Recommendation: Buy
CMP = Rs 1,655
Price target: Rs 2,000
Key points:
- Jaiprakash Associates (JP Associates) has started bookings for the residential complex that is being developed on the first parcel of its land at Noida. The initial response to the bookings appears to be very strong, as the average rate stands at Rs 6,000 per square foot.
- According to media reports, ICICI Venture Funds Management is planning to invest about USD800 million (Rs 3,148 crore) to pick up a stake in Jaypee Infratech, which is a unit of the Jaypee group's listed entity, JP Associates.
- Last week, Formula One Chief Executive Bernie Ecclestone confirmed that it would be holding the first ever Formula One grand prix in the National Capital Region,
- JP Associates has approved a stock split of its Rs 10 share into five shares of Rs 2 each. In Q2FY2008, JP Associates reported a net profit of Rs 104 crore, registering a growth of 16% year on year (yoy).
- The company's overall revenue grew by 11.9% yoy to Rs 860 crore on the back of a 13% year-on-year (y-o-y) growth in the construction revenues and a 7% y-o-y growth in the cement revenues.
- Considering the increase in the benchmark cement valuations from USD80 to USD100-110 per tonne, we had revised our price target to Rs 1,350 per share. At that time, we had not factored the value of the coal mines, the power project and the remaining 5,000 acre of land the government would be allocating to the company over the next couple of years. Thus, JP Associates makes a strong case for value unlocking for the investors.
- I believe that as and when the investors get more clarity on the development of the company's land, the stock will get re-rated, as has happened in the past six months. Also, the Formula One deal will be a major trigger for the company in the future.
- I recommend buy option for JP Associates at Rs 2,000 per share.
