.0 Value per Share (Rs) (21.1) Source: Company, Angel Research; Note:* Operational only for six months
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Infrastructure
Key Assumptions
(a) We have factored the base case traffic of 20,000 Passenger Car Units (PCU) in FY2008 and assumed a traffic growth of 5% over FY2009-19E. For the balance concession period, that is, post FY2019, we have assumed 4% traffic growth.
(b) The toll rates per PCU per km are Rs0.65 and they have been assumed to be increasing at 5% for the toll revenue calculations.
Based on our FCFE model, we have arrived at a negative NPV of Rs2,553.6cr for the company's BOT project on a Standalone basis, which is in line with management's guidance. However, the company has bagged the land development rights of the area alongside the road, and expects to earn profits from the same.
Real Estate development - Bright spot
Development rights of the Development rights of the 6,250 acres of land at the five locations along the Expressway for a 6,250 acres of land at the five 90-year lease period is expected to cushion the Profits of the Yamuna Expressway Project. The locations along the land parcels are spread across five locations at -Noida (1,250 acres), Dhankaur (1,250 acres, a Expressway for a 90-year lease place just outside Greater Noida), Mirzapur (1,250 acres, near the airport), Tappa (1,250 acres, period is expected to cushion near the airport) and Agra (1,250 acres). Of this, the company has already the Profits of the Yamuna acquired 1,100 acres at an average price of Rs35-37 lakh per acre. The company intends to Expressway Project acquire the remaining land at an average price of around Rs20 lakh per acre. Management has guided that the total developable area would be in the range of 400Mn sq.ft over the next few years. However, we have conservatively valued the same pending land acquisition. We have factored in development of the land acquired in Noida (1,100 acres, 75mn sq.ft.) and the balance land at a 35-50% discount to the prevailing market price. The Noida land development is expected to be completed and sold over FY2010-23 for which we have factored in realisations of Rs3,000/sq.ft and Rs2,850/sq.ft in FY2010 and FY2011, respectively. Thereon, we expect a 5% increase in realisations.
However, we do not expect revival in the Real Estate Sector in the near future. Hence, we have conservatively valued the project at a 40% discount and arrived at an NAV of Rs6,715.2cr (Rs56.5/share).
We expect the various In conclusion, we expect the various headwinds to have a cascading effect on JAL's well headwinds to have a inter-connected business model. The Real Estate Segment is expected to garner increasing cascading effect on JAL's well share in the company's overall Revenue pie. However, the dismal state of affairs of the Real inter-connected business Estate Sector would constrain such growth apart from having a direct impact on the company's model Cement Segment, which derives almost 60-65% demand from the Housing and Real Estate Segments. Further, JAL's prestigious Yamuna Expressway project also has a substantial Real Estate component, realisations from which are crucial to make it a viable BOT project, as on a Standalone basis it is expected to incur losses. Moreover, an indirect effect would also be felt in the in-house construction orders as JAL's Construction Segment derives almost 72% of its share from in-house projects.
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Exhibit 9: Cascading effect of Headwinds
Current Cement Capacity negative utilisation drops due to macro- excess supply economic Bad Real scenario Estate Yamuna Expressway not Slowdown in captive market profitable at Standalonelevel construction projects as as Real Estate proceeds play a almost 72% ofJAL’s Order significant role book s internallydriven
Source: Angel Research
Construction and EPC (C&EPC) - Internally driven
JAL has vast experience in hydro power plants related construction work, having been involved in projects of about 7,880MW that have already been commissioned. Moreover, JAL is also one of the few players in the Construction industry with the ability to execute hydro power projects on an EPC basis. JAL has to its credit almost 52% of the total hydro power related construction work done in the space.
JAL's C&EPC Order book stands at a high of Rs11,000cr projects excluding projects that are yet to achieve financial closure. Importantly, a substantial 72% of the Orders are captive as they are generated internally from the company's Cement, Real Estate and Power Divisions. Thus, the Segment is highly dependent on the performance of its other Divisions. In line with this, with the company's Cement and Real Estate Divisions unlikely to register impressive performance owing to the ongoing slowdown, we expect performance of the C&EPC Division also to get impacted going ahead.
Power - A ‘Clean Power packed' Vertical
JAL is the largest private JAL is the largest private hydro power operator in the country, with Baspa-II (300MW) and hydro power operator in the Vishnuprayag (400MW) having an attributable capacity of 514MW. Going ahead, JAL plans to country augment its Power Portfolio to 5,945MW including both Hydro and Thermal power projects. However, we believe that the company has set for itself an aggressive target and the expansion is expected to come on stream beyond FY2015-16.
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Exhibit 10: JAL's Power Portfolio Project JAL's MW Project Fuel DPR Land Env. Financial stake Cost Clearance Closure (%) (Rs cr) Baspa-II 60 300 Hydro-RoR - - - - Vishnuprayag 81 400 1,694 Hydro-RoR - - - - Karcham Wangtoo 91 1,000 5,600 Hydro-RoR √ √√ √ Jaypee Nigrie 63 1,320 6,000 Thermal NA WIP WIP 2012 Lower Siang 81 2,000 12,000 Hydro-RoR √ xx2014 Hirong 72 500 2,750 Hydro-RoR WIP xx2015 Kynshi-II 72 450 - Hydro-RoR xx x2016 Umngot 60 270 6,000 Hydro-RoR xx x2016 Source: Industry, Company, Angel Research
Exhibit 11: Power Sale Project MW Attributable Free Capacity Power Power Sale (MW) Regulated Competitive Merchant Sale Baspa-II 300 179 21 157 - - Vishnuprayag 400 322 39 284 - - Karcham Wangtoo 1,000 915 110 644 - 161 Jaypee Nigrie 1,000 832 62 249 - 520 Lower Siang 2,000 1,631 196 - 718 718 Hirong 500 358 43 - 158 158 Kynshi-II 450 323 42 - 140 140 Umngot 270 161 21 - 70 70 Total 5,945 4,721 534 1,334 1,086 1,767 Source: Industry, Company, Angel Research
We have ascribed value only to JAL's operational power assets in its Hydro Power portfolio and to the power plants that have achieved financial closure. We have valued JAL's operational Hydro power plants of Baspa-II and Vishnuprayag by discounting its FCFE. We have conservatively valued the power plants under construction on P/BV basis. We have not ascribed any value to the Power projects that are yet to achieve financial closure. Power Segment as a whole contributes Rs27.1/share to our Target Price.
Operational Power Plants
Baspa-II Hydro-electric Project
The value of the Baspa-II The Baspa-II Project, under the listed subsidiary JP Hydro, is a run-of-the-river (RoR) project on a per share basis hydro-electric power plant with an installed capacity of 300MW designed to produce estimated works out to Rs6.5/share at an electrical energy of 1,213.2MU. The power plant has a barrage at an elevation of 2,521m above implied P/BV of 1.0x on the sea level, one of the highest altitudes for such structures in India. The Power plant set up at FY2010E basis a total cost of Rs1,625cr has three 100MW units, which commenced commercial operations in June 2003. We have valued this plant by discounting its FCFE. Accordingly, the value of the project on a per share basis works out to Rs6.5/share at an implied P/BV of 1.0x on FY2010E basis.
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Exhibit 12: Baspa-II Hydro-electric - Model Snapshot (Rs cr) Particulars FY2008 FY2009E FY2010E FY2011E… FY2043E FY2044E Total Income 300.8 301.5 307.9 314.3 337.5 340.9 EBITDA 275.7 275.1 279.9 286.4 286.9 288.7 PAT 213.4 174.9 168.6 185.8 220.9 243.3 FCFE Calculation PAT 213.4 174.9 168.6 185.8 220.9 243.3 Add: Depreciation 45.9 46.0 46.0 46.0 46.0 - Less: Capex (41.2) 48.5 (10.0) (10.0) Cash Flow to Debt & Equity 218.1 269.4 204.6 221.8 266.9 243.3 Less: Debt raised / (paid) (193.2) (85.2) (90.7) (96.2) Cash flow to Equity 24.9 184.2 113.9 125.7 266.9 243.3 Discounting rate (%) 14.2 Terminal Value 548.9 PV of Terminal Value 5.2 NPV of CFE 1,219.7 Total value of firm 1,224.9 JAL's stake (%) 63.3 Value per share (Rs) 6.5 Source: Company, Angel Research
Vishnuprayag Hydro-electric power plant
We have valued the power Jaiprakash Power Ventures, the 84% subsidiary of JAL, has developed the Vishnuprayag plant by discounting its FCFE Hydro-electric Project - a run-of-the river scheme located across river Alaknanda on the and the value per share works Rishikesh-Badrinath highway in district Chamoli of Uttaranchal. The project has an out to Rs7.3 at an implied underground power station with an installed capacity of 400MW (4x100MW). The project has P/BV of 1.0x on FY2010E signed a power purchase agreement (PPA) with the Uttar Pradesh Power Corporation for a basis period of 30 years extendable to 20years. We have valued the power plant by discounting its FCFE and the value per share works out to Rs7.3 at an implied P/BV of 1.0x on FY2010E basis.
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Exhibit 13: Vishnuprayag Hydro-electric - Model Snapshot (Rs cr) Particulars FY2008 FY2009E FY2010E FY2011E... FY2036E FY2037E Total Income 379.5 360.8 343.1 376.8 393.0 385.8 EBITDA 353.0 338.4 322.2 352.7 364.4 357.9 PAT 190.5 173.1 165.8 199.0 255.0 251.5 FCFE Calculation PAT 190.5 173.1 165.8 199.0 255.0 251.5 Add : Depreciation 45.3 45.3 45.3 45.3 45.3 45.3 Less: Capex (10.0) (15.0) (10.0) - - - Cash Flow to Debt & Equity 225.8 203.4 201.1 244.2 300.3 296.8 Less: Debt raised / (paid) (37.9) (173.9) (81.3) (73.9) - - Cash flow to Equity 188.0 29.6 119.8 170.3 300.3 296.8 Discounting rate (%) 16.0 Terminal Value 539.1 PV of Terminal Value 8.4 NPV of CFE 1,057.3 Total value of firm 1,065.8 JAL's stake (%) 81.0 Value per share (Rs) 7.3 Source: Company, Angel Research
Power plants in the pipeline - the latent potential
Most of the power plants in JAL has plans to develop well-diversified PPAs and merchant-based power plants. The the pipeline are yet to achieve merchant-based power plants clock high Return Ratios especially when demand outstrips financial closure and hence supply, which is currently being witnessed in India. Hence, as a strategy, JAL is setting up we have not factored the same merchant-based power plants to capture the market upside. Of the company's total 5,945MW power plants (operational, under construction and under financial closure), the ratio between PPA and merchant-based power plants is 31:69. We believe that JAL will have a good mix of power capacity to reap the benefits of a favourable environment in the long run. However, most of these power plants in the pipeline are yet to achieve financial closure and hence we have not factored the same.
Capacity Expansion+ Stretched Balance Sheet+ Slowing Demand = Ominous Signs
JAL has been in businesses (C&EPC+Cement+Power), which generated consistent cash flows. However, in recent times, it has ventured into Sectors (Real Estate + BOT), which are cash guzzlers and stretched its Balance Sheet. The company has also substantially expanded in the Cement Sector, which we expect will face an excess supply scenario thus affecting the company's overall profitability. Hence, we expect JAL's Debt/ Equity ratio to be 1.9x in FY2011E. Increased capacity, stretched Balance Sheet and the ongoing slowdown in the mentioned Sectors are some of the challenges that JAL would have to combat going ahead.
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Exhibit 14: Peer comparison - Balance Sheet leverage
4.0 3.5 3.0 2.5
D/E (x) 2.0 1.5 1.0 0.5 - Gammon India Hind. Const. Co IVRCL Infra JAL LNT Nagarjuna Construction FY2008 FY2009E FY2010E FY2011E Source: Company, Angel Research; Note: LNT numbers are Industry Consensus Street factoring in projects with long gestation
JAL has ventured into projects with long gestation periods with no near-term Revenue visibility and which are expected to eat into the Cash flows of its other divisions. We see street factoring/ valuing in the substantial pipeline of projects beyond FY2011. We have however, been conservative and factored in only projects that have achieved financial closure/are under construction. Thus, we see the positives already factored into the current valuations. However, any under deliverance by the company could weigh heavy on the stock price going ahead. Ganga Expressway Project -Too Early to be considered
Ganga Expressway is the Ganga Expressway is a 1,047km long expressway project running through Uttar Pradesh housed largest private sector project under a SPV - 'Jaypee Ganga Infrastructure Corporation' (JGICL). It is the largest private sector to be developed till date in the project to be developed till date in the Infrastructure space in India. JAL holds 100% in JGICL. Infrastructure space in The estimated cost of the project is Rs60,000cr and is planned to be executed on BOT (Toll) India. basis over a concession period of 35 years. The company has also bagged the development rights for 30,000 acres of land alongside the Ganga Expressway. Our talks with management indicate that the land acquisition process is going on and financial closure is yet to be achieved. Thus, the entire project is at a nascent stage owing to which there's insufficient visibility on the Revenue front. Hence, we have not ascribed any value to the same.
Exhibit 15: Ganga Expressway
PROPOSED 1,047 - KM 8-LANE EXPRESSWAY
Source: Company
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Amalgamation not factored in
The Amalgamation rationale and share swap ratio
The Jaypee Group has proposed amalgamation of Jaypee Cement (JCL), Gujarat Anjan Cement (GACL), Jaypee Hotels (JHL) and Jaiprakash Enterprises (JEL) with JAL effective April 1, 2009. Post the merger, 21.8cr new equity shares would be added. Following this scheme of amalgamation, promoters' stake would reduce to 39% from current levels of 45%. The company's Earnings would also get diluted post the merger scheme as it is planning to transfer the cross-holding to a trust instead of cancelling it. This scheme though approved by individual group firm shareholders awaits approval from the High Court. Hence, we have not factored in the increased equity base in our estimates and its effect on EPS.
Exhibit 16 : Equity base post Amalgamation Additional Treasury Post Particulars Shares JAL's Swap Shares to Stock on amalgamation O/s (cr) Stake (%) Ratio be issued (cr) Subsidiary no. of stake Shares (cr) JAL 118.4 118.4 Jaypee Hotels 5.6 72.2 1.0 5.6 4.0 5.6 Jaypee Cement 50.6 100.0 0.1 5.1 5.1 5.1 Gujarat Anjan Cement 35.0 95.0 0.1 3.2 3.0 3.2 Jaiprakash Enterprises* 2.7 0.0 3.0 8.0 8.0 8.0 Total 21.8 20.1 140.1 Source: Company, Angel Research; Note: * Shares on account of Jaiprakash Enterprises have been transferred to Treasury stock
Exhibit 17: Promoter Shareholding - Pre and Post Amalgamation Promoter Public Trust Total Pre Amalgamation no. of shares (cr) 53.6 64.8 0 118.4 % holding 45.3 54.7 0.0 Post Amalgamation no. of shares (cr) 55.2 64.8 20.1 140.1 % holding 39.4 46.3 14.3 Source: Company, Angel Research
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FCCBs Buyback - An opportune move
JAL has raised funds through three tranches of FCCBs to meet the requirements of its aggressive expansion plans over the last couple of years.
Exhibit 18: FCCB schedule Particulars FCCB-I FCCB-II FCCB-III Aggregate Value US $100mn Euro 165mn US $400mn Date of issue 16.02.2005 01.02.2006 11.09.2007 Due on 17.02.2010 09.03.2013 12.09.2012 Applicable Interest Rate (%) 0.50 0.50 Nil Pre-agreed Conversion price (Rs) 47.2 111.7 247.7 Pre-agreed Conversion rate (Rs) 43.8 53.6 40.3 FCCBs converted till March 31,2008 (mn) US $97.94 Euro 155.52 US $4.50 Percentage converted (%) 97.94 94.26 1.13 FCCBs bought back (US $ mn) - - 37 Percentage Outstanding as on April 2009 (%) 2.06 5.74 89.88 Source: Company, Angel Research
JAL has raised ECBs to the Post these issues there has been change in the global macro environment leading to the FCCB tune of US $100mn for the prices falling and trading at a huge discount of 35-40%. We believe this is an opportunity that purpose of FCCB buyback JAL proposes to seize. Hence, JAL has raised ECBs to the tune of US $100mn for the FCCB buyback.These funds have been raised at rate of Libor+450bp. JAL recently bought back bonds of US $37mn from the third tranche of FCCBs, representing 9.25% of the FCCB amount. Though the buyback is of a small quantum compared to the total outstanding FCCBs, we believe that this is a step in the right direction in de-leveraging its Balance Sheet. However, we have not factored in any further buyback of FCCBs as it would difficult to gauge the quantum and price for the same, but we believe that any move in this direction would benefit JAL. It should be noted here that we have factored in conversion of pending FCCB-I and FCCB-II and balance FCCB-III is considered as debt in the books of JAL for our future projections.
Exhibit 19: Key Assumptions in computing Savings accruing from FCCB buyback Buyback date 16-Mar-09 30-Mar-09 8-Apr-09 Buyback amount (US $Mn) 32.0 4.0 1.0 Buyback price (US $) 55.6 65.3 69.3 % to total Buyback 86.5 10.8 2.7 Weighted average buyback price 57.0 Total buy back in US $mn till date 37.0 Discount to issue price of US $100 42.99 ECB's actually used considering discount to issue price in US $ 21.1 LIBOR as of Feb 2009 (bp) 222.0 ECB rate (450bp above LIBOR) 672.0 Interest component payment for ECB 1.6 ECB Principal repayment 21.1 Discounting factor (%) 10.5 Source: Company, Angel Research
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Exhibit 20: Savings accruing from FCCB buyback (US $mn) Particulars Mar 16 ’10 Mar 16 ’11 Mar 16 ’12 Sep 12 ’12 Total New Payout schedule Interest Payout 1.6 1.6 1.6 0.8 5.5 ECB Repayment 0.0 0.0 0.0 21.1 21.1 Total Payout 1.6 1.6 1.6 21.9 26.6 Discounted value 1.6 1.4 1.3 16.2 20.5 Earlier Payout schedule ZCCB Payout 0.0 0.0 0.0 54.5* 54.5 Discounted value # 0.0 0.0 0.0 40.4 40.4 Savings Over Life of ZCCB (1.6) (1.6) (1.6) 32.6 27.9 Discounted Value # (1.6) (1.4) (1.3) 24.2 19.9 Source: Company, Angel Research, Note: * This is considering the Issue price of US $100 and redemption price of US $147.3, # Discounting factor - 10.5%
Promoters' Warrants subscription
It would also boost the JAL had allotted five crore Equity warrants to Jaypee Ventures Private Limited, a promoter group sentiment for the stock on the company, on preferential basis entitling to apply for allotment of one equity share of Rs2/- each bourses if the balance at Rs397/share on full payment per warrant in one or more tranches within 18 months from the warrants are subscribed since date of allotment of warrants. During FY2008, JAL received Rs398.5cr in lieu of these equity there is a huge gap between warrants as advance towards the same. In line with this, one crore shares were subscribed to the current market price and by the promoters at Rs397/share in October 2008 resulting in infusion of Rs317.6cr equity in the the conversion price and company. would serve as a catalyst for However, considering the amount that still remains to be infused by the promoters (Rs1,270.4cr) the stock to move up and that it is out of money, we believe it would be an uphill task to complete the same. Hence, we have not factored in any further dilution on this front. Nonetheless, further infusion would be beneficial for the company and help it to further reduce its already leveraged Balance Sheet. It would also boost the sentiment for the stock on the bourses if the balance warrants are subscribed since there is a huge gap between the current market price and the conversion price and would serve as a catalyst for the stock to move up.
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Financial Performance
Strong Revenue CAGR over FY2009-11E riding on Cement, C&EPC Segments
We expect the company to Over the last few years, JAL has clocked decent growth in Top-line. In FY2009, it has posted a continue its good growth of 40.8% in Top-line to Rs6,016cr (Rs4,274cr) on the back of growth in the Cement performance and clock a Division and Order booking by the C&EPC Division. Going ahead, over FY2009-11E, we expect CAGR of 36.8% in Top-line the company to continue its good performance and clock a CAGR of 36.8% in Top-line owing to owing to Volume growth in Volume growth in Cement Division, which would mainly be driven by capacity expansion and Cement Division, which strong Order book of Rs11,000cr (mostly in-house projects). would mainly be driven by We expect JAL's Cement Division to post a CAGR of 27.1% over FY2009-11E on the back of capacity expansion and strong 32.8% CAGR in Volumes driven by capacity expansion from 13.5mtpa to 25.2mtpa over the Order book of Rs11,000cr same period. For the C&EPC Division, we estimate the Yamuna Expressway and Power Projects to contribute majorly to overall Revenues over FY2009-11E as these projects are at various stages of completion. We are conservative on its Real Estate Division and don't expect too many new launches or developments till FY2011. Therefore, major Revenue growth for the company would come from the already launched and sold projects (read Jaypee Greens).
Exhibit 21: Revenue Growth (Rs cr) Segment FY2008 FY2009 FY2010E FY2011E Cement (Net) 1,902.4 2,389.0 3,195.5 3,856.6 as % of Total Revenues 44.5 39.7 36.4 34.3 Construction 1,730.2 3,098.9 4,021.7 5,195.0 as % of Total Revenues 40.5 51.5 45.8 46.1 Real Estate 255.8 442.0 1,055.1 1,611.1 as % of Total Revenues 6.0 7.3 12.0 14.3 Source: Company, Angel Research
Stable Margins due to in-house Construction Division
JAL enjoys highest EBITDA At present, JAL enjoys highest EBITDA Margins (30.8% in FY2009) in the Industry on account Margins (30.8% in FY2009) in of being an integrated player. Since JAL constructs its own power projects, it ensures cost the Industry on account of competitiveness, timely completion of projects and high quality standards. Margins have also being an integrated player been on the higher side as the Hydro Power projects executed by JAL in the C&EPC space and development of virgin lands enjoys higher margins. We expect the company to continue to enjoy higher Margins than industry going ahead, albeit post a marginal decline to 28.6% levels in FY2011E, mainly on account of the expected dip in realisations for the Cement Division. We estimate JAL to post 31.9% CAGR in Operating Profits to Rs3,222.8cr in FY2011E from Rs1,852.9cr in FY2009.
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Exhibit 22: Operating Profit Performance
3,500 33 32.4 3,000 32
2,500 31 30.8 30.6 2,000 30
(%)
(Rs cr) 1,500 28.6 29
1,000 28
500 27
0 26 FY2008 FY2009 FY2010E FY2011E
EBITDA (LHS) EBITDA Margin (RHS) Source: Company, Angel Research
Bottom-line CAGR of 19.7% over FY2009-11E
We expect the company's High EBITDA Margins resulted in the company registering healthy NPM of 14.3% in FY2008 NPMs to be under pressure and 14.7% in FY2009. However, going ahead over FY2009-11E, we expect the company's owing to the marginal dip in NPMs to be under pressure owing to the marginal dip in Operating Margins, increase in Operating Margins, increase Depreciation on account of expansion and higher Interest costs due to the huge debt in its in Depreciation on account of books. However, on the back of strong Top-line growth and decent Margins, we expect JAL's expansion and higher Interest Bottom-line to register a CAGR of 19.7% over FY2009-11E. In FY2011E, we expect NPM to costs due to the huge debt in decline to 11.2% levels. its books Exhibit 23: Net Profit Performance
1,400 16
14.3 14.7 1,200 13.1 14
12 1,000 11.2 10 800 8 600 6 400 4
200 2
0 0 FY2008 FY2009 FY2010E FY2011E
PAT (LHS) PAT Margin (RHS) Source: Company, Angel Research
Exhibit 24: DuPont Analysis Parameter FY2008 FY2009 FY2010E FY2011E EBITDA/Sales (%) 32.4 30.8 30.6 28.6 Sales/Total Assets 0.4 0.4 0.5 0.5 PBT/EBITDA 0.6 0.7 0.6 0.6 PAT/PBT 0.7 0.7 0.7 0.7 Total Assets / Net Worth 3.0 2.9 2.7 2.9 RoE (%) 16.3 17.2 18.5 17.4 Source: Company, Angel Research
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Upside risks to our recommendation
Revival in Real Estate market
We estimate the Real Estate We estimate the Real Estate Segment to contribute a mere 14.3% of Total Revenues in FY2011E Segment to contribute a mere in spite of JAL having one of the largest land banks in the country. This is because the Segment 14.3% of Total Revenues in is bearing the brunt of a weak macroeconomic scenario and we do not expect any near-term FY2011E in spite of JAL revival in the Segment. It should also be noted most of JAL's upcoming projects are in the having one of the largest land Premium Segment where we see a major slow down going ahead compared to the Mid-income banks in the country Housing Segment. In line with this, we have assumed volumes to be on the lower side and have also not factored in projects where construction work is yet to commence. As a result, our estimates for the Segment are much lower than street estimates for this Segment. If the Real Estate market improves or JAL is able to get the better of the current slowdown, it could fetch better valuation posing an upside risk to our recommendation.
Additional Cement supply getting absorbed
We estimate JAL's overall JAL has big time expansion plans lined up for its Cement Division to cater to the major markets cement capacity to increase in India. We estimate JAL's overall cement capacity to increase from 13.5mtpa to 25.2mtpa from 13.5mtpa to 25.5mtpa over FY2009-11E as against management's guidance of 32.8mtpa. Cement consumption over FY2008-10E as against depends on the off-take by the Real Estate Segment, which is evident from the 60-65% of total management's guidance of supplies to the Segment. Prior-than-expected revival in the Real Estate market would tend to 25.0mtpa overcome our apprehension of Excess Supply over Demand (Cement Sector) and would lead to higher capacity utilisation along with stable/higher realisations as against our expectation of lower capacity utilisation and decline in realisations. This scenario would augur well for the enhanced cement capacity of JAL.
Promoters subscribing to balance warrants - deleveraging the Balance Sheet
In case the promoters JAL has issued five crore equity warrants to its promoter group company - Jaypee Ventures subscribe to the remaining Private Limited. The warrants would be converted at Rs397. The promoter group has already warrants, it would result in converted 1cr warrants. However, we have assumed that remaining warrants will not be Equity infusion of Rs1,270.4cr, converted being widely out of money. In case the promoters subscribe to the remaining reduction in debt and better warrants, it would result in Equity infusion of Rs1,270.4cr, reduction in debt and better debt/ debt/equity ratio. and would equity ratio. This would also save on Interest costs by Rs120-130cr. It would also lend a boost also lend a boost to sentiment to sentiment and trigger positive movement for the stock on the bourses. and trigger positive movement for the stock on the bourses
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Outlook
Increasing levels of Notwithstanding the short-term pressures and challenges being faced by the Indian economy, investment in the there is no doubt that India has the potential and capability to turn into an economic Infrastructure Sector by both powerhouse going ahead. However, continued efforts are required to create an environment of the government and private enabling and sustainable growth. For that to happen, as the Asian tigers and China have ably players is expected to be demonstrated, concentrated focus on infrastructure is necessary. We believe that it is the only major drivers of growth for the way India can address the concerns of domestic and international interested parties without Infrastructure players in India losing any of the momentum that its economy has acquired in recent years. going ahead High growth opportunities in the Indian Infrastructure Sector
Increasing levels of investment in the Infrastructure Sector by both the government and private players is expected to be major drivers of growth for the Infrastructure players in India going ahead. The government has taken various steps to encourage huge investments in the Infrastructure space including plans to set up SEZs at various locations in India and providing economic benefits to Private Sector players for projects executed on BOT or Annuity basis.
India v/s China: Compared to neighbouring China, India is a laggard in infrastructure spending. China spends seven times more than India on infrastructure, in absolute terms. In FY2008, China spent US $201bn (9% of GDP) compared to US $65bn spent by India (5.8% of GDP). Overall, with estimated investments of over $500bn in the Indian Infrastructure Sector over the next 4-5 years, we expect opportunities in the Sector to increase. Infrastructure players like JAL stand to benefit from the growing opportunities in infrastructure development in India by leveraging its expertise in the Power, Construction and Real Estate Sectors along with identifying new prospects for growth.
Exhibit 25: India's Infrastructure Spend
7,000,000 10
6,000,000 9.0 9 5,000,000 8 8.0 4,000,000
(Rs cr) 7 7.3 (%) 3,000,000 6.5 6 2,000,000 5.8 1,000,000 5
- 4 FY2008 FY2009E FY2010E FY2011E FY2012E
GDP (LHS) Infra Spend (LHS) Spend as % of GDP (RHS) Source: Eleventh Plan, Planning Commission, Angel Research
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Valuation
We have valued JAL's Cement business at 7x EV/EBITDA on FY2010E basis, which is in line with players like ACC, Ambuja Cement, Ultratech Cement and at an implied EV/Tonne of US $85 (discount to the Replacement Costs). This is taking into consideration the current negative macro-economic condition, slowing Real Estate market and declining capacity utilisations for JAL. Accordingly, JAL's Cement Division contributes Rs66.2/ share to our Target Price.
Exhibit 26: Peer Comparison - Cement players Company Price P/E EV/EBIDTA EV/Tonne (Rs) (x) (x) (US $/Tonne) FY10E FY11E FY10E FY11E FY10E FY11E ACC* 653 10.4 10.5 6.6 6.7 100.0 89.0 Ambuja Cements* 81 11.9 12.3 7.1 7.0 118.0 102.0 Grasim^ 1,778 9.8 10.3 5.6 5.6 98.0 93.0 Ultratech 590 8.5 9.9 5.6 5.8 87.0 80.0 Average - 10.2 10.8 6.2 6.3 100.8 91.0 Source: Company, Angel Research; Note:*Y/E December, ^ Consolidated; Prices as on April 29, 2009
We have done a comparative valuation of JAL's Construction Division with its Indian counterparts. We have assigned FY2010E Target EV/EBIDTA multiple of 7x to JAL's C&EPC Segment which is in line with its listed peers like IVRCL Infra., Hindustan Const., Nagarjuna Const. In line with this, JAL's Construction business contributes Rs52.7/share to our Target Price.
Exhibit 27: Peer Comparison - Construction players Company Price Revenue (Rs cr) EBITDA (Rs cr) EPS (Rs) (Rs) FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E Gammon India 75 2,334 3,674 4,715 6,093 207 315 463 651 8.9 7.7 10.9 16.7 Hindustan Const. 56 3,083 3,314 4,097 4,630 367 431 557 570 2.8 4.8 2.8 2.6 IVRCL Infra 154 3,703 5,059 6,257 7,421 366 486 648 787 16.1 17.1 22.7 23.3 Nagarjuna Construction 73 3,473 4,644 5,925 6,863 360 446 604 751 7.1 7.5 9.4 10.4 LNT* 867 24,486 33,251 40,189 46,051 2,840 3,768 4,510 5,233 35.5 43.6 47.1 53.3 Average - 7,416 9,988 12,236 14,212 828 1,089 1,356 1,599 14.1 16.1 18.6 21.3
Company P/E(x) EV/EBITDA(x) FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E Gammon India 8.5 9.8 7.0 4.5 5.5 6.0 4.8 4.0 Hindustan Const. 20.1 11.7 19.6 21.4 9.6 8.3 7.5 8.3 IVRCL Infra 9.6 9.0 6.8 6.6 8.2 8.1 7.3 7.0 Nagarjuna Construction 10.2 9.7 7.7 7.0 6.2 6.4 6.0 5.0 LNT* 24.7 20.2 18.6 16.5 16.5 15.6 12.7 11.3 Average 14.6 12.1 11.9 11.2 9.2 8.9 7.7 7.1 Source: Company, Angel Research; Prices as on April 29, 2009; Note : 1. For Gammon India value of Gammon Infra and other investments amounts to Rs40.9/share 2. For Hindustan Construction value of Lavasa,Vikhroli project and Road BOT amounts to Rs38/share 3. For IVRCL value of IVR Prime and BOT projects amounts to Rs22/share 4. For Nagarjuna value of land bank, BOT projects and investments amounts to Rs39/share 5.*Bloomberg Concensus Estimates
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We have valued JAL's Power projects - operational - by discounting the free cash to equity to arrive at the project value. For plants under construction and those that have achieved financial closure, we have valued them on P/BV basis. The power projects that are at the planning stage and yet to achieve financial closure have not been factored in by us. Considering that these projects are at a nascent stage, according to us the FCFE/P/BV methodology will unnecessarily shore up valuations of the projects. We would upgrade our SPV valuation on getting better clarity. Hence, we have not valued projects of 4,245MW, which have still to achieve financial closure. The operational power projects have been valued at Rs13.8/share, while the power projects under construction fetch Rs13.3/share.
We have valued JAL's Real Estate initiative at Rs34.1/share, which is much below consensus.
The Hospitality Segment essentially comprises listed entity, Jaypee Hotels in which JAL holds 72% stake. JAL's Hospitality Segment has been valued based on Market Capitalisation. The Segment contributes Rs3.5 to our Target Price.
We have not considered the Ganga Expressway Project in our valuations, as it has not achieved financial closure. However, we believe that timely progress on this front will significantly add to the company's overall valuations.
Exhibit 28: Key Segment-wise Financials (Rs cr) Particulars FY2008 FY2009 FY2010E FY2011E Revenue Cement (Net) 1,902.4 2,389.0 3,195.5 3,856.6 Construction 1,730.2 3,098.9 4,021.7 5,195.0 Real Estate 255.8 442.0 1,055.1 1,611.1 EBITDA Cement 743.5 806.8 1,123.3 1,304.9 Construction 317.3 848.5 894.8 1,093.6 Real Estate 104.9 263.0 390.4 483.3 Source: Company, Angel Research
Based on the SOTP methodology, we have arrived at a Fair Price of Rs112/share implying a potential downside of 20% from current levels. We Initiate Coverage on the stock, with a Reduce recommendation.
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Exhibit 29: SOTP Valuation (FY2010) Business Methodology Remarks Rs cr Rs/ % to Target Segment Share Price Cement EV/EBIDTA (x) 7x EV/EBITDA 7,863 66.2 59.1 Construction EV/EBIDTA (x) 7x EV/EBITDA 6,264 52.7 47.1 Power FCFE 400MW Vishnuprayag Operational hydro power plant with JAL's stake 81% 863 7.3 6.5 FCFE 300MW Baspa Operational hydro power plant under JP Hydro with JAL's stake 63% 776 6.5 5.8 1.5x BV Karcham Wangtoo, a 100% subsidiary of JAL, is expected to be completed by Nov 2011 1,575 13.3 11.8 Real Estate NAV Jaypee Greens to be sold by FY2014E and valued at 40% discount in line with listed peers 1,078.9 9.1 8.1 NAV Noida Parcel on Development basis, land yet to acquired at discount to prevaling Market Prices 3,463.0 29.2 26.0 Hotels Market Value 20% holding company discount on JAL's 72% stake in Jaypee Hotels 411 3.5 3.1 Net Debt Book Value Net Debt for Cement, Construction and Real Est. (8,981) (75.6) (67.5) 13,312 112.1 100.0 Source: Company, Angel Research
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Annexure- Industry Overview
Cement Industry
The growth of the Cement Cement by its very nature is a low-value high-volume business, which makes it nothing less companies is closely linked to than a Commodity business. The industry derives its demand from sectors like Housing and GDP growth and how well the Real Estate and Infrastructure Development which in turn rely on the overall economic activity. economy is fairing These sectors contribute 60-65% and 20-22% respectively, to the overall Cement demand in the country. Thus, growth of the Cement companies is closely linked to GDP growth and how well the economy is fairing. Historically, cement demand to GDP has an elasticity factor in the range of 1.1-1.5x.
Exhibit 30: Cement v/s GDP growth
15.0 1.6 1.5 13.0 1.4 1.4 1.4 1.3 1.3 11.0 1.2 1.2 1.2 1.2 9.0 1.1 1.1 1.1 1.0 7.0
(%) 0.8 (x) 5.0 0.6 3.0 0.4 1.0
(1.0) 0.2
(3.0) -
FY2008 FY2007 FY2006 FY2005 FY2004 FY2003 FY2002 FY2001 FY2000
FY2010E FY2009E GDP Growth (%) (LHS) Cement Consumption growth (%) (LHS) Demand multiple (x) (RHS) Source: CMIE, CMA, Angel Research
India's Cement capacity India's Cement capacity posted a CAGR of 8.8% over the last five years to 175.7mtpa at the end posted a CAGR of 8.8% over of FY2008, and emerged as the second largest market in the world after China. However, on the the last five years to 175.7mtpa per capita front, India (148kg) lags nations like China (630kg), Japan (700kg) and Korea (1,200kg). at the end of FY2008, and As the cement industry derives its demand from the sectors having a close co-relation with the emerged as the second economy, the low per capita numbers are suggest that there exists substantial room for growth largest market in the world in the long run. after China Exhibit 31: Global Cement Industry 1,400 1,200 1,200 1,100
1,000
800 700
(Kg) 630 600 500 400 350 400 300 200 148
0 China France Germany India Japan Korea Saudi Thailand USA Arabia
China France Germany India Japan Korea Saudi Arabia Thailand USA Source: CMA, Angel Research
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We believe bunching up of A huge untapped market, cheap labour and the governments renewed focus on domestic capacities over FY2008-11E infrastructure development to pump prime the slowing economy serves as a trigger for Cement will result in gross capacity demand in the long run. However, we believe bunching up of capacities over FY2008-11E will exceeding incremental result in gross capacity exceeding incremental demand. demand We estimate capacities of 69.2mtpa to be in place in FY2009E and FY2010E taking the total installed capacity to 245mtpa levels from current levels of 175.7mtpa. It may be noted here that our capacity addition estimates are on the lower side compared to street estimates and is post factoring in contemporary issues relating to the prevailing global financial crisis.
Exhibit 32: Cement Capacity Addition schedule (All-India level)
FY2010E 244.9 32.1
FY2009E 212.8 37.1
FY2008 175.7 8.6
FY2007 167.1 8.9
FY2006 158.1 4.5
FY2005 153.6 7.2 40% of Current FY2004 146.4 7.4 Cement Capacity
FY2003 139 8.9
0 50 100 150 200 250 300
Existing Cement capacity in MTPA Cement capacity additions in MTPA Source: CMA, Angel Research
Excess installed capacity Against this backdrop, it is of vital importance to study the supply-side factors as with a slowing continues to serve as a drag economy capacities cannot be shutdown overnight to make good of the new Excess till the time demand in the Supply- shortened Demand equation. Also, excess installed capacity continues to serve as a underlying sectors (read Real drag till the time demand in the underlying sectors (read Real estate) picks up, which we don't estate) picks up expect to happen in the near future.
Besides, factors concerning demand and decreasing realisations, higher Operating expenses took their toll on the Operating Profitability of the Cement industry in FY2009. Power & Fuel and Freight are the major cost drivers in the Cement industry accounting for 23% and 20% of the total production cost. Power costs of a company depends on the proportion of bought out and captive power whereas transportation cost is a function of proximity to the market and spread of clinker and grinding facilities. We believe that JAL would do well on these fronts as it has captive power plants on most of its cement facilities and has strategically located clinker and grinding facilities.
The pain is expected to be To conclude: Amidst the prevailing downturn in the economy, we expect cement demand to be acute and prolonged affected. In fact, the pain is expected to be acute and prolonged considering that nearly all the considering that nearly all the players in the industry have carried out huge capacity expansions. Therefore, we estimate the players in the industry have same to have a negative impact on capacity utilisations even as overall volumes grow. We carried out huge capacity believe that such expected over capacity would lead to lower capacity utilisation, stiff expansions competition and hence under cutting. For JAL however, we have factored in a mere 4-5% drop in realisations as we believe that the company has set up most of its capacities in Tax free zones, which would allow it to stay competitive and achieve volume growth.
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However, considering that demand in the Cement Sector is in the form of derived demand and the major underlying sectors (read Real Estate) are experiencing strong headwinds, we are conservative on the Cement Sector's contribution to the company's overall valuation.
Power Industry
India has the fifth largest 'Power', the lifeline of an economy forms an integral part of the infrastructure development plan power generation volume in of any country. India has the fifth largest power generation volume in the World and has an the world and has an installed installed power capacity of 1,47,715MW or 147GW (as of February 28, 2009). Here it is vital to power capacity of 147GW guage the quantum of population that this Power base supports. Thus, it is in this context that the metrics of per capita power consumption is helpful along with the average and peak power deficit that the country experiences.
India has a peak power deficit of 13.8% and average power deficit of 11.0%. This is in spite of per capita consumption (631units) being at 1/4th the world's average (2,490units). Peak demand for power is expected to post a CAGR of 7.8% in the Eleventh Five-year Plan. This is suggestive of the real dearth that exists in the Power space.
Exhibit 33: Power- Global per capita consumption
20,000 18,329 18,000 16,000 14,057 14,000 11,446 12,000
(KWh) 10,000 8,212 8,000 6,000 4,000 2,490 2,246 2,160 2,108 1,340 2,000 631 0 Canada USA Australia Japan World Brazil China Mexico Egypt India Average Source: Industry, Angel Research
The GoI plans to bridge this power deficit by setting up Power capacities of 68,869MW over the Eleventh Five-year Plan. The proposed source through which this power target is expected to be achieved shows increasing share of Hydro Power in the entire scheme of things to 22.6%.
'Hydro Power' - En-cashing the free flowing energy
Hydro Power plants have Hydroelectric power plants rely on natural water flow to generate electricity, there are no relatively long gestation specific raw material costs and therefore they are not exposed to market fluctuations in raw periods and are hence material prices (read coal). Hydroelectric projects also have lower operation and maintenance associated with project delays expenditure compared to other power projects. The only caveat here is that Hydro-Power plants due to unforeseen natural/ have relatively long gestation periods and are hence associated with project delays due to geological calamities unforeseen natural/geological calamities. Moreover, with hydro power generation the company also gets to trade in Carbon credits that serve as an additional source of income for companies in this space. This is where we believe that JAL would benefit as it one of the major private
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players in the Hydro Power Segment and is expanding in this Segment. Further, with this favourable demand-supply ratio, JAL is expected to benefit on account of its Merchant power plants as we believe that the current scenario would continue in the long run.
Exhibit 34: Power Sector and Eleventh Five-year Plan (MW) Sector Hydro Thermal Thermal Breakup Nuclear Total Coal Lignite Gas /LNG Central 9,685 23,810 22,060 1,000 750 3,160 36,655 State 2,637 20,352 19,365 375 612 - 22,989 Private 3,263 5,962 5,210 - 752 - 9,225 All-India 15,585 50,124 46,635 1,375 2,114 3,160 68,869 Source: Eleventh Five-year Plan - Working Group Report on Power, Angel Research
Real Estate Industry
NCR market
We expect prices to correct We are bearish on the NCR property market as it is expected to witness acute oversupply of across segments by 30-40% in Residential and Commercial space over FY2009-11E. Hence, we expect prices to correct across CY2009 itself segments by 30-40% in CY2009 itself. Most ongoing projects in the NCR are skewed towards big ticket-size premium housing, while maximum demand is in the sub-Rs4mn segment. Hence, most listed developers such as DLF, Unitech and India bulls Real Estate have launched new smaller ticket sizes projects and at reduced rates.
Owing to slackening investor Residential Segment: We expect the NCR Residential property market to correct by 30-40% interest and speculators due to oversupply. We believe a 30-40% fall in the residential prices in the NCR region, exiting the market, developers especially in Gurgaon, Noida and Greater Noida, will bring back affordability and boost demand. across the region have Historically, the residential market in NCR mainly comprised houses where ticket sizes were in forayed into affordable the Rs5mn+ bracket while the premium projects ranged between Rs10-20mn. According to a housing in an effort to boost survey conducted by the Real Estate portal, makaan.com, in Oct-Dec 2008, maximum demand transaction volumes and cash for houses in the NCR was in the sub-Rs4mn category. Around 78% of the home buyers fell in flows this bracket and only 35% of the existing supply is available in this price category. Thus, owing to slackening investor interest and speculators exiting the market, developers across the region, including listed players like DLF, Unitech, Indiabulls Real Estate and Parsvnath, have forayed into affordable housing in an effort to boost transaction volumes and cash flows.
Assuming that around 50% of Commercial Segment: The NCR Commercial market has been one of the most affected post the balance expected supply the recent boom as it is saddled with oversupply of 7-8x the annual absorption rate. The of 114mn sq. ft. would come supply-absorption gap was apparent in CY2008 when only 8.5mn sq. ft. of the fresh office through in CY2009-10E, even supply of 14mn sq. ft. got absorbed. Moreover, as against the estimated supply of 29mn sq.ft. at a historic peak absorption in CY2008, only around 50% actually came into the market. Assuming that around 50% of the rate of 8-9mn sq. ft. annually, balance expected supply of 114mn sq. ft. would come through in CY2009-10E (which works out it would take at least another to around 55mn sq ft) even at a historic peak absorption rate of 8-9mn sq. ft. annually, it would 7-8 years for this entire take at least another 7-8 years for this entire supply to be absorbed. This clearly portends a supply to be absorbed further drop in occupancy levels of office space across the NCR region to 60-70% with
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commercial rentals seeing further downward pressure. Also, it should be noted that the IT industry, which is the primary demand driver for office space in India, is currently witnessing a slowdown with companies either reducing staff or scaling back expansion plans. The NCR office market, which is heavily dependent on the IT/ITES Sector (the Sector accounted for two-thirds of absorption in CY2008) is also expected to suffer following the decline in demand. Additionally, existing tenants may also consider re-negotiating rentals and leasing periods or shifting their offices to more cost-effective locations. Amidst this backdrop, we estimate rentals in the NCR region to see a correction of 15-20% over and above the 15-20% correction already witnessed across the micro-markets in the region.
The downturn in the Retail Retail Segment: The downturn in the Retail Segment can be gauged from the slowdown in Segment can be gauged from construction of retail projects by major developers. It may be noted that although CY2008 saw the slowdown in construction supply of 9.6mn sq.ft. of mall space in India (Source: Cushman & Wakefield), an increase of of retail projects by major 17% yoy, it was over 60% below the projected supply of over 25mn sq. ft. at the beginning of developers CY2008 . On the other hand, the average vacancy rate in malls across India was around 9% in 4QCY2008 with the NCR market suffering the highest vacancy rate of around 25%. We believe that the high vacancy rates along with the expected oversupply would ensure that the prices would be under pressure in this market.
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Profit & Loss Statement Rs crore Balance Sheet Rs crore Y/E March FY2008 FY2009 FY2010E FY2011E Y/E March FY2008 FY2009 FY2010E FY2011E
Net Sales 4,274 6,016 8,773 11,258 SOURCES OF FUNDS % chg 19.4 40.8 45.8 28.3 Equity Share Capital 234.3 236.8 237.6 237.6 Total Expenditure 2,888 4,163 6,092 8,036 Reserves& Surplus 3,965.2 5,113.9 6,134.8 7,233.7 EBITDA 1,386.1 1,852.9 2,681.4 3,222.8 Shareholders Funds 4,598.0 5,669.4 6,691.2 7,790.0 (% of Net Sales) 32.4 30.8 30.6 28.6 Total Loans 8,305.6 9,644.4 10,716.5 15,070.4 Other Income - - - - Deffered Tax Liability 571.2 571.2 571.2 571.2 Share in profits of associates - - - Depreciation& Amortisation 203.3 295.8 349.6 448.8 Total Liabilities 13,475 15,885 17,979 23,432 Interest 339.1 502.4 621.6 889.2 APPLICATION OF FUNDS PBT 843.6 1,229.3 1,710.2 1,884.9 Gross Block 5,166.2 6,408.7 8,324.7 10,685.8 (% of Net Sales) 19.7 20.4 19.5 16.7 Less: Acc. Depreciation (1,454.7) (1,750.5) (2,100.1) (2,548.9) Extraordinary (Expense)/Inc. - 50.4 - Net Block 3,711.7 4,658.5 6,224.9 8,137.2 Tax 233.7 347.7 564.4 622.0 Capital Work-in-Progress 4,219.0 4,751.5 5,230.5 5,492.9 (% of PBT) 27.7 28.3 33.0 33.0 Investments 3,224.8 3,337.8 3,566.8 3,839.8 PAT 609.9 881.6 1,145.8 1,262.9 Current Assets 5,962.9 8,205.3 9,500.4 13,888.3 % chg 46.9 44.5 30.0 10.2 (% of Net Sales) 14.3 14.7 13.1 11.2 Current liabilities 3,655.1 5,079.7 6,555.4 7,938.1 Adj. PAT 609.9 881.6 1,145.8 1,262.9 Net Current Assets 2,307.8 3,125.6 2,945.0 5,950.2 % chg 46.9 44.5 30.0 10.2 Mis. Exp. not written off 0.1 0.1 0.1 0.1 (% of Net Sales) 14.3 14.7 13.1 11.2 Total Assets 13,475 15,885 17,979 23,432
Cash Flow Statement Rs crore Key Ratios
Y/E March FY2008 FY2009 FY2010E FY2011E Y/E March FY2008 FY2009 FY2010E FY2011E Profit before tax 843.6 1,229.3 1,710.2 1,884.9 Per Share Data (Rs) Depreciation & Others 203.3 295.8 349.6 448.8 EPS (fully diluted) 5.1 7.4 9.6 10.6
Change in Working Capital 27.7 (299.3) (1,366.2) (1,016.7) Cash EPS 6.8 9.9 12.6 14.4 DPS 1.0 1.1 1.1 1.2 Direct taxes paid 233.7 347.7 564.4 622.0 Book Value 24.2 38.7 47.7 56.3 Cash Flow from Operations 840.9 878.0 129.2 695.0 Operating Ratio (%) Inc./ (Dec.) in Fixed Assets 2,955.2 1,775.0 2,395.0 2,623.4 Raw Material / Sales (%) 32.7 35.1 33.3 33.1 Inventory (days) 83.8 85.8 87.6 80.3 Free Cash Flow (2,114.3) (897.0) (2,265.8) (1,928.4) Debtors (days) 50.1 50.4 52.9 57.5 Inc./ (Dec.) in Investments 1,446.1 113.0 229.0 273.0 Debt / Equity (x) 1.81 1.70 1.60 1.94 Issue of Equity 1,250.2 342.7 34.4 - Returns (%) Inc./(Dec.) in loans 2,789.8 1,338.8 1,072.1 4,353.9 RoE 16.3 17.2 18.5 17.4 RoCE 10.6 10.6 13.8 13.4 Dividend Paid (Incl. Tax) 134.1 152.9 158.4 164.0 Dividend Payout 48.2 55.0 57.0 59.0 Others 40.0 (0.2) 0.0 (0.2) Valuation Ratio (x) Cash Flow from Financing 2,499.9 1,415.4 719.1 3,916.6 P/E 27.0 18.7 14.4 13.1
Inc./(Dec.) in Cash 385.6 518.5 (1,546.7) 1,988.2 P/E (Cash EPS) 20.3 14.0 11.0 9.6 P/BV 3.6 2.9 2.5 2.1 Opening Cash balances 1,429.8 1,815.4 2,333.9 787.2 EV / Sales 5.4 4.0 3.0 2.6 Closing Cash balances 1,815.4 2,333.9 787.2 2,775.4 EV / EBITDA 16.6 12.8 9.9 8.9
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Fund Management & Investment Advisory ( 022 - 3952 4568) P. Phani Sekhar Fund Manager - (PMS) [email protected] Siddharth Bhamre Head - Investment Advisory [email protected] Devang Mehta AVP - Investment Advisory [email protected] Research Team ( 022 - 3952 4568) Hitesh Agrawal Head - Research [email protected] Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected] Vaishali Jajoo Automobile [email protected] Harit Shah IT, Telecom [email protected] Deepak Pareek Oil & Gas [email protected] Pawan Burde Metals & Mining, Cement [email protected] Vaibhav Agrawal Banking [email protected] Girish Solanki Power, Mid-cap [email protected] Shailesh Kanani Infrastructure, Real Estate [email protected] Anand Shah FMCG , Media [email protected] Puneet Bambha Capital Goods, Engineering [email protected] Sushant Dalmia Pharmaceutical [email protected] Raghav Sehgal Retail [email protected] Amit Vora Research Associate (Oil & Gas) [email protected] Laxmikant Waghmare Research Associate (Metals & Mining, Cement) [email protected] Aniruddha Mate Research Associate (Infra, Real Estate) [email protected] V Srinivasan Research Associate (Power, Mid-cap) [email protected] Jaya Agrawal Jr. Derivative Analyst Jaya [email protected] Amit Bagaria PMS [email protected] Sandeep Wagle Chief Technical Analyst [email protected] Ajit Joshi AVP Technical Advisory Services [email protected] Brijesh Ail Manager - Technical Advisory Services [email protected] Vaishnavi Jagtap Sr. Technical Analyst [email protected] Milan Sanghvi Sr. Technical Analyst [email protected] Mileen Vasudeo Technical Advisor (TAS) [email protected] Krunal Dayma Derivative Analyst - (TAS) [email protected] Commodities Research Team Amar Singh Research Head (Commodities) [email protected] Samson P Sr. Technical Analyst [email protected] Anuj Gupta Sr. Technical Analyst [email protected] Girish Patki Sr. Technical Analyst [email protected] Commodities Research Team (Fundamentals) Badruddin Sr. Research Analyst (Agri) [email protected] Mandar Pote Research Analyst (Energy) [email protected] Bharathi Shetty Research Editor [email protected] Bharat Patil Production [email protected]
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Ratings (Returns) : Ratings (Returns) : Buy (Upside > 15%) Accumulate (Upside upto 15%) Neutral (5 to -5%) Reduce (Downside upto 15%) Sell (Downside > 15%)
JanuaryMay 4, 2009 30, 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration NoNo :: INB 010996539 33 Jaiprakash Associates
Infrastructure Corporate & Marketing Office : 612, Acme Plaza, M.V. Road, Opp Sangam Cinema, Andheri (E), Mumbai - 400 059 Tel : (022) 3941 3940 NRI Helpdesk : e-mail : [email protected] Tel : (022) 4000 3622 / 4026 2700 Investment Advisory Helpdesk : e-mail : [email protected] Tel : (022) 3952 4568 Commodities : e-mail : [email protected] Tel : (022) 3081 7400 PMS : e-mail : [email protected] Tel: (022) 3953 2800 Feedback : e-mail : [email protected] Tel : (022) 2835 5000
Regional Offices:
Ahmedabad - Tel: (079) 3982 2300 / 3982 5200 Indore - Tel: (0731) 3941 3940 Nagpur - Tel: (0712) 3041 533 Rajkot - Tel :(0281) 2490 847
Bengaluru - Tel: (080) 3941 3940 Jaipur - Tel: (0141) 3941 3940 Nashik - Tel: (0253) 3011 400 / 1 Surat - Tel: (0261) 3071 600
Chennai - Tel: (044) 3941 3940 Kanpur - Tel: (0512) 3017 700 Mumbai (Goregoan) Tel: (022) 2879 0411-15 Visakhapatnam - Tel :(0891) 3987 200 - 29
Cochin - Tel: (0484) 3941 3940 Kolkata - Tel: (033) 3941 3940 Mumbai (Powai) - Tel: (022)3952 6500
Coimbatore - Tel: (0422) 3941 3940 Lucknow - Tel: (0522) 3057 700 New Delhi - Tel: (011) 3045 1300 / 4077 1300
Hyderabad - Tel: (040) 3091 2222 Ludhiana - Tel: (0161) 4697 400 Pune - Tel: (020) 3071 0250 / 2551 3143
Private Client Group Offices: Sub - Broker Marketing:
Ahmedabad (C. G. Road) - Tel: (079) 3982 9934 Surat - Tel: (0261) 3071 600 Rajkot (Race course) - Tel: (0281) 2490 847 Powai - Tel: (022) 3952 6500
Branch Offices:
Andheri (Lokhandwala) - Tel: (022) 3952 5679 Ahmeda. (Ramdevnagar) - Tel : (079) 4024 3842 / 43 Jalgaon - Tel: (0257) 2234 832 Pune - Tel: (020) 6640 8300 / 3052 3217
Andheri (W) - Tel: (022) 2635 2345 / 6668 0021 Ahmedabad (Sabarmati) - Tel : (079) 3091 6100 / 01 Jamnagar(Indraprashta) - Tel: (0288) 3941 3940 Rajamundhry - Tel: (0883) 3982 200
Bandra (W) - Tel: (022) 2655 5560 / 70 Ahmedabad (Satellite) - Tel: (079) 4000 1000 Jamnagar (Cross Word) - Tel: (0288) 2751 118 Rajkot (Ardella) Tel.: (0281) 2926 568
Bandra (W) - Tel: (022) 6643 2694 - 99 Ahmedabad (Shahibaug) -Tel: (079)3091 6800 / 01 Jamnagar (Moti Khawdi) - Tel: (0288) 2846 026 Rajkot (University Rd.) - Tel: (0281) 2331 418
Borivali (W) - Tel: (022) 3952 4787 Amreli - Tel: (02792) 228 800/231039-42 Jamnagar(Madhav Plaza) - Tel: (0288) 2665 708 Rajkot - (Bhakti Nagar) Tel: (0281) 2361 935
Borivali (Punjabi Lane) - Tel: (022) 3951 5700. Amritsar - Tel: (0183) 3941 3940 Jodhpur - Tel: (0291) 3941 3940 / 99280 24321 Rajkot - (Indira circle) Tel : 99258 84848
Chembur - Tel: (022) 6703 0210 / 11 /12 Anand - Tel : (02692) 398 400 / 3 Junagadh - Tel : (0285) 3941 3940 Rajkot (Orbit Plaza) - Tel: (0281) 3983 485
Chembur - (Basant) - Tel:(022) 3267 9114/ 15 Ankleshwar - Tel: (02646) 398 200 Keshod - Tel: (02871) 234 027 / 233 967 Rajkot (Pedak Rd) - Tel: (0281) 3985 100
Fort - Tel: (022) 3958 1887 Baroda - Tel: (0265) 2226 103-04 / 6624 280 Kolhapur - Tel: (0231) 6615 962 / 3 Rajkot (Ring Road)- Mobile: 99245 99393
Ghatkopar (E) - Tel: (022) 6799 3185 - 88 Baroda (Akota) - Tel: (0265) 2355 258 / 6499 286 Kolkata (N. S. Rd) - Tel: (033) 3982 5050 Rajkot (Star Chambers) - Tel : (0281)3981 200
Kalbadevi - Tel: (022) 2243 5599 / 2242 5599 Baroda (Manjalpur) - Tel: (0265) 6454280-3 Kolkata (P. A. Shah Rd) - Tel: (033) 3001 5100 Rajkot - (Star Chambers) - Tel : (0281) 2225 401-3
Kandivali (W) - Tel: (022) 2867 3800/2867 7032 Bengaluru - Tel: (080) 4072 0800 - 29 Kota - Tel : (0744) 3941 3940 Salem - Tel: (0427) 3982 810
Kandivali - Tel: (022) 4245 1300 Bhavnagar - Tel: (0278) 3941 3940 Mangalore - Tel: (0824) 3982 140 Secunderabad - Tel : (040) 3093 2600
Malad (E) - Tel: (022) 2880 4440 Bhavnagar (Shastrinagar)- Mobile: 92275 32302 Mansarovar - Tel:(0141) 3057 700/99836 74600 Surat (Mahidharpura) - Tel: (0261) 3092 900
Malad (Natraj Market) - Tel:(022) 28803453 / 24 Bhopal - Tel :(0755) 3941 3940 Mehsana - Tel: (02762) 645 291 / 92 Surat - (Parle Point) - Tel : (0261) 3091 400
Masjid Bander - Tel: (022) 2345 5130 /1 / 8 / 42 / 28 Bikaner - Tel: (0151)3941 3940 / 98281 03988 Mysore - Tel: (0821) 4004 200 - 30 Surat (Ring Road) - Tel : (0261) 3071 600
Mulund (W) - Tel: (022) 2562 2282 Chandigarh - Tel: (0172) 3092 700 Nadiad - Tel : (0268) - 2527 230 / 34 Surendranagar - Tel : (02752) 223305
Nerul - Tel: (022) 2771 9012 - 17 Deesa - Mobile: 97250 01160 Nashik - Tel: (0253) 3011 500 / 1 / 11 Udaipur - (0294) 3981400
Powai (E) - Tel: (022) 3952 5887 Erode - Tel: (0424) 3982 600 New Delhi (Bhikaji Cama) - Tel: (011) 41659711 Valsad - Tel - (02632) 645 344 / 45
Sion - Tel: (022) 3952 7891 Faridabad - Tel: (0129) 3984 000 New Delhi (Lawrence Rd.) - Tel: (011) 3262 8699 / 8799 Vapi - Tel: (0260) 3088 210 / 211 / 2400 214
Thane (W) - Tel: (022) 2539 0786 / 0650 / 1 Gajuwaka - Tel: (0891) 3987 100 - 30 New Delhi (Pitampura) - Tel: (011) 47002380 / 84 Varachha - (0261) 3091 500
Vashi - Tel: (022) 2765 4749 / 2251 Gandhinagar - Tel: (079) 4010 1010 - 31 New Delhi (Nehru Place) - Tel: (011) 3982 0900 Varanasi - Tel: (0542) 2221129, 3262431
Vile Parle (W) - Tel: (022) 2610 2894 / 95 Gandhidham - Tel: (02836) 237 135 New Delhi (Preet Vihar) - Tel: (011) 4310 6400 Vijayawada - Tel :(0866) 3984 600
Wadala - Tel: (022) 2414 0607 / 08 Gondal - Tel: (02825) 398 200 Noida - Tel : (0120) 4639 900 / 1 / 9 Warangal - Tel: (0870) 3982 200
Agra - Tel: (0562) 4037200 Ghaziabad - Tel: (0120) 3980 800 Palanpur - Tel: (02742) 308 060 - 63 Nagaur - Tel: (01582) 244 648
Ajmer - Tel: (0145) 3941 3940 Gurgaon - Tel: (0124) 3050 700 Patan - Tel: (02766) 222 306
Alwar - Tel: (0144) 3941 3940 / 99833 60006 Himatnagar - Tel: (02772) 241 008 / 241 346 Patel Nagar - Tel : (011) 45030 600
Ahmeda. (Bapu Nagar) - Tel : (079) 3091 6900 - 02 Hyderabad - A S Rao Nagar Tel: (040) 4222 2070-5 Porbandar - Tel : (0286) 3941 3940
Ahmedabad (C. G. Road) - Tel: (079) 4021 4023 Hubli - Tel: (0836) 4267 500 - 22 Porbandar (Kuber Life Style) - Mob.-98242 53737
Ahmeda. (Gurukul) - Tel: (079) 3011 0800 / 01 Indore - Tel: (0731) 3049 400 Pune - Tel : (020) 3093 4400 / 3052 3217
Ahmedabad (Kalupur) - Tel: (079) 3041 4000 / 01 Indore - Tel: (0731) 4232 100 / 31 / 40 Pune (Aundh) - Tel: (020) 4104 1900
Ahmedabad (Maninagar) - Tel: (079) 3981 7430 / 1 Jaipur - (Rajapark) Tel: (0141) 3057 900 / 99833 40004 Pune (Camp) - Tel: (020) 3092 1800
Central Support & Registered Office:G-1, Akruti Trade Centre, Road No. 7, MIDC Marol, Andheri (E), Mumbai - 400 093 Tel : 2835 8800 / 3083 7700
MayJanuary 4, 2009 30, 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration No No :: INBINB 010996539 34