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Buy Jaiprakash Associates – Kotak

April 22, 2008

Jaiprakash Associates [JA] is a play on India’s Infrastructure sector. JA derives its value from combination of Construction and Development. Kotak sec has initiated coverage on JP Associates with a BUY recommendation.

JA will emerge as a leading developer of Real Estate and Power generation. The company has the expertise to bag mega projects. JA has the right to develop 6,250 acres of land on the Taj Expressway corridor.

Kotak estimates JA’s revenues to grow at a CAGR of 35% between FY-08 and FY12 mainly catalyzed by – Increased sales of cements after adding capacities, Development of Real Estate and expressway projects. Power generation is likely to see a sharp increase from FY11. JP Associates has also bagged the popular Ganga Expressway project which is not being considered in the current valuation because the project is still in nascent stage.

SOTP Valuation of Jaiprakash Associates:
Cement Business – Rs 58 / share
Construction – Rs 37 / share
Real Estate – Rs 127 / share
Power – Rs 92 / share
Hotels – Rs 4 / share
Net Debt – (- Rs 39 / share)

Total Rs 279 / share. The company is expected to report an EPS of Rs 9.1 for FY09 and Rs 14.7 for FY10. It will also hit the Rs 10,000 crore sales mark in FY10. Kotak recommends a BUY with a price target of Rs 280.

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