Jaiprakash Associates : Stock Recommendations
Infratech aims to raise Rs25 billion via a mix of an IPO and stake sale, entailing the dilution of a 15–17% stake. This would value the company at approximately Rs160 billion (vis-à-vis our estimate of Rs81 billion). The management is likely to dilute 5% of its stake though an offer for sale and the balance 10–12% through the IPO.
ICICI Bank, the lead banker for Jaypee Infratech’s Yamuna expressway project, had earlier acquired a 1% stake in the project for Rs2.5 billion and also furnished long-term debt of Rs29.5 billion. We believe the IPO will ease funding for the expressway and other businesses such as cement and power.
JPA has sold 11 million sq ft (msf) in the last seven months for a consideration of Rs30.5 billion. In all, the company has sold 17msf to date at an average price of Rs3,395/sq ft. This is likely to generate revenues of Rs60 billion over the next three years. With an improving real estate environment, we have brought forward our timeline for sale of the Yamuna expressway land parcels totalling 68msf to 2019 from 2022. We now value the Yamuna expressway including real estate assets at Rs55/share from Rs51/share previously, after accounting for the negative NPV of Rs20 billion on the expressway.
Valuing portfolio
We value the company’s power portfolio of 6,820MW at Rs75/share based on DCF (implied P/BV of 1.3x), as against Rs 71/share earlier based on market cap. Maintaining our cement and construction valuations unchanged, we have an SOTP target price of Rs243 for JPA from Rs 231 earlier.
We believe JPA has considerable embedded value considering its growing power portfolio, reviving real estate prospects and rising infrastructure activity in India over the next few years. The sale of treasury shares and securitisation of power projects have eased funding constraints while the Jaypee Infratech IPO could unleash significant value. The company is thus well placed to capitalise on its long-term plan of becoming a large infrastructure conglomerate over the next few years. We maintain our HOLD rating on JPA.
Source Live mint
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