jaiprakash associates ltd _initiating coverage (feb'09)

8/14/2019 Jaiprakash Associates Ltd _Initiating Coverage (Feb'09)

1/26Systematix Research is also available on Bloomberg SSSL & Thomson Reuters SYSTEMATIX SHARES & STOCKS (I) Feb 09

OpportunityExpressway

Jaiprakash

Associates

Ltd

(JAL)

is

an

infrastructure

conglomerate,

all

set

to

gamomentum through its 4 main growth engines viz. Engineering & Construc

Cement,PowerandRealEstate.TheorderbookofJALsE&CdivisionisUSD8.55

23.7xtimesofitsE&CdivisionsFY08sales,unmatchedbyanyplayerintheindu

Similarly,JAL is likelytobecome Indias3rd

largestcementproducerby2010w

capacityof26.2mnT.Further, inPower, through its subsidiaries, JAL isexpecte

add7190MWby2016,taking itstotalcapacityto7890MW. Besides,JALhas

forayedintosectorslikesteelandwindpower,andhasalsoenteredintoJVsfor

gasexploration,coalmining,andpowertransmission.Givenitsaggressivecapex

of~Rs.780bn(tobefundedbyequitycontribution,debtandrealestateofftakes)

a robustE&Corderbook (USD8.55bn), JAL seemsaptlyplaced to capitalizeon

growth opportunities in the infrastructure sector. Going forward,monetizatio

availableland

from

Yamuna

Expressway

(272mn

sq.

ft.

with

FSI

of

1.5)

and

G

Expressway Project (2.2 bn sq. ft.with FSI of 1.5)would lead to significant v

accretionforJAL.InitiatewithBUYandapricetargetofRs.117.

Arobustorderbacklogensurescompanysgrowthpotential

Current order backlog of JAL stands at USD8.55 bn, which is 23.7x times of

constructionrevenue.Almost90%oftotalorderbacklogbelongsto internalproj

Howover some of its major projects are yet to receive financial closures viz: G

ExpresswayProject.Theaverageexecutionperiodforentireprojectsfallsbetwee

to48months.

HugeCapacityexpansioninCementalongwithcaptivepower

JALislikelytobecomethe3rd

largestcementcompanywithapanIndiapresence

FY10.

JAL

intend

to

add

8.9mnT

in

FY09E

and

8.3mnT

in

FY10E

taking

total

instcapacity to 26.2mnT by FY2010. Considering the probable demandsupply gap in

cementsector,weconservativelyestimatethetotalcapacitytobe15mnTand20

inFY09EandFY10Erespectivelyforourprojections.Itisalsoevidentfromthatfact

JAL added only 2.9mnT of capacity in first 9 months of FY09 against an anticip

additionof8.9mnTinFY09).

YamunaExpresswayprojectlikelytocontributesignificantlytoJALsearninggrow

JALhasgot6250acresoflandunderthesubsidiaryofJaypeeInfratechLtd(JIL)in

of Yamuna Expressway Project for 166 km. The land is spread across 5 diffe

locations in NCR and UP. As on date JIL is having ~1078 acre of land in phy

possession at Noida, where Land use plan is approved for entire land (1250 a

translating 82 mn sq ft (FSI = 1.5) of real estate development primarily consistin

Residential(63%),

Institutional

(9%),

Commercial

(4%),

Roads

(12%)

and

Recreat

(12%).

Downsiderisklimited,weseeimmensevalueinthebusiness:BUY

We are of the view that JALs growth prospects are still intact considering its ro

orderbacklogandnewcapacityadditionsinitsvariousverticals.Howeverthefina

closuresforsomeofitsprojectsareyettobedone.Furtheralandbankof6250a

and30,000acres thatJALssubsidiariesgot in lieuofYamunaExpresswayandG

Expressway projects respectively in locations of Noida and along the expressway

likelytoenhancethevaluationofJAL.Webaseour12monthstargetofRs.117fo

basedonSOTPmethodology.

November3,

JaiprakashAssociatesLtd.NITIATING COVERAGE

Industry Engineering &Construction

loomberg JPA IN

euters JAIA.BO

SE Group A

SE Code: 532532SE Symbol JPASSOCIAT

SE Sensex 9149

SE Nifty 2785

hareholding Pattern

As on 31st December 2008) (%)

BUY (CMP: Rs

SystematixInstitutionalResearc

February4,20

Market Data

Market Cap. (Rs. Mn.) 78078

hare Cap. (Rs. Mn.) 2366

2 Wk High/Low 489 / 47

vg. Vol. (Weekly) 18681213

ace Value (Rs.) 2

nancials FY08 FY09E FY10E

et Sales (Rs mn) 39,851 55,186 74,487

BITDA (Rs mn) 10,970 13,939 19,380

BT (Rs mn) 8,434 9,715 14,288

AT (Rs mn) 6,097 6,846 9,420

BITDA margin (%) 27.5% 25.3% 26.0%

AT margin (%) 15.3% 12.4% 12.6%

PS (Rs) 5.2 4.9 6.7

EPS (Rs) 6.9 6.9 9.1

/E (x) 12.7 13.5 9.8

V/EBITDA (x) 5.1 3.5 1.7

OE (%) 16.3% 11.9% 13.0%

OCE (%) 10.6% 8.8% 10.6%


2/26

Page 2 2/4/2009JKLHJKLHJated bySYSTEMATIX InstitutionalResearc

b 09 Systematix Research is also available on Bloomberg SSSL & Thomson Reuters SYSTEMATIX SHARES & STOCKS (I) LT

TableofContents

nvestmentCase...........................................................................................................................................................................

Valuations....................................................................................................................................................................................

riceTarget

Derivation

.................................................................................................................................................................

ndustryOverview........................................................................................................................................................................

Cement.................................................................................................................................................................................................

Energy&Power....................................................................................................................................................................................

ompanyIndepth.......................................................................................................................................................................

AnOverview.........................................................................................................................................................................................

Segmentalofferings.............................................................................................................................................................................

Engineering&Construction.................................................................................................................................................................

Cement.................................................................................................................................................................................................

Energy...................................................................................................................................................................................................

RealEstate...........................................................................................................................................................................................

Hospitality............................................................................................................................................................................................

CorporateStructure.............................................................................................................................................................................

Subsidiaries .........................................................................................................................................................................................

EquityOutlook......................................................................................................................................................................................

Amalgamation......................................................................................................................................................................................

arningsOutlook&Financials......................................................................................................................................................

M&Q3FY09StandaloneResultsAnalysis...................................................................................................................................

inancialDetails...........................................................................................................................................................................

BinodModi

[email protected]

(+912266198264)

BasanthPatil

[email protected]

(+912266198264)


3/26



INVESTMENTCASE

JAL, an infrastructure conglomerate, has created a formidable presence across va

segmentswithin Infrastructurespaceover theyearsand isknown for itsexecutioncapa

and rich experience across sectors. JAL enjoyed 54% market share in 10th Five Year pla

HydropowerProjectsandisconsideredanundisputedleaderinHydroPowerProjectsinInd

is

aptly

placed

to

capitalize

on

the

upcoming

opportunities

in

Hydro

Power

Segment

(16MWcapacitiesareestimatedbyPlanningCommission tobeadded in11thPlan).Furthe

newcapacitiescominginCement(17.2mnTtillFY10),Power(7190MWtobeaddedtillF

along with monetization of land bank (6250 acres received from Yamuna Expressway Pr

and30,000acresreceivedfromGangaExpresswayProject)arelikelytoenhancethevalua

ofJAL.Furtherwiththeentryintosteelandwindpowersectoralongwithoil&gasexplora

(throughaJV),coalmining,andpowertransmissionbusiness,JALislikelytobecomeam

ofalltradesintheIndianInfrastructurespaceovertheyears.

OurviewonJALisbasedonthefollowingarguments:

Construction

Enjoysaleadership

position

in

Hydro

Power

Construction

JALholds54%marketshareinHydropowerProjects.

Considering JALs leadership position in Hydro powersegment, it is likely toseeast

orderinflowonthewakeofsignificantcapacityadditionforHydropower(16,557MW

anestimatedCostofUSD29bn)plannedbyPlanningCommissionofIndiain11thFive

plan.

JALislikelytoadd4620MWHydropowerCapacityforitsownplantsindifferentloca

over the next 78 years through its different subsidiaries. This entails an order inflo

around~Rs.320bnfromitsinternalprojectsovertheperiod.

Arobustorderbookensurescompanysgrowthpotential

Current

order

backlog

of

JAL

stands

at

USD8.55

bn,

which

is

23.7x

times

of

constructionrevenue.

Almost 90% of total order book belongs to internal projects. Howover some of its m

projectsareyettoreceivefinancialclosuresi.e.GangaExpresswayProject.

JALs main focus is on the construction of high technology and high margin a

assignmentslikehydropowerandrivervalleyprojects.

Theaverageexecutionforentireprojectsfallsbetween3648monthsonceitcomme

Andthemarginfromhydropowerisbetween18%20%.

Fig 1: Current Order Backlog along with its peers Order Book to Sales

Source: Company, Systematix Institutional Research


4/26



Cement

Capacityexpansionalongwithcaptivepower

JALislikelytobecomethe3rdlargestcementcompanywithapanIndiapresenceoverF

JAL intentstoadd8.9mnt inFY09Eand8.3mnt inFY10Etakingtotal installedcapaci

26.2mntbyFY2010.

Weconsidermanagementsestimatestobeontheaggressivesideinthecurrentscenar

isvisible

as

JAL

added

only

2.9

mnt

of

capacity

in

first

9

months

of

FY09

against

anticip

additionof8.9mntinFY09).Webelieveitsnewupcomingcapacitieswillbestaggered

aperiodoftime.

We have estimated the total capacity to be 15 mnt and 20 mnt in FY09E and F

respectivelyandsameistakeninourprojections.

JALisalsosettingupcaptivepowerplantstosupportitsaggressiveexpansion.InF2008,

ofitspowerrequirementsweremetbycaptivepowerplantsagainst~73%inF2007,the

enablingasubstantialreductionincosts(~Rs.2perunit).

After commissioning all captive power plants till FY12E, JAL will be able to meet ~87

totalpowerrequirementfromitscaptivepowerplant.

Table 1: Installed Capacity & Expected Production (In mnt)

Year Installed Capacity (mnt) Production Captive Power Plant (MW

FY-08 9.00 6.77 88 MW

FY-09 17.90 8.08 223 MW

FY-10 26.20 18.05 340 MW

FY-11 32.80 24.50 375 MW

FY-12 32.80 32.80 375 MW

Source: Company

Salestaxandexcisebenefitsavailabletothecompany

JALgetssalestaxbenefitsforintrastatesales,whichistypicallyaround4050%.

JALs

7

mnt

capacity

in

Himachal

Pradesh

enjoys

a

10

year

excise

waiver

offered

by

governmenttoindustriessetupinthestate.

Further 3 mnt capacity in UP will enjoy 10 years sales tax benefit alongwith roy

exemptionforlimestonemining.

JVstoensureflyashandlandavailabilityfreeofcost

JALissettinguptwocementunitseachinBhilaiandBokaroundertheJVwithSAIL(74

calledBhilaiJaypeeCementLtd (CostofProject=Rs.6bn for2.2mnt)andBokaroJa

CementLtd(CostofProject=Rs.4.05bnfor2.1mnt).

Duetothis,JALwillgetslagandlandfreeofcost.

Power

BaspaandVishnuprayagplantarerunningtoitscapacity

Baspa(JaiprakashHydroPowerLtd.)andVishnuprayag(JaiprakashPowerVentureLtd.

running to its capacity with more than 99% of plant availability factor, while both p

operateatPLFof54%and56%respectivelyinFY08.AndtheIPPisbasedon100%regu

tariff.

Baspa plant (JAL holds 63.3%) contributes an ROE of 24% while Vishnuprayag plant

holds80.6%)generates26%ROE(excludingVERs).


5/26



JaypeePowerVenturesLtd(JPVL)getsRs.20crore(in lieuof1.32mnunits)underVer

EmissionReduction(VERs)everyyearfromVishnuprayagPlant.

Karcham Wangtoo Hydro Power plant is expected to have Certified Emission Redu

(CERs),whichisinadvancedstageandislikelytocommissionfrom2011.Asondate~70

totalcivilconstructionpartisdone.

Hugecapacityadditionovertheyears

JALis

likely

to

add

7190

MW

with

an

estimated

cost

of

Rs.526bn

by

2016

through

diffe

subsidiaries.ThisincludesJaypeeNigrieThermal(1320MW)andBinaPowerThermal(

MW).

KarchamWangtoopowerplant (1000MW) is likely tobeoperational from FY12and

(1250MW)andJaypeeNigrieThermalplant(1320MW)isestimatedtobecomeoperat

fromFY12andFY13respectively.

KarchamWangtooplanthasacheivedfinancialclosureandnowisunderconstruction(~

is completed as on date), while Arunachal Pradesh, Meghalaya are in various stage

obtainingfinancialclosuresandstatutoryapprovals.

The proposed power generating business after getting fully commissioned is likely t

highly profitable due to 42% of its commissioned capacity, which will be under merc

powertariff

and

the

balance

of

58%

under

the

normal

regulated

tariff

mechanism.

Table 2: Capacity Expansion in Power Business

Project Fuel Capacity (MW) Regulated Tariff (MW) Merchant Power (MW) VERs/CERs C

Basapa-II (JHPL) Hydro 300 300 - - 2

Vishnuprayag Hydro 400 400 - 1.32 Mn VERs 2

Karcham Wangtoo Hydro 1000 800 200 3.35 Mn CERs 2

Jaypee Nigrie Thermal Thermal 1320 660 660 CERs expected 2

Bina Power Thermal 1250 625 625 - 2

Lower Siang Hydro 2400 1200 1200 TBD 2

Hirong Hydro 500 250 250 TBD 2

Kynshi Stage-II Hydro 450 225 225 TBD 2

Umngot Stage-I Hydro 270 135 135 TBD 2Total 7890 4595 3295

Source: Company

YamunaExpresswayProjectRealEstate

JALs subsidiary Jaypee Infratech Ltd (JIL) has got 6250 acres of land in lieu of Yam

ExpresswayProjectof166km.Thelandisspreadacross5differentlocationsinNCRand

JILhasgot~1078acresoflandinNoidainphysicalpossessionasondate.

Landuseplanisapprovedforentirelandof1250acrestranslatinginto82mnsqft(FSI=

of real estate development primarily consisting of Residential (63%), Institutional

Commercial(4%),Roads(12%)andRecreational(12%).

InYamunaExpressJILpresold4.7mnsqftofpropertyasonDec08andtotalcollection

thisofftake

is

Rs.9.0bn.

FurtherinJaypeeGreenJALhaspresold2.9mnsqft(outof8mnsqft).Thetotalcolle

fromtheofftakeisRs.9.33bn.


6/26



ValuationsLongerendvaluationlooksattractive

We are of the view that JALs growth prospects are still intact considering its robust o

backlogandnewcapacityadditions in itsvariousverticals.However the financialclosure

someofitsprojectsareyettobeconcluded.Furthera landbankof6250acresthatJILg

lieu of Yamuna Expressway in locations of Noida, Agra and along the expressway and a

bankof

30,000

acres

from

Ganga

Expressway

Projects

(Jaypee

Ganga

Infra.

Corp.

Ltd)

are

l

toenhancethevaluationofJAL. JILhasalreadypresoldanareaof4.7mnsqftoutof5.8m

ft(availableforsale)aggregatingavalueofRs.28.0bn.

We estimate JALs revenue and earnings to post a CAGR growth of ~36.7% and ~2

respectively over the period FY0810E. We expect its EBIDTA margin slightly to decline

27.5%inFY08to~26.0%inFY10E(adeclineof150bps)mainlyonaccountofincreaseind

construction, manufacturing, hotel / hospitality and power cost as % of sales. We for

cementbusinessmargintodeclinefrom40.2%inFY08to~30.0%inFY10Emainlyonaccou

price reduction and declining utilization level. JALs order backlog is mainly dominated

Hydro power projects (Construction of Power Stations) which ensure comparatively b

margins(~1820%)thanothersegments.Further,mostofthecontractsareinternalcontrac

Table 3: Valuations

FY06 FY07 FY08 FY09E FY10E

Price / Earnings (x) 11.1 17.4 12.7 13.5 9.8

Price / CEPS (x) 9.0 12.5 9.5 9.5 7.2

Price / BV (x) 0.5 0.5 1.7 1.3 1.2

EV / EBIDTA (x) 3.0 4.0 10.0 10.5 7.9

EV / Sales (x) 0.7 1.1 2.8 2.7 2.1


Fundamentalsarelookingintact

WeexpectJAL,postamalgamationtoreportastandaloneEPSofRs4.9andRs6.7forFY09E

FY10Erespectively.

Furthermore

its

ROE

is

likely

to

decline

from

16.3%

in

FY08

to

13.0%,

w

theROCEisexpectedtobestableat~10.6%tothatofFY08.

Table 4: Key Ratios

(%) FY06 FY07 FY08 FY09E FY10E

Revenue growth 0.0% 4.6% 14.6% 38.5% 35.0%

EPS growth 0.0% -36.4% 37.5% -6.1% 37.6%

EBITDA margin 23.9% 27.1% 27.5% 25.3% 26.0%

PAT Margin 19.3% 11.9% 15.3% 12.4% 12.6%

ROE 20.8% 17.6% 16.3% 11.9% 13.0%

ROCE 13.2% 12.7% 10.6% 8.8% 10.6%


We expect revenue and earnings

to post a CAGR growth of

~36.7% and ~24.3% respectively

over the period FY08-10E.


7/26



PRICETARGETDERIVATIONWerecommend'BUY'onJALwitha12monthspricetargetofRs117.Our12monthpriceta

is based on SOTP valuation methodology. We have valued its contracting business base

EV/EBIDTAmethodology,whileCementbusinessisvaluedbasedonEV/tonnemethod;we

assumed industryEVpertonneatUSD75and10%discount isgiven inourbasecase.Fu

PowerandRealEstatebusinessisvaluedbasedonDCFandNPVmethodologyrespectively.

AtCMPofRs.66,JAListradingat13.5xand9.8xFY09EandFY10EEPSrespectively.Inour

this leaves enough room for upside given the strong earnings growth projected for

company,coupledwiththegrowinginvestmentsinthesegmentsasawhole.

Table 5: Details of Price target derivation

Base Case Bear Case

Methodology INR Methodology INR

Cement EV / tonne 42 EV / tonne (20% discount to Industry) 34

Total Installed Capacity = 20 mnt Total Installed Capacity = 18 mnt

Construction EV / EBIDTA 29 EV / EBIDTA (15% discount) 24

Power

Baspa DCF, Cost orf Equity = 15% 5 DCF, Cost orf Equity = 20% 4

Vishnuprayag DCF, Cost of Equity = 15% 10 DCF, Cost of Equity = 20% 8

Karcham Wangtoo DCF, Cost of Equity = 15% 11 DCF, Cost of Equity = 20% 8

aypee Nigrie Thermal DCF, Cost of Equity = 15% 4 DCF, Cost of Equity = 20% 2

Bina Power Thermal DCF, Cost of Equity = 15% 6 DCF, Cost of Equity = 18% 3

Real Estate

Noida RE NPV 35 NPV 22

Agra RE NPV 10 NPV 7

aypee Green NPV 7 NPV 6

otal 159 118

ess : Debts (Rs. Mn) 83055.8 58 58

Add : Cash 18154.4 13 13

Hotels 2.8x time of FY10E revenue 3 1.5x time of FY10E revenue 2

Value Per Share (INR) 117 75

ource: Systematix Institutional Research

Price Target for JAL is Rs.117 in

base case based on SOTP

methodology


8/26



Assumptions

ForCementbusiness,wehaveconsideredthetotalinstalledcapacityof15mntand20

inFY09andFY10respectivelyandreducedtheutilizationrateat70%forFY10E.

WehavetakenUSD75asEVpertonefortheindustryand10%discountofindustryEV

toneistakeninourbasecase.

WehaveusedCAPMmodel forthecalculationofCostofEquity inPowerProjects,w

RiskFree

Rate

is

taken

at

8%

while

Market

Rate

of

Return

is

kept

at

14%.

We have calculated WACC (~14.5%) for real estate valuation based of CAPM, where

FreeRateandMarketRateofReturnaretakenas8%and14%respectively.

PerpetuityGrowthrateisconsideredat1%,whileforJaypeeNigriegrowthrateistake

2%.

In Real Estate, we have reduced the price by ~10% over the period forNoida proper

basecasewhile30%inBearcaseandsameiswithJaypeeGreenProject.

While forAgrawe haveslightly increased the price fromFY13E considering theupco

urbanizationinthearea.30%discountistakeninBearcase.

Weassumedthat1250acres inNoidatranslates into82mnsqft(wehave75mnsq

saleablearea

in

our

valuation

considering

some

part

of

the

land

not

to

be

developed)

willcompletetillFY18E.SimilarlyforAgra(1250acres)translated into80mnsqftand

completedtillFY20E.

ForJaypeegreen(8mnsqft)weassumedtheprojecttocompletetillFY14E.

We tried to value all those verticals where there is much clarity in terms of business

financial closures. However we have not valued Captive Coal Mines, Jaypee G

Infrastructures, Wind Power Projects, Arunachal Power Projects (2500 MW), Megha

Power Projects (720 MW), Jaypee Powergrid Ltd, Steel Business, Carbon Credit

ExplorationBusiness.

YamunaExpresswayrealestateprojects

PresentlyJIL

has

land

use

plan

approved

for

entire

1250

acres

at

Noida

translating

82

mn

of real estate development. However JIL is currently having ~1078 acres of land in phy

possessionagainst1250acresofland.WeassumedthattotalrealestatedevelopmentatN

is75mnsqftoflandanditwilltake9yearstocompletetheproject.Wehavediscounted

cashflowovertheperiodwiththeWACCof14.5%.

Similarly, we assumed that JIL will be having 80 mn sq ft of developable land from its

property (1250acresof land).WeexpectthisprojecttocompletetillFY20E.Wehavesli

increasedthepriceconsideringtheupcomingurbanizationisthearea.


9/26



JaypeeGreens

JAL isdeveloping Indiasfirstgolfcentricrealestateproject inGreaterNoida.Totalsale

areafortheprojectis8mnsqft,whichisspreadover450acres.Already2.9mnsqftof

has been sold as on date with an average realization of Rs.5873 per sq ft. We assumed

projecttocompleteoverFY14E.Afterdiscountingthecashflowovertheperiod,thevalue

shareworksouttoRs.8.

able 6: Valuation of Jaypee Green

FY08 FY09E FY10E FY11E FY12E FY13E FY

gra (8 mn sq ft)

ales (mn sq ft) 0.1 0.2 1 1.25 1.5 2

elling Price (Rs/sq ft) 5873 5873 5873 5850 5265 5265

otal Sales (Rs mn) 587 1175 5873 7313 7898 10530 1

xpenses

and 1000 1000 1000 1000 1000 1000

onstruction Cost 1500 1500 1500 1500 1500 1500

otal Cost 250 500 2500 3125 3750 5000

axes 111 223 1113 1382 1369 1825

et Cash Flow 226 452 2260 2806 2779 3705

ACC 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 1

scount Rate 1 0.87 0.76 0.67 0.58

V of Cash Flow 452.0 1973.7 2140.0 1851.2 2155.6 18

otal PV of Cash Flow 10408.1

alue Per Share 8.1

urce: Systematix Institutional Research


10/26



RiskstoourTargetPrice

Amongthepotentialriskfactorstoourtargetpricewelistthefollowingasforemost:

1. Inabilitytofund itscapexplantodelaytherevenueintake:JAL ishavingacapexpla

Rs.780bn (asperourestimates)tomeet itsexpansionplansoverthenext67years.

kindofinabilityordelaytofundtheprojectsmayadverselyaffectourtargetprice.

2. FluctuationinRawMaterialpricescandampenthemargins:Anyadversepricefluctua

ofraw

material

prices

could

impact

the

construction

margin

of

JAL.

3. Escalating Competitive scenario can play spoil sport: The construction sector is h

fragmentedmainlyonaccountoflowcapitalintensityandlowentrybarriers.Withincr

inthenumberofplayersand forayofsmallerplayers intonewerandbiggerprojects

construction industry is facing cutthroat competition in the bidding process. This

pressureonthemarginwithlowquotesforgoodqualityprojects.

4. Unfavourable changes in Government Policy can create headwinds for the busin

Infrastructure development is the main agenda in 11th Plan, but any change in

governmentspolicymighthurtthetoplineaswellasbottomlineoftheJALi.e.Sectio

IA, what we saw in Budget 0708. It may even affect inflow of foreign capital into

Infrastructurecompanies.However,webelievethatthismoveisquiteunlikely.

5. Travails of Hydro Project by nature: HydroPower Projects are invariably locate

MountainousRegionsandhaveto facethedirectchallenges fromnature,suchas fu

flood,rockfalltriggeredbysnowfall/rain.

6. Slowdown inCement sector: The current prevailing slowdown in cement industry a

fearofexcesssupply(weassumetotalcapacityanddemandtobe274mnTand224m

2012)mayinsistJALtodeferorprolongcapacityadditionplangoingforward.

7. Uncertainty in real estatemarket: If the bleak situation of real estate market prol

more it may adversely affect the off take and realization rate. However JAL and JIL

presoldasubstantialpartoftotalavailablepropertiesattheprevailingmarketrate,b

marketdoesnotimprovefurtherandrealizationratecorrectmorethan30%(weassu

30%correctioninbearcase),thenourrealestatevaluationcanhaveanegativeimpact


11/26



INDUSTRYOVERVIEW

Infrastructuresectortogrowat15%CAGRin11thFiveYrplanInordertosavetheeconomyfrominfrastructurehurdlesandmaintainitsgrowthmomen

an adequate provision of infrastructure facilities has become critical. A disruptio

infrastructure facilities or unreliable services may inhibit investments in productive capit

restrictoutput.

Even

as

a

strategy

for

the

revival

of

the

Economy,

stimulus

packages

are

d

up which are now under implementation. Government is placing a major thrust on

InfrastructureSectorwhichwillbenefitJALinamajorway.

Engineering&Constructionsectortobethebiggestbeneficiaryoftheinfrastructureboom

In India,construction isthe2nd largesteconomicactivityafteragriculture.The investme

constructionaccounts fornearly14%of IndiasGDP,50%of itsGrossFixedCapitalForma

(GFCF) and nearly 65% of the total investment in infrastructure. Besides, the governm

announcements regarding the creation of a financial SPV to fund infrastructure pro

(utilizingupto5%offorexreserves),viabilitygapfunding,extensionofPPPetc.wouldpro

afurtherimpetustothissector.

The

revised

draft

of

the

Eleventh

Plan

Approach

Paper

states

that

investment

in

infrastrucdefinedasroad,rail,airandwatertransport,powergeneration,transmission,distribu

telecommunication,watersupply,irrigation,andstoragewouldhavetorisefromthecu

4.6%ofthecountry'sgrossdomesticproduct(GDP)toanestimated8.0%duringtheElev

Plan period to meet the GDP growth target of 89 %. The total investment in this sect

estimatedtobeRs6129bnin11th

fiveyearplan.

Fig 2: Infrastructure Segmental Investment Outlook

Source: Crisil

Cement

The cement industry accounts for approximately 1.2% of Gross Domestic Product (GDP)

employsover0.14millionpeople.Itisasignificantcontributortotherevenuecollectedby

thecentralandstategovernments throughexciseandsales taxes. India is thesecond la

producerofcementintheworld.InFY08,Indiaproduced161mntnofcement,accountin

6.4%ofglobalcementproductionof2.5billiontonnes.

Cement consumption has strong corelation with economic growth and industrial activit

particular,cementdemandisparticularlylinkedtoconstructionactivities.

Infrastructure sector to grow at

a CAGR of 15% in next 5 years


12/26



Table 7: Performance outlook of Cement Industry

Year FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

Capacity Installed 78.1 86.8 96.3 101.5 107.6 110.6 121.4 134.9 140.1 146.6 153.9 160 170

Capacity Utilisation 75% 74% 73% 76% 76% 85% 77% 76% 80% 80% 83% 96% 96% 1

Additon 6.9 8.7 9.5 5.2 6.1 3 10.8 13.5 5.2 6.5 7.3 6.1 10

Consumption 58.4 64.5 70 76.7 81.7 94.2 93.6 102.4 111.4 117.5 127.6 154 163

Cement growth % 7.90% 10.40% 8.50% 9.60% 6.50% 15.30% -0.60% 9.40% 8.80% 5.50% 8.60% 20.70% 5.80% 15

ource: CMA

Table 8: Expected Cement Capacity Addition for FY09E & FY10E

(000 Tonnes) FY 09E Additions FY 10E Addit

North West Central East South FY09E North West Central East South FY

ACC 3000

BiralCorpn.Ltd 1700 1700

CenturyTextileLtd 0 2000

GrasimLtd 5700 5700 4400

Guj.AmbujaCement 0 3300

IndiaCementLtd 1600

JKcement 0 3000

Jaypee

3500

2400

3000

8900

3700

2400

2200

KesoramIndustries 0 1650

MadrasCement 2000 2000 2000

OrientPaperInds 0 1000

Others 0 2500 1500

UltraTechCemCoLtd. 4900 4900 2000

Zuari 0 2200

10900 2400 3000 0 6900 23200 13600 9700 1500 4850 8800 3

ource: Systematix Institutional Research

Energy&Power

India,withoverabillionpeople,todayonlyproduces~660billionKWhofelectricityand

600million

Indians,

a

population

equal

to

the

combined

population

of

USA

and

EU,

hav

accesstoelectricity,andlimitedaccesstootherclean,modernfuelssuchasLPGandkeros

Thisconstrainedenergyaccess isreflected intherelatively lowHumanDevelopment Inde

India. Enhancing energy supply and access is therefore a key component of the nat

development strategy. However, over the past decade, gains in both poverty reduction

economic growth have been significant supported by energy growth though it has

significantlylowerthantheeconomicgrowth.

Currently India produces~660bn KWh of electricity


13/26



Table 9: Energy outlook of India and world

World India

Energy Consumption (MTOE) 10878 423 (5th largest energy consumer)

Energy Mix (%)

Coal 28.4% 56.2%

Oil 35.8% 28.4%

Natural Gas 23.7% 8.5%

Nuclear 5.8% 0.9%

Hydro 6.3% 6.0%

Oil & Gas Imports (MTOE) - 2006 3264 119

Growth in Energy (10 Yrs)

Total Primary Energy 2.3% 5.6%

Natural Gas 2.7% 9.4%

Source: Gail Presentation, BP Statistical Review of World Energy, June 2007

Indias power generation is estimated to grow at a CAGR of 12% in 11th

Five year pla

maintain its GDP growth. Besides 100,000 MW of power generation capacity is likely to

addedinthecountryoverFY07FY12ensuringanestimastedcapexof~Rs200bnforcivilw

Furthermore a target Power for all in 11th

Five year plan set by government entailing

investment

of

~Rs1000bn.

Fig 3: Projected Installed capacity in power sector

132,329

219,992

305,623

424,744

0

90,000

180,000

270,000

360,000

450,000

2007 2012 2017 2022

Capacity

(MW)

Source: Industry

Power generation is expected to

grow at a CAGR of 12% in 5

years


14/26



COMPANYIN-DEPTH

AnOverview

Jaiprakash Associates Limited (JAL), formerly known as Jaiprakash Industries Ltd (JIL)

incorporated in the year 1986. Today JAL is a well diversified infrastructure indu

conglomerateinIndia.ItoperatesinitspreferredbusinesseslikeEngineeringandConstru

(Hydro

Power

Construction),

Cement,

Hydropower

generation,

Hospitality,

Real

E

Development, Expressways and Highways. In Engineering and Construction division JA

understood as a pioneer in the construction of multipurpose river valley and hydropo

projects.JALisoneofthelargestcementproducersinCentralIndiawithaninstalledcapac

11.9 mnt. After having strong presence in hydro power, it has forayed into Thermal Po

Generation,PowerTransmissionandWindPower.Italsoownsandoperatesfour5starh

andstarGolfresortsattheCapital.

Journeyinbrief

ig 4: JALs milestone

ource: Company

SegmentalOfferings

JALprovidesdifferentsetofservicesonEngineering&Construction,Cement,andHydropo

generation,Hospitality,RealEstateDevelopment,ExpresswaysandHighways.

ig 5: JALs presence in different verticals

ource: Company

JAL is a diversified industrialconglomerate having presence in

Engineering & Construction,

Cement, Power and Real Estate.

T & D


15/26



Engineering&Construction:JALsE&Cdivisionprovidesservicestotheconstructionofrivervalleyandhydropowerpro

onturnkeybasis.Itiscurrentlyexecuting13variousprojectsinhydropower,irrigation&o

infrastructure in 6 states. Considering the immense potential present in the hydro po

generation,JALforayedintopowergenerationonBuildOwnOperate(BOO)basis.JALtill

participatedin54%newhydropowerprojectsinTenthFiveYearPlan.

Table 10: Hydropower Capacity Commissioned by JAL from FY02-FY08 (8330 mw added to the National Grid)ame of Projec Client & State/Country 2002-05 2005-06 2006-07 2007-08 2008-09 Tota

UILD-OWN-OPERATE

aspa JHPL, H.P. 300

ishnuprayag JPVL, Uttranchal 400

NGINEERING PROCUREMENT CONSTRUCTION (EPC) CONTRACTS

Chamera-II NHPC, H.P. 300

Omkareshwar NHDC, M.P. 520

aglihar JKSPDC 450

CONTRACTS WITH VARIOUS GOVERNMENT AGENCIES

ndira Sagar (Dam & Powerhouse) NHDC, M.P. 1000

athpa Jakhari (Power House, Penstocks) SJVNL, HP 1500

ul-Hasti (Dam, Powerhouse & HRT) NHPC, J&K 390

ehri (Rock-fill Dam & Spillways) THDC, Uttranchal 1000

eesta-V (Dam & Power House) NHPC, Sikkim 510

ardar Sarovar (Main Dam & PowerHouse) SSNN, Gujarat 250 1200

ala (Powerhouse & HRT) THPA, Bhutan 1020

ource: Company

Table 11: Major projects done in Engineering & Construction

Project Title Client Description

eerbhadra Barrage Uttar Pradesh Govt Built across the river Ganga for the Garhwal-Rishikesh-Chilla Hydel project.

anal Head Powerhouse (Narmada) Project in Gujarat Construction of Sardar Sarovar Concrete Gravity Dam, Underground Powerhouse & 4 Rock fill D

runk Sewer, Baghdad Turnkey construction of a sewerage network in Baghdad including 26 Pump Stations.

ource: Company

Cement

JAL is the largest cement producer in central India and 4th largest cement producer in

countrywithan installedcapacityof9.9mnt. Ithasplanstoenhancecementcapacityto

mntbyendofFY10and33mntbyendFY11.Thus, it is likely tobethe third largestcem

producer in thecountry. Itscurrentcapacitiesare locatedatRewaMP (3mnt),BelaMP

mnt),HimachalPradesh(1mnt)andrest(3.53mnt)inUP.JALhasmarketindifferentstate

UttarPradesh,MadhyaPradeshandBihar,andalsoinNorthIndia,WestIndia,WestBenga

NorthEast.Moreover,JAListhelargestexporterofclinkerandcementtoNepalandBhutan

Table 12: Cement Plants with their Installed Capacities

Places

Rewa MP

Bela MP

Sadva Khurd UP

Tanda UP

Chunar UP

Panipat Hariyana

Sidhi

Total current capacity 1

Source: Company

It is currently executing 13

various projects in hydropower /

irrigation / other infrastructure

fields in6 states.

Largest cement producer in

central India and 4th largest

cement producer in the country

with an installed capacity of 9.9

mnt


16/26



Energy(HydroPower)

JALisoneofthelargestprivatepowerproducers inthecountrywith89%marketshare.A

establishing a strong presence in the HydroPower Sector it has made an entry into The

Power Generation, Power Transmission and also forayed into Wind Power. To capitalize

vast potential opportunities in hydro power generation, JAL ventured into private po

generationonBOObasis.JALhassofardistinctlyparticipated54%ofnewhydropowerpro

in10th

FiveYearPlan.AsanindependentpowerproducerJALalongwithitssubsidiariesan

partnershas

9

BOO

projects

in

hand

out

of

which

Baspa

and

Vishnu

Prayag

have

already

commissioned,whileKarchamWangtooiscurrentlyunderexecution.

FurtherithasalsomadeapresenceinWindTurbineGeneratorwithaninstalledcapacityo

MW(40.25MWinMaharashtraand8.75WMinGujarat).Theelectricitygeneratedbeing

toMSEDCinMaharashtraandinGujarattoGUVNL.

Table 13: A snapshot of JALs commissioned power plant

Project Title Client Description

aspa Hydroelectric Project 300mw Govt of Himachal Pradesh India's Largest Private Sector Hydro-Power Project on BOO basis was commissioned on June 2003 at a projec

of Rs 16247 mn and has since been generating power.

shnu Prayag Hydroelectric Project 400 mw Govt of Uttarakhand It is a BOO project commissioned in Oct 06, located across the Alaknanda, has an underground power station.

project cost is Rs316940mnource: Company

RealEstate

YamunaExpresswayProject

JALhasbeenawardedYamunaExpresswaysprojectonBOTbasislastyear.YamunaExpres

with a length of 165 km, 6 lane super expressway between Noida and Agra is estimate

outlayofRs.60bn.Theconcessionperiodfortheprojectisfor36years.Alongwiththis,Ja

InfratechLtdhas received 6250acresof land (272mnsq ft) indifferent locations likeN

Agraandlandalongtheexpresswaytodevelopresidential/industrial/institutionalpurposes

Table14:Locationwiselandforrealestatedevelopment

Locations Area (acres)Noida 1250

Dhankaur 1250

Mirzapur 1250

Tappal 1250

Agra 1250

Source: CompanyGangaExpresswayProject

This is the largest privatesector infrastructureBOT project in India awarded to JAL lasty

This is 1047 Km expressway in UP along the left bank of the river Ganga connecting Gre

NoidatoBallia.TheestimatedcostfortheprojectisRs.600bnwhiletheconcessionperiod

years.

Following the Yamuna Expressway model JALs 100% owned subsidiary Jaypee Ganga I

Corp. Ltd has got the right to develop of an estimated 30000 acres of land along

Expressway. JAL has given us to understand that the total real estate developable ar

translatedto3.3bnsqftafterconsideringtheFSIof1.5.Moreoveraround18000acresof

lies in Etah, which is 160 km away from Delhi. Etah is considered as one of the prem

locationsinUP.

JAL has so far distinctly

participated 54% of new

hydropower projects in 10th Five

Year Plan


17/26



JaypeeGreen

JALhasdiversifieditsinterestinthedevelopmentofrealestatewithadifferentkindofpas

ThemainideawastogivetheresidentsafeelofresortlivingattheJaypeeGreensreside

community. Jaypee Greens Greater Noida was Indias First Golf Centric integrated town

spread450plusacresoflandcomprisingone18holeandtwo9holegolffacility.Itcatersto

highend consumers and also to the mid segment of the society with various facility

commercial complex, medical facilities, educational facilities that range from Kindergarde

Preuniversity

levels,

host

of

recreational

facilities

like

social

clubs,

entertainment

zone

etc.

Hospitality

JALownsandoperatesfour5starhotels,2inthenationalcapital,NewDelhiandoneea

AgraandMussorrieandalsoafivestarGolfresortatGreaterNoida,withatotalcapacityof

rooms.

Table 15: Jaypee Hotel Ltd

Jaypee Hotel Ltd Room Available (Inventory) Avg Room Rate per day Occupancy ra

Hotel Siddharth, Delhi 99 9000 82

Hotel Basant, Delhi 120 8500 80

Hotel Jaypee Palace, Agra 350 9500 82

Jaypee Residency Manor, Agra 180 8500 80

Source: Company

PowerTransmissionJaypeePowergridLtd(JPL)

JPL a JV (51:23:24) between Jaiprakash Hydro Power ltd (51%), JPVL (23%) and Powe

Corporationof IndiaLtd (26%) issettingupaTransmissionLineforevacuationofpower

the Karcham Wangtooproject. Central Electricity Regulatory Commission has already gra

TransmissionLicensetotheentity.Theproposedtransmission lineof234kmwillbea4

interstate line connecting Jaiprakash Power Ventures Ltd's Karcham Wangtoo project to

400/200kVsubstationofPGCILatAbdullapur inYamunaNagardistrictofHaryana.Powe

besuppliedtoHimachalPradesh,Haryana,Punjab,UttarPradeshandRajasthan.

Ironand

Steel

(Malvika

Steels

Ltd.)

JALhastakenpossessionoftheassetsofMalvikaSteelsLimitedatJagdishpurinUPwitha

of Rs.2070mn, which was put up for sale through an open auction by the Debt Reco

Tribunal(DRT).ThisacquisitionandrevivaloftheSteelPlantwouldbeastepinthedirectio

backwardintegration.JALhaschalkedoutaplantocommissiona5.5lakhtonneperannum

iron facility at Jagdishpur by March 2009 with an additional investment of Rs.12bn

productionoflongswouldbeginbyMarch2010.

WindPowerPlant

JALhasfullycommissioneditsWindTurbineGeneratorswithanaggregatecapacityof49

(40.25MWinMaharashtraand8.75MWinGujarat)asonMarch2008withacostofRs.2

Outof

the

total

installed

capacity

of

49

MW,

16.25

MW

(13

Generators,

each

with

a

capaci

1.25MW)wascommissionedatDhule,MaharashtraduringDecember2006toMarch2007

remaining32.75MWwascommissionedatSangli,Maharashtra(24MW 16Generators,

withacapacityof1.5MW)duringSeptember2007toMarch2008andatKutch,Gujarat

MW 7Generators,eachwithacapacityof1.25MW)inMarch2008.Theelectricitygener

is being sold to Maharashtra State Electricity Distribution Company Ltd. in Maharashtra

GujaratUrjaVikasNigamLimitedinGujarat.


18/26



OilandNaturalGas

JALrecentlyentered intooilandnaturalgasbusinessbypickingupa45%stakeheldby

Bank and ICICI Ventures in Prize Petroleum Corporation Ltd, a subsidiary of Hindu

PetroleumCorporation.TheGoIhasawardedtheSouthRevaBasininMPwithanapproxim

area of 13,000 sq Km for exploration and development of onshore OilGas Block to

consortium of JAL and Prize Petroleum Corporation Ltd (PPCL). JAL has 90% stake in th

whilePPCLishaving10%.PPCLenjoysavastexperienceinthefieldofOilandGasexplora

andwill

act

as

the

Operator.

Fig 6: Corporate Structure of JAL

Source: Company


19/26



Table 16: JALs subsidiaries with their respective business activities

Subsidiaries Business activities

aiprakash Hydro-Power Ltd (63.34%) 300 MW Baspa Power Station

aiprakash Power Ventures Ltd (80.56%) 400 MW Vishnuprayag Power Station

aypee Karcham Hydro Corporation Ltd (100%) Karcham Wangtoo Hydro-electric Project (1000 MW)

aypee Powergrid Ltd (74%) JV between Jaiprakash Hydro-Power Ltd and Powergrid Corporation of India Limited is setting up the Transmis

Line for evacuation of Power from the Karcham Wangtoo Project.

Madhya Pradesh Jaypee Minerals Ltd (70%) MPJML, a JV with Madhya Pradesh State Mining Corporation Limited (MPSMCL), to develop and mine coal fro

Coal Block at Amelia (North) in M.P.

aypee Infratech Ltd (98.96%) w.e.f. 05.04.2007 A wholly owned subsidiary for implementation of 160 km long 6-lane Taj Expressway Project BOOT basis.

hilai Jaypee Cement Ltd (74%) w.e.f. 11.04.2007 BJCL,a Joint Venture between the Company and Steel Authority of India Ltd. (SAIL) to set up a 2.2 million tonn

annum capacity, located at Bhilai in Chattisgarh and at Babupur, Satna in Madhya Pradesh.

imalyan Expressway Ltd (100%) w.e.f. 25.05.2007 Zirakpur- Parwanoo Road Project in the States of Punjab, Haryana and Himachal Pradesh on BOT basis under

NHDP Phase-IIIA

ujarat Jaypee Cement & Infrastructure Ltd (100%)

w.e.f. 26.12.07 Agreement with Gujarat Mineral Development Corporation Limited (GMDCL) to set up 2.4 mn tones pa Cement

manufacturing plant with captive power station and captive Jetty in Kutch Distt. of Gujarat.

PSK Sports Pvt Ltd (61.70%a) w.e.f. 07.03.2008 for developing a Greenfield state-of-the-art Sports Complex including Car Race track suitable for Formula One r

with related integrated support infrastructure including Township(s) and auxiliary facilities

okaro Jaypee Cement Ltd (74%a) w.e.f. 13.03.2008 The second JV between the Company and SAIL with management to set up a 2.1 mn tone pa capacity Cement

at Bokaro in Jharkhand.

aypee Ganga Infrastructure Corp Ltd (100%) w.e.f. 18.03.2008 Connects Greater Noida with Ghazipur- Ballia, Ganga Expressway Project.

ource: Company

EquityHistory

Table 17: Equity Outlook

Date Reason Equity Capital (

3/31/1999 As per Annual Report 67

9/30/2000 Private Placement 200

3/31/2002 Equity Share Issued 209

FY05 Share Issued on Amalgamation 88

FY06 Bond Conversion 95



FY09 till date Bond & Warrant Conversion 118

FY09E Share Issued on Amalgamation &

Warrant Conversion (40 mn) 144

FY10E Bond Conversion (FCCB) 150



20/26



RecentAmalgamation

JAL has approved the amalgamation of Jaypee Cement Ltd (JCL), Gujarat Anjan Cemen

(GACL),JaypeeHotelsLtd(JHL)andJaiprakashEnterprisesLtd(JEL))withJaiprakashAssoc

Ltd,witheffectfromApril01,2008.Thisamalgamationisbasicallydonetogetthesynerg

itself as the crossholding of companies shares will be transferred to a trust. The benef

sharesheldinthetrustshallaccruetoJaiprakashAssociatesLtd.

Benefitsof

post

amalgamation

Mergerwillbringcementbusinessunderoneroof.

Thiswillhelpcompanyeffectivelydealwithdemandsupplymismatchindifferentregion

Movewillhelpcompanyavoiddividenddistributiontax.

IncreaseinequitybasewillresolvethefundingissueofJALtoacertainextent.

Table 18: Post amalgamation Shares Issuances and Treasury Stock

O/s Equity (mn) Current Current Shares Held Swap ratio Shares Issuance Treasury Stock Post Amalgam

(mn) Ownership by JAL (mn) (mn) (

AL 1183.5 1223.5 11

CL 506 100% 506 1:10 51 51

GACL 350 95% 333 1:11 32 30

HL 55.5 72% 40 1:1 55 40

EL 26.7 0% 0 3:1 80 80

218 201

ource: Company, Systematix Institutional Research

Table 19: JALs shareholding post amalgamation

mn) Pre Amalgamation % Shareholding Post Amalgamation % Shareho

Promoters 536 45% 536 3

rust 0 0% 201 1

Public 648 55% 665 4

1184 100% 1402 10

ource: Company, Systematix Institutional Research


21/26



EARNINGSOUTLOOK&FINANCIALSStandalonerevenuetogrowataCAGRof~36.7%overFY810E

JALsstandalonerevenueisestimatedtogrowataCAGRof~36.7%overFY08FY10Emain

account of substantial contribution from Cement and Construction segment. Cement

Constructionrevenue isestimatedtogrowataCAGRof~26.8%and~39.2%respectively

FY08FY10E.

Table 20: Sales Growth- heading to a northward journey

Sales FY06 FY07 FY08E FY09E FY

Cement Sales (Net) 12,206.3 18,185.1 19,023.9 24,135.3 30,5

% net sales 36.7% 52.3% 47.7% 43.7% 4

% yoy growth 49.0% 4.6% 26.9% 2

Construction Revenue 19,206.7 16,107.2 17,301.9 25,432.5 33,5

% net sales 57.8% 46.3% 43.4% 46.1% 4

% yoy growth -16.1% 7.4% 47.0% 3

Real Estate Revenue - - 2,558.3 2,936.5 5,8

% net sales 0.0% 0.0% 6.4% 5.3%

Hotel / Hospitality Revenue 1,832.1 293.5 305.8 1,877.3 3,6

% net sales 5.5% 0.8% 0.8% 3.4%

% yoy growth -84.0% 4.2% 513.9% 9

Power - 64.6 181.1 300.5 3

% net sales 0.0% 0.2% 0.5% 0.5%

% yoy growth 180.3% 65.9%


EBIDTAmarginandnetmargintodecline

Weexpecttheoperatingmargintoseeadeclinemainlyonaccountofmargincontraction

cement business along with the increase in direct construction cost. EBIDTA margins

expectedtodeclinefrom27.5%inFY08to~26.0%inFY10(adeclineof150bps).Further

netprofitisexpectedtogrowataCAGRof~24.3%overFY08FY10E,butnetmarginislike

decline

from~15.3%

in

FY08

to

12.6%

in

FY10E

(a

decline

of

270

bps)

mainly

on

accou

higher interestcostandtaxexpenditures (weassumed full tax rate).Weassumed reale

prices to decline almost by ~25 by FY10. However JALs has presold a substantial part o

JaypeeGreenpropertyathigherprevailingrate,sowedonotexpectitsrealestatemargint

beaffectedattheinitialyearsofrevenuerecognition.

Fig 7: EBIDTA margin outlook Fig 8: Net margin outlook


JALs standalone revenue is

estimated to grow at a CAGR of

~36.7% over FY08-FY10E


22/26



DebtEquitystilltoprovideleveragingopportunity

DebtEquityratiothatmeritsattentiontomostofthelendersinpresentscenarioisquitebe

forJALwhichstandsat1.5xtimesinthecurrentyear.WeexpectJALshouldnothaveanyis

toraiseloanstofunditsupcomingprojectsoncelendingscenarioimproves.

Fig 9: Debt / Equity scenario


We expect JAL should not have

any issues to raise loans to funds

its upcoming projects once

lending scenario improves


23/26



9M&Q3FY09STANDALONERESULTSANALYSIS Jaiprakash AssociatesLtd. (JAL)has reporteda standalone toplinegrowthof~46

Rs.13806.3mn on yoy basis mainly because of its brisk execution in constru

activities(constructionsegmentrevenuepostedagrowthof71%onyoybasis).

OperatingprofithasgrownfromRs.2659.1mntoRs.3062.0mninQ3FY09onyoy

(a growth of 15.2%), while EBIDTA margin has significantly decline from 29.6

Q3FY08to

23.2%

in

Q3FY09.

This

is

on

account

of

significant

jump

in

Employee

andDirectManufacturingCost.

Whereason9monthsbasisEBIDTAmarginstandsat28.6%(adeclineof130bp

yoy basis), which is mainly on account of the strong operating margin poste

constructionsegment inpreviousquarters(Constructionsegmenthadpostedan

marginof31.2%).

Net Profit has grown marginally by 6.2% on yoy basis at Rs.1655.1mn, whereas

margindeclinedby480bpsat12.5% inQ3FY09.Whileon9monthsbasisnetm

standsat13.6%.

EarningPerShare(Basic)ofJALhasnetseenanygrowthandstandsatRs.1.41,whe

in9MonthsbasisEPS(Basic)haspostedagrowthof~18%atRs.4.22onyoybasis.

CementsegmentsEBIThaspostedadegrowthof7%,whileConstructionsegment

hasgrownby~42%onyoybasis.

Real Estate segment have been the prominent performer for the quarter w

maintained an EBIT margin of ~41% for the quarter, while the EBIT stand

Rs.272.3mn,whichis~11%oftotalEBITreportedbyJAL.

Table 21: 9M & Q3FY09 result

Rs in mn) Q3FY09 Q3FY08 % yoy growth 9MFY09 9MFY08 % yoy gr

Net Sales 13216.9 8997.9 46.9% 36530 27047.1 3

Other Operating Income 589.4 430.9 36.8% 1372.7 1113.9 2

otal Income 13806.3 9428.8 46.4% 37902.7 28161.0 3

Expenditures

ncrease) / Decrease in WIP 16.8 -247 -106.8% -126.2 -86.1 4

Dicrect Const., Mfg, Hotel/Hospitality

nd power Expenses 7548.2 4969.2 51.9% 19690.1 13637.1 4

Employee Cost 1226.7 570.8 114.9% 2648.7 1870.6 4

Other Expenditures 1952.6 1476.7 32.2% 5244.1 4642 1

otal Expenditures 10744.3 6769.7 58.7% 27456.7 20063.6 3

EBIDTA 3062.0 2659.1 15.2% 10446.0 8097.4 2

EBIDTA margin (%) 23.2% 29.6% 28.6% 29.9%

Depreciation 646.1 511 26.4% 1934.3 1422.5 3

EBIT 2415.9 2148.1 12.5% 8511.7 6674.9 2

EBIT margin (%) 18.3% 23.9% 23.3% 24.7%

nterest 991.7 787.9 25.9% 2983.5 2418 2

Other Income 664.9 586.9 13.3% 1316 1122.6 1

PBT 2089.1 1947.1 7.3% 6844.2 5379.5 2

ax 434 389 11.6% 1885.2 1386.9 3

% Tax 20.8% 20.0% 27.5% 25.8%

PAT 1655.1 1558.1 6.2% 4959.0 3992.6 2

Net Margin (%) 12.5% 17.3% 13.6% 14.8%

EPS (Basic) 1.41 1.4 0.7% 4.22 3.59 1

EPS (Diluted) 1.29 1.36 -5.1% 3.88 3.49 1

ource: Company


24/26



Table 22: Segmental revenue break up

Q3FY09 Q3FY08 % yoy growth 9MFY09 9MFY08 % yoy gr

Cement 5773.3 5003.9 15.4% 16809.4 14738.7 1

Construction 7517 4403.2 70.7% 19346.6 13200.3 4

Wind Power 36.6 10.1 262.4% 236.7 75.9 21

Hotel/Hospitality 73.1 84.6 -13.6% 225 249.3 -

Real Estate 664.3 0 1677 0

nvestments 664.9 586.9 13.3% 1316 1122.6 1

Unallocated 71.3 148.5 -52.0% 415.1 536 -2

otal 14135.6 9650.3 46.5% 38709.8 28800.2 3

ess : Inter-Segment Revenue 329.3 221.5 48.7% 807.1 639.2 2

otal Income 13806.3 9428.8 46.4% 37902.7 28161 3

ource: Company

Table 23: Segmental EBIT margin

Q3FY09 Q3FY08 % yoy growth 9MFY09 9MFY08 % yoy gr

Cement 1551.6 1658.8 -6.5% 4662.6 4822.7 -

Margin 26.9% 33.2% 27.7% 32.7%

Construction 919.4 648.2 41.8% 4077 2369.1 7

Margin 12.2% 14.7% 21.1% 17.9%

Wind Power 20.9 1.6 1206.3% 149.3 43.8 24

Margin 57.1% 15.8% 63.1% 57.7%

Hotel/Hospitality 12.8 11.1 15.3% 24.3 29.4 -1

Margin 17.5% 13.1% 10.8% 11.8%

Real Estate 272.3 0 644.8 0

Margin 41.0% 38.4%

nvestments 664.9 586.9 13.3% 1316 1122.6 1

Margin 100.0% 100.0% 100.0%

ource: Company


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FINANCIALDETAILSProfit & Loss

Statement (Rs mn) FY06 FY07 FY08 FY09E FY10E

Net Sales 33,245.1 34,779.2 39,851.1 55,186.4 74,487.2

% yoy growth 5% 15% 38% 35%

Total Cost 25,301.2 25,352.4 28,881.0 41,247.3 55,107.1

EBIDTA 7,943.9 9,426.8 10,970.1 13,939.0 19,380.1EBIDTA Margin (%) 23.9% 27.1% 27.5% 25.3% 26.0%

Depreciation 1,514.6 1,630.5 2,033.0 2,852.6 3,389.8

Interest 2,397.4 2,572.5 3,391.4 4,181.1 5,476.4

Other Income - 975.3 2,887.8 2,809.5 3,774.6

PBTA 4,031.9 6,199.1 8,433.5 9,714.8 14,288.4

Amortization of Tools - - - - -

PBT 4,031.9 6,199.1 8,433.5 9,714.8 14,288.4

Profit on sale of shares of JHPL 3,613.7 - - - -

Tax 1,245.7 2,050.1 2,336.8 2,868.6 4,868.2

% Tax 30.9% 33.1% 27.7% 29.5% 34.1%

Net Profit 6,399.9 4,149.0 6,096.7 6,846.2 9,420.3

YoY Growth (%) -35% 47% 12% 38%Net Profit Margin (%) 19.3% 11.9% 15.3% 12.4% 12.6%

Balance Sheet (Rs mn) FY06 FY07 FY08 FY09E FY

Share Capital 2,150.6 2,192.4 2,343.0 2,802.9 2,80

Reserves & Surplus 24,671.4 26,537.1 39,652.0 65,910.8 73,38

Equity Warrants Upfront Payment - - 3,985.0 -

Total Shareholder's funds 26,822.0 28,729.5 45,980.0 68,713.7 76,1

Secured Loans 27,213.8 36,859.5 46,403.0 65,874.9 69,87Unsecured Loans 14,984.0 18,071.6 36,652.8 38,652.8 39,65

Total Debt 42,197.8 54,931.1 83,055.8 104,527.7 109,5

Deferred Tax Liability 4,901.8 4,994.3 5,711.5 6,531.7 7,46

TOTAL LIAB ILITIES 73,921.6 88,654.9 134,747.3 179,773.0 193,1

Gross Block 36,637.6 42,019.3 51,662.4 82,564.8 90,4

Less: Accumulated

Depreciation 11,960.9 12,799.7 14,547.3 17,399.9 20,7

Net Block 24,676.7 29,219.6 37,115.1 65,164.9 69,6

CWIP 8,760.6 21,862.0 42,190.1 54,847.1 60,33

Investments 15,570.4 17,787.4 32,248.3 27,823.6 27,8

Deferred Tax Asset 69.8 93.2 114.9 200.0 22

Inventories 6,013.3 8,061.6 9,813.0 13,701.6 18,4

Sundry Debtors 4,223.8 4,520.5 5,861.8 8,435.5 11,34

Cash & Bank 16,698.0 14,298.1 18,154.4 22,440.9 20,14

Loans & Advances 9,117.9 10,985.0 22,219.4 25,030.1 26,68

Other Current Assets 34.0 125.3 319.0 330.0 35

Projects under development 6,111.3 5,004.0 3,261.7 3,597.4 3,98

Total Current Assets 42,198.3 42,994.5 59,629.3 73,535.5 80,9

Current Liablities 15,368.8 20,262.4 33,490.9 38,339.6 42,2

Provisions 1,990.3 3,040.7 3,060.5 3,459.5 3,56

Net Current Assets 24,839.2 19,691.4 23,077.9 31,736.5 35,1

Miscellaneous Expenditures 5.1 1.4 1.0 1.0

TOTAL ASSETS 73,921.8 88,655.0 134,747.3 179,773.0 193,1

ash Flow Statemen t (Rs mn) FY06 FY07 FY08 FY09E FY10E

PBT 4,031.9 6,199.1 8,433.5 9,714.8 14,288.4

Depreciation / Amortisation 1,548.6 1,664.3 2,072.7 2,852.6 3,389.8

Increase in Borrowings 2,397.4 2,572.5 3,391.4 4,181.1 5,476.4

Loss on sale of Fixed Assets 163.1 176.4 171.8 - -

Others (1,592.3) (947.4) (2,683.2) (3,990.2) (6,464.2)

Cash before working capital

changes 6,548.7 9,664.9 11,386.2 12,758.3 16,690.5

Increase/(Decrease) in WC (2,351.6) 103.8 332.0 (4,771.1) (5,799.3)

Cashflow from operations 4,197.1 9,768.7 11,718.2 7,987.3 10,891.1

Direct Tax Paid (1,240.1) (1,981.1) (1,641.3) (2,043.0) (3,692.1)

FBT paid - - - - -

Net Cash used in Operating

Activities 2,957.0 7,787.6 10,076.9 5,944.3 7,199.0

Capital expenditure (6,920.7) (19,586.1) (30,701.3) (40,657.0) (10,484.7)

Other Investing activities 4,539.5 (1,172.1) (11,551.4) 7,234.2 3,774.6

Cashflow from investing (2,381.2) (20,758.2) (42,252.7) (33,422.8) (6,710.2)

Increase in capital 139.6 41.8 150.6 459.8 -Increase in Security Premium 3,160.4 946.4 8,366.8 - -

Increase in borrowings 20,328.9 25,094.2 45,505.0 21,471.9 5,000.0

Repayment of Borrowings (11,561.7) (12,167.1) (17,380.4) (4,067.2) (306.5)

Other financing activities (3,269.7) (3,344.6) (609.9) 13,900.5 (7,480.0)

Cashflow from financing 8,797.5 10,570.7 36,032.1 31,765.0 (2,786.5)

Increase/(Decrease) in cash 9,425.7 (2,399.9) 3,856.3 4,286.5 (2,297.6)

Valuat ion Ratio FY06 FY07 FY08 FY09E FY10

P/E 11.1 17.4 12.7 13.5 9

P/CEPS 9.0 6.8 4.7 4.8

P/BV 0.5 1.4 1.2 1 0

EV/EBIDTA 3.0 6 5.1 3.5 1

EV/Sales 0.7 0.8 0.8 0.5 0

DPS 2.70 3.60 0.98 0.96 1.2

Average shares (mn) 215 219 1172 1401 140

Market cap (Rs mn) 14,194 14,470 77,320 92,495 92,49

Enterprise value (Rs mn) 24,123 37,315 109,974 146,758 154,05

Ratio Anlays is FY06 FY07 FY08 FY09E FY1

Basic EPS (Rs) 6.0 3.8 5.2 4.9

Adjusted EPS (Rs) 5.9 3.7 5.0 4.5

CEPS (RS) 7.4 5.3 6.9 6.9

BV (RS) 124.7 131.0 39.2 49.0 5

Sales growth % 4.61% 14.58% 38.48% 34.9

EPS growth % -36.41% 37.50% -6.13% 37.6

EBIDTA margin % 23.9% 27.1% 27.5% 25.3% 26

PAT margin % 19.3% 11.9% 15.3% 12.4% 12

ROE 20.8% 17.6% 16.3% 11.9% 13

ROCE 13.2% 12.7% 10.6% 8.8% 10

Debt:Equity (x) 1.6 1.9 1.8 1.5


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R. Ganesh Director & CEO +91-22-3029 8250 [email protected]

quity Sales

harmila Joshi VP Sales +91-22-3029 8254 [email protected]

ikhil Khandelwal VP Sales +91-22-3029 8263 [email protected]

Ronak Maniar Senior Manager +91-22-3029 8251 [email protected]

quity Research Telephone: + 91-22- 3029 8000

ANALYST SECTOR ALLOCATION DIRECT NOS. E-MAIL

ric Martins Sr. Research Analyst - Metals, Shipping & Logistics, Pipes + 91-22- 3029 8253 [email protected]

bhinav Khandelwal Sr. Research Analyst - Engineering, Offshore Services + 91-22- 3029 8261 [email protected]

yoti Khatri Sr. Research Analyst - Banking + 91-22- 3029 8187 [email protected]

Rabindra Nath Nayak Sr. Research Analyst - Power, Gas Utilities + 91-22- 3029 8260 [email protected]

Madhu Babu Sr. Research Analyst - IT, Telecom + 91-22- 3029 8258 [email protected]

inod Modi Research Analyst - Cement, Construction & Real Estate + 91-22- 3029 8264 [email protected]

avita Rawat Research Analyst - Hotels, Retail, FMCG + 91-22- 3029 8259 [email protected]

arrichay Goel Research Analyst - Auto & Auto Ancillaries + 91-22- 3029 8292 [email protected]

Rohit Jain Research Analyst - Metals, Pipes + 91-22- 3029 8269 [email protected] Birla Research Associate - Capital Goods, Agri + 91-22- 3029 8275 [email protected]

tul Pandit Research Associate - Large Caps + 91-22- 3029 8256 [email protected]

asanth Patil Research Associate - Cement, Real Estate, Infrastructure + 91-22- 3029 8183 [email protected]

Derivatives

Raghvendra Kedia VP Sales (Derivatives) +91-22-3029 8091 [email protected]

haurya Chandra Sr. Derivative Analyst + 91-22- 3029 8186 shauryac @systematixshares.com

Manoj Murlidharan Derivative Analyst + 91-22- 3029 8272 [email protected]

Dealing

inod Bhuwad Asst. Manager + 91-22- 3029 8267 [email protected]

neha Kamat Dealer + 91-22- 3029 8268 [email protected]

ilesh Thakkar Derivative Dealer + 91-22- 3029 8184 [email protected]

ayan Narnoli Derivatives Dealer + 91-22- 3029 8180 [email protected]

Stock RatingsBUY (B) The stock's total return is expected to exceed 20% over the next 12 months.ACCUMULATE (A) The stock's total return is expected to be within 10-20% over the next 12 months.REDUCE (R) The stock's total return is expected to be within0-10% over the next 12 months.SELL (S) The stock's is expected to give negative returns over the next 12 months.NOT RATED (NR) The analyst has no recommendation onthe stock under review.

Industry ViewsATTRACTIVE (AT) Fundamentals /Valuations of the sector is expected to be attractive over the next 12-18 months.NEUTRAL NL Fundamentals /Valuations of the sector are ex ected to neither im rove nor deteriorate over the next 12-18 months.

ANALYST DISCLAIMER

This document has been prepared by Systematix Shares & Stocks (I) Ltd. This report is the personal information of the authorized recipient and does not construe to be any investment, letaxation advice to you. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.

We, at Systematix Shares & Stocks (I) Ltd., have prepared this report based on the data we consider reliable, but we do not vouch it to be accurate or complete, and it may not be relied upsuch. Systematix Shares & Stocks (I) Ltd does not in any way be responsible for any loss or damage that may arise to any person due to the content in the report. Each recipient of this docshould make an independent valuation of their own in the securities referred to in this report.

Besides, the data in this document is subject to change without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privmaterial and is not for any type of circulation. Any review, retransmission, or any other use of the report and the content within, is prohibited.

SYSTEMATIX SHARES & STOCKS (I) LTD.

Disclosure of Interest1. The analysts who have prepared the report have in no way received or are expected to receive any compensation from the subject company.2. The analysts do not hold any position in the subject companys stock, as on the date of release.3. Neither the company nor an affiliate company of Systematix Shares & Stocks (I) Ltd. has received a mandate from the subject company.4. Systematix Shares & Stocks (I) Ltd., or its affiliates do not hold any paid up capital in the company

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jaiprakash associates ltd _initiating coverage (feb'09)

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