JP Associate Report

JP Associate Target 350+

Jaiprakash (JAIA.BO)
Buy: India’s Infrastructure Capex Play at Stress-case Valuation
 Target price cut to Rs300 — We are cutting our target price to Rs300 from
Rs462 to factor in (1) an EV/EBITDA of 12.0x (16.0x previously) for
Construction; (2) an EV/ton of US$120 (US$160 earlier) for Cement; (3) Jaypee
Power at a 60% discount to P/E valuations as we no longer value projects in the
initial planning stages; and (4) a 14% cut in realizations/sq ft for Jaypee
Infratech. We maintain our earnings estimates.
 Stock looks compelling... — After a 50%-plus correction, the stock is close to
our stress-case value of Rs196.
 ...because — In 5 years JPA will be: (1) the third-largest cement company in
India by capacity; (2) one of the largest landbank holders in India; (3) a power
capacity holder of repute with a coal mine; (3) an E&C company without
dependence on external orders to grow; (4) a road asset holder with
expressways totaling 1,212km; and (5) an executor of India’s first F1 project.
 Risks factored in — Our target price of Rs300 factors in (1) executions risks,
(2) capital risks, (3) interest-rate risks, and (4) de-rating of various sectors in
which JPA operates given current market conditions. The underlying
businesses remain intact and are not under stress, in our view.
 Business value, not P/E value — Our view is based on business valuations, not
private-equity valuations, which is evident from the fact that we value (1)
Jaypee Power Ventures at a ~60% discount to P/E valuations, and (2) Jaypee
Infratech at a ~37% discount to P/E valuations.