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Jaiprakash Associates Stock Revaluation

October 19, 2007

Morgan Stanley has taken the lead to re-rate JP Associates shedding the conservative valuations it enjoyed. They have changed 12 month target price to Rs 1,461 and earnings estimate for FY08 and FY09 are Rs 22.7 and Rs 29.2.

The company reported F2Q08 results in line with estimates, with revenue and net profit growing 11% and 16%, respectively, led mainly by the cement business. Expect construction and real estate to pick up the growth mantle as cement starts to struggle in F2009 . Also incorporated a 7.4% dilution due to the conversion of the second tranche of FCCBs (euro-denominated) issued by Jaiprakash, which results in our EPS numbers for F2008 and F2009 moving up by only 9.1% and 1.8%, respectively, despite increases in net profit forecasts of 12.9% and 9.1%

Sum of Parts Valuation of JP Associates,

  • Construction Business – Rs 395
  • Cement – Rs 435
  • Power – Rs 197
  • Hotels – Rs 13
  • Taj Expressway – Rs 394
  • Jaypee Greens – Rs 28

On the back of value in its sum of the parts, which includes option value for full development of Taj Expressway implies upside of 47% from current levels.

DSP Merill Lynch also said, raised Price Objective to Rs1,530 from Rs985 based on the value creation across businesses.

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