We maintain buy on Jaiprakash Associates Ltd (JPA) but reduce our target price to R 102 per share (earlier R109) due to reduction in real estate realisation, which is in line with our sector view. We value the company at 8x EV/Ebitda multiple on FY15e Ebitda of R9,600 crore for a FY14 EV target of R76,850 crore. Subtracting our debt estimate for FY14e of R55,300 crore, we target a market cap of R21,550 crore for FY14e, which brings us to our target price.
While the cement plant sale is a marginal positive for JPA’s valuations and it would only lead to a marginal reduction in JPA’s consolidated debt, it improves visibility of further asset monetisation and the likelihood of meeting the guidance of R15,000 crore of total monetisation.
JPA’s announced sale of its cement plant to UltraTech would also include the associated land, mining reserves and a 57.5-Mw captive power plant. UltraTech would issue equity amounting to R150 crore to JPA, takeover the debt of ~R2,100 crore and pay the balance amount post the consummation of the deal to JPA.
The company has maintained its guidance of an asset monetisation program of R15,000 crore in FY14, of which, it has signed definitive agreements valued at R5,400 crore (including the Greater Noida land sale to Gaursons). Media sources indicate an addition $2 billion of asset monetisation from sale of hydro power projects on the anvil. The sale of the Gujarat plant demonstrates the focused intent of the management towards achieving the stated objectives — which we believe is critical for the stock to perform.