| Summary of Contents STOCK UPDATE Jaiprakash Associates
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs183
Current market price: Rs160
Price target revised to Rs183 Result highlights -
Jaiprakash Associates Ltd (JAL)?s Q3FY2010 earnings (after adjusting for a one-time exceptional expense related to employee stock options) were well ahead of our and street?s expectations. This was largely on account of higher than expected revenue as well as margin growth in the construction and the real estate businesses of the company. -
The revenue more than doubled (up by 114% year on year [yoy]) to Rs2,852 crore on good show by all the businesses. The construction division?s revenue, beating our estimate, were up by stupendous 130.3% yoy to Rs1,643 crore and the cement division?s revenue grew by 60.8% yoy to Rs948.3 crore. However, the showstopper for the company was the real estate business, which saw its revenue growing up by whopping 420% yoy to Rs345 crore. -
The operating profit margin (OPM) expanded by 752 basis points yoy to 27.1% on account of sharp improvement in the earnings before interest and tax (EBIT) margin of the construction division (that improved by 12.7 percentage points to 25%). The cement division?s EBIT margin stood at 24.9%?almost in line with our expectation. This led the operating profit increase by impressive 195.7% to Rs774 crore. -
The interest and depreciation outgo were higher by 120.2% yoy and 62.2% yoy respectively on account of capacity addition in the cement division. During the quarter, the company booked extraordinary expenditure of Rs211.9 crore on account of employee compensation expenses (as the company issued employee stock options). This led the Q3 reported profit decline by 38.9% to Rs103 crore. However, the adjusted profit increased by 86.8% to Rs315 crore?well ahead of our expectations. -
We have fine-tuned our earnings estimates upward to incorporate higher than expected Q3FY2010 performance. Consequently, we have revised our net profit estimates upward, and the earnings per share (EPS) for FY2010 and FY2011 on diluted equity works out to Rs4.9 and Rs6.5 respectively. We continue to value the stock using the sum-of-the parts (SOTP) valuation methodology and arrive at a value of Rs183 per share. Though we see JAL emerging as a leading infrastructure player over the next few years, we see a limited upside in the stock from the current level based on our SOTP valuation. Hence, we maintain our Hold recommendation on the stock with a revised price target of Rs183. At the current market price, the stock is trading at 32.6x FY2010 earnings estimate and 24.8x FY2011 earnings estimate.
SECTOR UPDATE Cement Dispatches back to double digit growth rate -
Cement dispatches for December 2009 grew to 14.26 million metric tonne (MMT)?an increase of 14.4% year on year (yoy) and 14.42% quarter on quarter (qoq). The figures for the month however contain the adjusted previous years? numbers of ACC and Ambuja Cement, as the same were not available for the month. The growth in the monthly dispatch number was led by pick-up in infrastructure activity. -
The central region witnessed highest volume growth of 21.1%. The eastern and northern regions also posted impressive dispatch growth of 18.8% and 14.4% respectively. The month saw marked improvement in cement consumption in southern region with the volumes growing by 13.2% yoy and 17.7% qoq. -
Of the cement companies under Sharekhan?s coverage, India Cements emerged as a frontrunner posting robust volumes growth of 34.9% yoy to 0.9MMT. Madras Cement and Shree Cement also registered impressive volume growth of 31% yoy and 22.4% yoy respectively. Though the volume growth for top cement makers was a mixed affair on a year-on-year (y-o-y) basis, they posted double-digit growth on a quarter-on-quarter (q-o-q) basis. -
Cement prices in western and southern regions increased by an average Rs5-8 per bag (of 50 kg) due to supply shortage, as railway wagons were not available and with infrastructure activity picking up. The average cement price in Mumbai stood at Rs248 and at Rs210 in the major cities of Gujarat. Hyderabad saw cement price increasing to Rs160 from the low of Rs130 per bag. The cement prices in western and southern regions have again increased by Rs5 per bag in the second week of January (as per our recent interaction with cement dealers in the regions). However, going forward, we see cement prices coming under pressure on increased availability of wagons and stabilisation of new capacity. -
The recent increase in cement prices in the last three-four weeks coupled with improved cement off-take due to pick up in infrastructure activity is a positive for the domestic cement industry. However, we believe, this price-hike is unlikely to sustain and will come under pressure once the availability of railway wagons improve and the supply from new capacity hits the market. Going ahead, we expect the volumes to improve sequentially due to pick up in infrastructure activity. -
In terms of consumption, Central India posted highest volume growth of 21.1% yoy supported by higher consumption in Uttar Pradesh and Madhya Pradesh. The eastern and northern regions also posted strong dispatch growth in the month. The volume growth in eastern region was backed by higher consumption in Jharkhand and Orissa. The southern region saw a marked improvement in consumption with the dispatches for the month growing by 13.2% yoy and 17.7% qoq to 5.2MMT. -
The capacity utilisation improved to 87.1% in December 2009 from 78% in November 2009 while the same declined marginally on a y-o-y basis.
VIEWPOINT Zee Entertainment Enterprises Results in line with expectations Result highlights -
Zee Entertainment Enterprises Ltd (ZEEL)?s Q3FY2010 earnings are in line with street expectations. The comforting factor is that the year-on-year (y-o-y) de-growth witnessed in the advertising revenues over the past three quarters was arrested in Q3, as they stood flat on a y-o-y basis. Stringent cost controls led to a 65% y-o-y jump in the adjusted net profit despite a marginal decline in the overall revenues. -
After witnessing a 21% y-o-y decline in the first half of the year, the advertising revenues registered a marginal growth of 0.9% year on year (yoy) to Rs270.7 crore in Q3FY2010 on the back of some recovery in advertising environment, drastic improvement in the viewer ship of the flagship channel (Zee TV) and also by a subdued base quarter. -
The subscription revenues grew by 8.5% yoy to Rs246.7 crore. This was led by a 124% y-o-y growth in DTH revenues to Rs63.2 crore that helped the domestic subscription revenues to grow by a strong 28.9% yoy to Rs145.3 crore. However, the analogue cable subscription revenues de-grew by ~3%. The international subscription revenues declined by a sharp 11.6% yoy to Rs101.4 crore, of which ~6% was attributable to strengthening of the rupee, while the remaining was on account of de-growth in the collections as a result of the bad macro scenario especially in European operations. A change in accounting policy and non-existence of a few revenue constituents led the revenues from other sales and services to decline by a sharp 73% yoy. Thus, the overall revenues of the company declined by 2.7% yoy to Rs530.9 crore, which is tad lower than street estimates. -
Stringent cost controls led to a y-o-y decline in the all cost element. More importantly, the programming (content) cost was kept under check and declined by 575 basis points as percent to sales. Thus, the overall operating profit margin (OPM) expanded by 872 basis points to 29.6%. This is despite significantly lower revenues and operating loss (of ~Rs28 crore) in the sports business. Thus, the operating profit for the quarter grew by 37.9% yoy despite subdued revenues yoy. Aided by decline in the interest cost, the adjusted net profit grew by strong 65.5% yoy to Rs125 crore?in line with expectations.
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