Jaiprakash Associates (JPA) reported 2Q14 results below our estimate mainly on account of lower cement margin. High other income and higher margin in construction and real estate businesses helped offset the sharp decline in cement margin. We cut our consolidated earnings by 14%/8% for FY14/15E on account of lower cement margin assumptions. We maintain Underperform (UP) on Jaiprakash Associates shares with target price of Rs 38.
Cement to see sharp decline in margin: 2Q14 cement Ebit/T declined 53% y-o-y to R160. Cement Ebit margin declined 500bps y-oy to 4.7%. 1H14 cement EBIT/T is at R303/t (down 26% y-o-y) versus our estimate of R490/t for FY14. Central and east India (which contribute 60% of JPA?s capacity) will add more than 20MT of capacity in the next 2 years (50% of incremental capacity addition across India). Also, Reliance cement has commissioned 5MT capacity in central India. This should further widen the demand supply gap in these regions.
Maintain ?underperform?. We continue to highlight that ours and consensus earnings have downside risk with cement margin under pressure.
