Suresh Rathi
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Wealth Creator Thru Systematic Investment Suresh Rathi R EPORT 0809/006 13 JUNE 2008 Reporting- Jaiprakash Associates Ltd. No Dream Too Big... 9, Parekh Vora Chambers 66 N.M. Road, Fort Mumbai - 400023 Phone: +91-22-22666178 Fax: +91-22-66344007 E-mail: [email protected] Suresh Rathi Jaiprakash Associates Limited The flagship company of the Jaypee Group, promoted by Shri Jaiprakash Gaur is a well Research Report No known leader in the construction of multi-purpose river valley and hydropower projects 0809/006 and has been involved in construction of major engineering projects for the last four decades, including Hydro power, River Valley projects, Expressways, Real Estate 13 June 2008 Development, etc. The company also has it presence in Cement, Hospitality and Real Estate Business. CMP: Rs. 179/- Jaiprakash Associates (JAL), promoted by erstwhile Jaiprakash Industries was incorporated in 1995 under the name Bela Cement. Its name was changed to Jaypee Rewa Cement in Aug, 2000 and then to Jaypee Cement in 2002. The company was a wholly owned subsidiary of erstwhile Jaiprakash Industries and was engaged in the manufacture and marketing of cement. Pursuant to the Scheme of Amalgamation of erstwhile Jaiprakash Industries with the company, the name was changed to present one w.e.f 11th March 2004. Subsequently the companies cement division was also transferred to the company. During 2005-2006, the company initiated steps for amalgamation of erstwhile Jaypee Greens Ltd (JGL) with itself. At A Glance Equity (Rs Cr.) 234.50 The company has got eight subsidiaries as given below. Book Value 33.28 EPS 5.20 SUBSIDIARIES - Jaiprakash Associates Ltd (Rs in Cr.) PE Ratio 35.80 Market Cap (Rs Cr.) 21009.23 Year End 2007 52 Week High/Low 510 /129 Share Investment Sales Profit Dividend Yield (%) 0.39 Holding Cost Turnover After Tax Last Dividend (%) 36.00 % Gujarat Anj. Cement 98.88 0.00 0.00 0.00 Jaiprakash Hydro Power 63.34 413.76 356.52 199.53 Share Holding Pattern as on Jaiprakash Power Venture 84.28 429.00 216.59 71.78 31 March 2008 Jaypee Cement Ltd 100.00 45.05 0.00 0.00 Foreign 28.02 Jaypee Hotels Ltd 72.18 65.42 130.80 13.63 Institutions 11.80 Jaypee Karchan Hydro 100.00 750.00 0.00 0.00 Non Promoter Hold 4.98 Jaypee Power Grid 79.37 0.00 0.00 0.00 Promoters 44.55 Madhya Pradesh Jay 70.00 10.50 0.00 0.00 Public & Others 10.66 Total 100 The India Growth Story Infrastructure projects need competent GDP Growth Rates Forecast (%) players who can protract for long periods. It 2006E 2007E 2008E takes a while to judge winners and losers. Global Economies India is now a trillion dollar economy. US 2.9 2.2 1.9 Growing at 8.5% p.a. Indian Economy will EU 2.9 2.6 1.5 add another trillion dollars in the next nine Japan 2.4 1.7 0.9 years. That will be the target for Indian Regional Economies economy that is expected to be achieved in China 11.1 11.4 10.4 next nine years. - A feat which has not been Aashish Chitlangi India 9.4 9.0 8.5 attained in last sixty years since Institutional Desk: Hong Kong 6.8 6.0 4.6 independence. Government’s initiatives in [email protected] Indonesia 5.5 6.2 6.0 this are very important, as India continues +91-9820186491 Korea 5.0 5.0 4.1 to show encouraging signs of some robust & large-scale projects which have started in Rahul Bhandawat last 5-6 years & will continue to give the required push for taking India from the Research Desk: developing nation to a developed nation. [email protected] +91-9321413828 - 1 - Jaiprakash Associates Limited Major Growth Factor: INFRASTRUCTURE This development is likely to sustain in 11th plan & the 12th one also. Most important factor negating India’s growth is the fact that the infrastructure consisting of Roads, railways, ports, airports, communication and electric power is not up to the standard of competitors. Thus keeping a single point agenda – India has set out to circumvent this worrisome factor & has aligned various infrastructures projects to help attain this vision. Realizing there is a huge demand base for infrastructure in the rapidly growing economy, investments worth USD 85 billion (Rs. 3, 41,308 crore) are planned by the business houses in the sectors like core, physical and service Infrastructure. This makes up for the maximum 81% of the total planned Investments during the third quarter of current financial. Total Investm ent Outlay ($85.3 Bn) steel 0% 6%3% 4% Oil Power 7% 36% Telecom 10% Real Estate Cement 15% S h ip p in g & Lo g is tics 19% Ports Aviation Scenario of current & future investments is highlighted in below table Indian Infrastructure Capacity as Added in Inv.in 10th Added in Investments on 2007 10th Plan Plan (Rs. 11th Plan in 11th plan (Physical) Billion) (2008-12) (Rs. Billion) NHAI 66590 KM 4673 km 1148 54082 km 3118 Railways 108850 km 945 km 1196 10300 km 2580 Capex Port Capacity 680 165 41 830 739 (mn tones) Power 127753 31000 2918 78000 6165 Generation MW Telecom 210.50 mn 160.7 mn 1234 480 mn 2670 (Subscribers) Airports 87 mn 160.7 mn 68 118.7 mn 347 (Passengers) Steel Capacity 57 16.5 577 37 1440 (mn tones) Cement 166 31 105 132 530 (mn tones) - 2 - Jaiprakash Associates Limited Indian Cement Industry on growth trajectory. The Cement industry has continued its growth trajectory over the past seven years. Domestic cement demand growth has surpassed the economic growth rate of the country for the past couple of years. Over the past five years (FY03-07), cement demand has grown at a CAGR of 8.37% higher than the CAGR of supply at 4.84%. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country. The key drivers for cement demand are real estate sector, infrastructure projects and industrial expansion projects. Among these, real estate sector is the key driver and accounted for almost 55% of cement demand in FY 07. During the period FY 03 – 07, capacity additions in the country (30.6 mn tonnes) were at a slower rate compared to demand growth leading to higher average capacity utilization rates from 81.3% in FY 03 to 93.8% in FY 07. This exerted pressure on average prices which have increased from Rs. 156 per bag in FY 03 to Rs. 216 per bag in FY 07. In December 2007, prices stood at Rs. 245 - Rs. 250 per bag. Low capacity addition coupled with higher utilization rate also led to increase in proportion of blended cements in product mix. Cement is a bulky commodity and cannot be easily transported over long distances making it a regional market place, with the nation being divided into five regions. Each region is characterized by its own demand- supply dynamics. The Southern region dominated the cement consumption at 44.5 mn tonnes in FY 07, accounting for about 30% of total domestic cement consumption. Average realizations have increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tonne in FY 07, at a CAGR of 13.6%, which has resulted in higher profit margins of the industry. To reduce the cost of production, the industry is increasing its focus on captive power generation. Proportion of cement production through captive power route has increased over the years. Also, cement movement by rail has increased over the years. Market share of top five players in the industry has increased from 42% in FY 02 to 56% in FY 07. Domestic Cement industry is highly insulated from global cement markets. Exports have been constant at about 6% of total cement demand for past few years. With GoI intervention, making cement duty free, cement is being imported from neighboring countries. However, due to logistics issues and lack of port handling capabilities, imports of cement will remain negligible and do not pose a threat to domestic industry. Cement demand is expected to remain buoyant driven by boost in construction sector in the country. It is estimated that the domestic cement demand will grow at a CAGR of approximately 10% for the next 5 years. The current tight demand - supply situation is expected to extend up to end of calendar year 2008 owing to delays in capacity expansion programmes by various companies. Expected prices will remain firm till the end of CY2008 due to tight demand - supply situation and increase in input costs. Cement Unit: Jaiprakash Associates Jaypee group is the 4th largest cement producer in the country. Cement facilities are located in the Satna Cluster (U.P), which has one of the highest cement production growth rates in India. The group produces Ordinary Portland Cement and Pozzolana Portland Cement under the brand names “Buland” and “Buniyad”. Rewa & Bela cement plant located in Rewa, Madhya Pradesh has an aggregate capacity of 7 million tones p.a. - 3 - Jaiprakash Associates Limited Further the company is setting up a green field cement plant at Baga and blending/grinding plant at Bagheri, both in Himachal Pradesh, a clinker grinding plant at Panipat in Haryana and one plant at Sidhi in Madhya Pradesh. Besides this, the company has its grinding and blending units in Uttar Pradesh. To reduce the freight and handling cost on cement dispatches as well as coal and gypsum in Cement Division a railway siding inside the Jaypee Bela Plant has been Thermal Power commissioned in August, 2006 also commissioned a thermal power plant of 38.5 MW at Plant Rewa Plant in August, 2006.