Jaiprakash Associates - Asset value play

[chetan]

Kim Eng in its report initiates a BUY on Jaiprakash Associates with the following justification

Our target PER for construction business is 20x FY10F (in line with peers). The construction operation is valued at Rs67/sh. This year, earnings for construction should rise 40%, supported by the Rs145bn backlog (3.5x FY10F construction revenue). Contracts are secured with 90% of work covered by price-escalation clauses.

Cement capacity should increase 65% to 24m tones by end-FY10. We value JPA’s cement operations at an EV/Ton of US$91 (Rs78/sh). This is 25% lower than the average EV/Ton of India’s 3 largest cement manufacturers.

This year and next, JPA will invest Rs35bn in its power business. In 2011, the company will complete 2 projects with capacity of 1.5k MW, which is being funded through internal CF and new debt. The company may also sell new shares in its power subsidiary in order to fund ongoing CAPEX. We value JPA’s power unit using a EV/MW of Rs70m, which in line with peer, NHPC Ltd (NHPC).

Finally, JP Associates TP of Rs352 does not reflect potential upside from either the property development business or value from major expansion of cement and power operations. In conservatively valuing JPA’s cement, construction, and power businesses, we discount the units by 30% to the market values of peers. If JPA’s 4 major businesses were listed separately, they would be worth Rs505/sh (based on peer valuations).

[chetan]

This is what Citi says in its research,

Our Rs264 target price for JPA is based on a sum-of-the-parts valuation, specifically: 1) The construction business is valued using FY11E EV/EBITDA of 9x; 2) Cement capacity is valued at US$90/ton, in line with sector averages; 3) JHPL is valued at a 35% discount to the current market price; 4) Stake in Karcham Wangtoo is valued using a DCF as of Mar10; 5) Jaypee Greens is valued using a DCF as of Mar10; 5) Hotels are valued at FY11E EV/EBITDA of 8x; and 6) Treasury shares are included at the current market price

They take into consideration every business the company owns for calculating the stock price based on sum of parts.

BOFA-Merrill values the company at Rs 300 / share as follows,

Infrastructure including real estate 157
Power 108
Cement 67
Hotels 4
Projects ongoing 13
Treasury stock 26
Net Debt -77
Sum of parts = 298 ~ 300 / share