Recommendation: Buy
CMP = Rs 424
Price target: Rs 484
Result highlights:
- Jaiprakash Associates' (JP Associates) net sales for Q3FY2008 stood at Rs 900 crore, down 0.2% on year-on-year (y-o-y) basis. Operating profit margin (OPM) for the quarter was at 24.8% against 26.8% during the same quarter last year. The OPM contracted mainly due to lower revenues and higher total expenditure, which went up 2.6% year on year (yoy).
- Other income shot up by 251.7% yoy to Rs 102 crore mainly on account of dividend received from Jaiprakash Hydro Power Ltd. Profit after tax (PAT) was up 53% yoy at Rs 156 crore on account of higher other income and lower tax rate, which was 20% for Q3FY2008 compared with 35% for the corresponding period last year.
- At the current market price the stock is trading at 75x its estimated FY2008 earnings and 74x its estimated FY2009 earnings. Though this appears to be over stretched, it should be noted that the company has huge value in its subsidiaries, investments and large build, operate and transfer (BOT) projects.
- I have revised price target on this scrip to Rs 484. The revision is driven by the higher than expected valuations of its power generation subsidiary, Jaiprakash Power Venture Limited (JPVL) including the value of JP Associates’ holding in Jaypee Hotels and Malvika Steel.
- I maintain Buy call on the stock with a fair value of Rs 484.
