Result highlights
- Q4FY2013 earnings below estimate: In Q3FY2013, Jaiprakash Associates (JP Associates) posted a net profit of Rs123.5 crore (a decline of 56.5% year on year (YoY), which was below our estimate of Rs131 crore. The decline was on account of lower than expected revenues and profitability in its construction division. Further, the effective tax rate of 32.5% came higher compared with our estimate of 25%.
- Real estate division supports the revenues; cement and construction divisions offset the benefit: The revenues from its real estate division increased by 14.3% YoY to Rs641 crore (better than our estimate) supported by a volume growth in the sale of residential properties and land parcel. However, the cement division, which constitutes over 40% of the overall revenues, registered a revenue decline of 3% YoY (on account of a drop in the volume by 7.1% YoY). Further, the revenues from its construction division also declined by 13.4% YoY on account of a slower than expected execution of projects. Hence, the overall revenues of the company declined by 4% YoY to Rs3,864 crore.
- OPM contracted YoY and sequentially: On the margin font, the operating profit margin (OPM) for the quarter contracted by 241 basis points YoY and by 42 basis points quarter on quarter (QoQ) to 22%. The margin contraction was on account of a decrease in the profitability of its construction division (earnings before interest and tax [EBIT] margin of 19.1% as against 23.9% in Q4FY2012) due to a change in the revenue mix in favour of the less profitable projects. In addition to the construction division, the real estate division of the company also witnessed some margin pressure with a correction of 12 percentage points in its EBIT margin. However, the cement division displayed a 107-basis-point-improvement in its EBIT margin on account of an increase in the average blended realisation by 4.4% YoY. Consequently, the operating profit of the company declined by 13.5% YoY to Rs851 crore.
- Higher depreciation charges and tax outgo dent earnings: The depreciation charges increased by 16.5% YoY to Rs191 crore. Further, though the interest cost declined by 5.3% YoY to Rs549 crore, it came higher than our estimate. During the quarter, the effective tax rate surged to 32.5% (higher than estimate) as compared with just 9.3% in the corresponding quarter of the previous year. Hence, on the net profit level, the company posted a decline of 55.7% YoY to Rs123.5 crore.
- Earnings estimates downgraded for FY2014 and FY2015: We are downgrading our earnings estimates for FY2014 and FY2015 mainly to factor in the lower than expected revenue growth and profitability in the construction division. Also, we have lowered our volume growth estimate in the cement division. Consequently, our revised earnings per share (EPS) for FY2014 now stands at Rs3.4 per share and that for FY2015 works out to Rs4.3 per share.
- Maintain Buy with revised price target of Rs95: We continue to like JP Associates due to its diversified business model and an aggressive expansion plan. The near-term trigger in the stock will be the likely sale of its stake in the Jaypee Cement Corporation as it will de-leverage the balance sheet of JP Associates to some extent. In terms of valuation, we continue to value the stock using the sum-of-the parts (SOTP) valuation methodology and arrive at a revised price target of Rs95 per share. We maintain our Buy recommendation on the stock.
- Updated At 3:03 Pm 8/MAY/Delhi/India
