We maintain our ‘add’ rating on Jaiprakash Associates (JPA) and target price of R44 after the company sold its 74% ownership in the cement JV with SAIL. We will review the same after incorporating the effect of the current transaction.
Our back-of-the-envelope calculation suggests the current deal may accrue up to R4/share to our fair-value estimate. The current asset sale marks the third such transaction by JPA after it sold its cement assets in Gujarat to Ultratech for R3,800 crore and power assets under JPVL for R10,000 crore.
The company has entered into a share-purchase agreement to sell its 74% ownership in Bokaro Jaypee Cement for R700 crore to Dalmia Cement (Bharat). The sale implies an enterprise value of R1,200 crore ($96 per tonne) considering the R300 crore of debt outstanding as of March 2013. The Bokaro facility has an extant capacity of 2.1 mtpa, which contributed revenue of R630 crore and PAT of R140 crore in FY13.
The facility was operating at 59% utilisation due to shortage of slag on account of lower steel production by the associated facility of SAIL (minority holder in the Bokaro cement plant).
In our view, JPA debt stands tall and more cement assets may be up for sale. The company has a consolidated debt of R56,000 crore with interest cost of R4,600 crore in FY14e, feebly supported by operating profit of R6,300 crore.
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