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Jaypee Infratech – Should You Subscribe ?

April 30, 2010

JP Associates Group Company Jaypee Infratech is open for subscription in $500 mn IPO. JP Associates is the ~100% Promoter of Jaypee Infratech. The company holds the concession from the Yamuna Expressway Industrial Development Authority (YEA) to develop, operate and maintain the Yamuna Expressway in Uttar Pradesh, connecting Noida and Agra (165km). The concession also provides for the right to develop 25 million square metre (approximately 6,175 acres) of land along the Yamuna Expressway at five locations for residential, commercial, amusement, industrial and institutional purposes.

The Yammuna Expressway is expected to be complete by 2011 (ahead of schedule of April 2013) and has Toll Collection Rights for the next 36 years. Apart from this the company is involved in Building World Class Real Estate Development Spread over 5 Lots each of 1,235 Acres involvin a CAPEX of INR 10,000 Cr.

Key Strengths:

  • The Management under its founder Shri. Jaiprakash Gaur is extremely Strong and this is evident from the fact that they subscribed to the Preferential Allotment of JP Associates at a whopping Rs 397 while the market price was mere Rs 87.
  • JP Group’s expertise in executing Large Infrastructure projects is a big plus
  • Unique Business Model – Tool Revenues + Real Estate Revenues
  • Single State Location for Entire Expressway
  • With Regional Growth Prospects of NCR rising year after year, JP Group will benefit the most unveiling a whole new living experience in modern infrastructure

Key Concerns

  • Long Gestation Period
  • Government of Uttar Pradesh Policies 🙂
  • Traffic Lower than forecast and competition by other nearby roads

Current IPO Details:

Current Equity Shares – 122.6 Cr of FV Rs 10
Fully Diluted Equity – 122.6 Cr + 16.2 Cr Fresh Shares = 138.8 Cr Equity Shares of Rs 10 FV
Price Band – Rs 102 – Rs 117
Retail Discount at 5% applicable after the IPO. However, invest taking into account CUT-OFF i.e Rs 117
Jaypee Infratech Financial:
PAT for FY 2009 – Rs 266 Cr
PAT for FY 2010 [9M] – Rs 399 Cr – Annualizing the same, expect it to be Rs 532 Cr
EPS after the IPO for FY 2010 is expected to be – Rs 3.8
Note that Cash generation from Operations is still NEGATIVE. However, Valuation Model for Jaypee is not purely on DCF or P/E, but rather Sum of the Parts is the best fit.

According, to various brokerages, the Sum of the Parts Valuation of Jaypee Infratech ranges from Rs 99 to Rs 125, quite reasonable in our view. WE Recommend Investment in the Issue only from Medium to Long Term Perspective. Jaypee Infra has attracted Maximum Bids at Lower Range, so there is a scope of making ~ Rs 10 / Share on Listing, if the management allots at the lower end of the price band.

Expected Date of Allotment – May -19th and Expected Refund Date – 20th May.

Comments

One Response to “Jaypee Infratech – Should You Subscribe ?”

  1. Abhishek on May 5th, 2010 11:26 AM

    Jaypee Infratech despite hiring 9 investment banks to sell its IPO just managed to get 1.2 times subscription . Moreover this was done at the lower end of the band . . Jaypee because the opacity and subjectivity in valuation of these real estate companies is too high. You should expect a huge discount due to this uncertainity which investors were not getting in this IPO

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