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Jaiprakash Associates (Buy CMP 83 TGT 151)

Earnings marginally below estimate on slow project execution in construction division: Jaiprakash Associates Ltd (JAL) has posted an adjusted net profit of Rs232.6 crore (declined by 26.1% on year on year [YoY] basis) in Q3FY2011, which is marginally below our expectation on account of lower than expected revenue from its construction division.

Overall revenue remains flat YoY, real estate & cement division shine: JAL’s revenues grew by just 0.5% YoY to Rs2,893.7 crore in Q3FY2011. On a segmental basis, the cement division delivered a strong revenue growth of 30.5% YoY supported by a strong volume growth of 32.8%.

We continue to value the stock using the sum-of-the parts (SOTP) valuation methodology and arrive at a valuation of Rs151 per share. We maintain our Buy recommendation on the stock with a revised price target of Rs151. At the current market price, the stock is trading at a price earning (PE) of 20.8x FY2011 and 16.7x FY2012 estimated earnings.